According to a report released yesterday, the corporate regulator, ASIC reckons integrity is getting better and insider dealing was not as noticeable last year as in a couple of previous years.
But the same report also revealed there is still some dodgy trading going on, especially ahead of mergers and acquisitions announcements, unscheduled announcements; with the most affected being small-cap companies in the materials sector
The Commission said in the report that instances of abnormal price movements and unusual trading patterns ahead of material announcements are declining.
The review found that after deteriorating in 2016, market cleanliness improved over the next two years, returning to levels seen in 2015. ASIC defines a ‘clean’ market as one where prices ‘react immediately after new information is released through the ‘proper channels’.
ASIC said “there was more suspicious trading before merger and acquisition announcements than other announcements…announcements by smaller companies were more likely to be unclean. Many of these smaller companies were in the materials sector.”
The overall cleanliness of the market fluctuated between 2015 and 2018—despite a deterioration in 2016, market cleanliness improved in 2017 and 2018 to settle around 2015 levels, according to ASIC.
ASIC Commissioner Cathie Armour said ‘Markets cannot operate with a high degree of integrity if people trade with inside information. We expect all parties involved in mergers and acquisitions to put in place meaningful confidentiality controls at the start of a transaction – and make sure the controls are rigorously followed. Controls for some small-cap companies are clearly lacking and need to be tightened.’
In the three years to 2018, ASIC said on average 0.6% of accounts that traded before material price-sensitive announcements were deemed suspicious. While the percentage of suspicious accounts remained stable during the period, ASIC found that the volumes traded by these accounts increased.
ASIC said there was a greater instance of suspicious trading before merger and acquisition announcements than other market-sensitive announcements, and before unscheduled announcements.
Small companies in the materials sector were the most likely to have suspicious trading.
“We aim to increase our monitoring of brokers with high concentrations of anomalous order flow and clients, or groups of clients, that exhibit repeat patterns of anomalous trading,” ASIC said in a statement.
“Our findings complement independent research released in 2018 by Intralinks and Cass Business School. The study found Australia was the cleanest market over the last decade among a sample of major markets.
“Going forward, ASIC will use historical trading behaviour before material announcements to enhance our market supervision work and inform our regulatory priorities,” Ms. Armour said yesterday.
