Some would say "not before time" as the federal government moves to investigate whether the Australian stockmarket is fully informed and transparent.
Last week it revealed plans to tighten the rules of short selling and to increase controls over rating agencies.
Now it"s commissioning research to look at the role of analysts" briefings, the usefulness or otherwise of so-called black out periods for company directors" trading and disclosure of margin lending by company directors.
Now Senator Nick Sherry, Minister for Superannuation and Corporate Law, announced yesterday that the government had commissioned the Corporations and Markets Advisory Committee to review a range of market practices with a view to further enhancing the integrity and transparency of the Australian market.
These include the use of margin lending by company directors, "blackout" trading by company directors, the spreading of false rumours and the potential disclosure of market sensitive information at analysts" briefings.
"The Rudd Government places a premium on a well-functioning and transparent financial market that keeps Australia at the forefront of global best practice," he said in a statement released yesterday after a speech at the National press Club in Canberra.
"The effects of some of market practices have been seen in recent Australian market volatility.
“The impact of directors margin lending and rumourtrage need to be understood and the laws changed if needed – this is about market integrity and investor confidence," Senator Sherry said.
"For instance, there may be a significant adverse impact on the market price of a company"s shares where a director is required to sell off large parcels of shares as a result of a margin call.
"Concerns have been expressed about the adequacy of disclosure to the market of directors" margin lending arrangements and uncertainty remains as to the nature of directors" obligations to disclose both to their boards and to the market – we need to clear this up once and for all," said Minister Sherry.
"The practice of "blackout" trading, which is when directors trade in their own company stock despite their own company rules prohibiting trading at that time, is currently not against the law.
“These blackout periods generally occur before the release of annual or half-yearly results.
"Research has found a very significant lack of compliance with regard to rules around trading in the "blackout" period. This is unacceptable and makes a mockery of the rules restricting such trading," Minister Sherry said.
"On the issue of false rumours or "rumourtrage", concerns have been raised amid recent market turbulence that some market participants, here and overseas, may have spread false information to deliberately drive down a particular company"s share price.
"In light of the concerns raised, it is appropriate to review the regulatory regime governing such rumours and market manipulation, with specific focus on the spreading of false information," said Minister Sherry.
"Finally, the Committee has been asked to examine the issue of the disclosure of price sensitive information at closed company briefings.
"There are concerns that confidential briefings are being provided to analysts which create the perception that some analysts have access to critical information that is not available to other analysts, shareholders and the general public.
"I want to have a good look at this to ensure that no one is being systemically and unfairly advantaged, especially compared to ordinary shareholders," Minister Sherry said.
He said that in order to assist the completion of this project, the government has approved a grant of $100,000 to fund the CAMAC investigation. CAMAC is to report its findings to government on these matters by June 30 next year.
In his speech at the National Press Club, Senator Sherry had this to say about the three areas:
Directors" interests in listed securities and margin lending
Margin lending plays an important role in the market. It facilitates investors" access to finance and their ability to pledge assets as security.
Margin lending can provide a means of facilitating the acquisition of meaningful shareholdings by directors, which may contribute to the alignment of directors" and companies" interests and act as an inducement to good performance.
However, following financial market events in early 2008, it has been suggested that there may be a significant adverse impact on the market price of a company"s shares if a director is required to sell large parcels of shares as a result of a margin call.
Whilst it"s not appropriate for me to point to particular companies, we saw this issue play out in several high profile examples earlier in the year.
In particular, concerns have been directed at the level of disclosure to the market of margin lending arrangements.
Australian Securities Exchange (ASX) rules provide that, once a company becomes aware of information concerning itself that a reasonable person would expect to have a "material effect" on the value of the company"s stock, the company must immediately inform the market.
Despite this, a degree of uncertainty remains as to the nature of directors" obligations to disclose margin loan arrangements to their boards, and the obligations of companies to then disclose margin loan arrangements to the market.
Better disclosure to the market would improve the ability of market pa
