Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today announced that the Government has 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.
"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," said Minister Sherry.
"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.
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 30 June, 2009.