A proposal to combat insider trading by reducing the disclosure timeframe for directors from 14 to two days is unnecessary regulation of an area already well protected by the continuous disclosure rules, according to Chartered Secretaries Australia.
A proposal to combat insider trading by reducing the disclosure timeframe for directors from 14 to two days is unnecessary regulation of an area already well protected by the continuous disclosure rules, according to Chartered Secretaries Australia.
The full text of an announcement from the peak body is pasted below
The government's proposal to combat insider trading by reducing the timeframe for directors to disclose trading in the securities of their companies from 14 to within two days of the transaction represents heavy-handed regulation of an area already well protected by the continuous disclosure rules, says the peak body for governance professionals, Chartered Secretaries Australia.
According to CSA, the interests of market integrity and fair access to information are already enshrined in the continuous disclosure rules which oblige company boards to immediately disclose price-sensitive information in their possession, including any change in a director's holdings if this could affect the value of shares.
"Under the continuous disclosure rules, directors must disclose any price-sensitive share transactions as soon as they are made. The irony is that the proposed rule falls short of that protection as it could give directors a two-day extension and in the case of a material shareholding change that will shake the market, this is two days too late, in our view," said CSA's Chief Executive, Mr Tim Sheehy.
CSA believes that the continuous disclosure rules properly regulate price-sensitive disclosures. Where non price-sensitive shareholding changes are concerned, CSA considers that an appropriate disclosure timeframe would be achieved by aligning the proposed change to the Corporations Act with the five-day time limit currently prescribed by the ASX Listing Rules.
Mr Sheehy also noted that the proposed two-day time limit was unworkable in certain scenarios such as share incentive schemes, where a five-day window was a more reasonable time for directors to notify of shareholding changes.
"Share incentive schemes are administered by trustees who acquire shares on behalf of directors. The directors are often not made aware of such trades for at least two to three days afterward. Trades like these do not affect the market value of the shares, yet directors would be in breach of the proposed law despite being unable to meet the two-day deadline," said Mr Sheehy.
Mr Sheehy also added that the five-day timeframe under the ASX Listing Rules had been carefully designed to accommodate accepted securities industry practice of three-day post-transaction settlement, an important factor ignored by the proposed change to the Act.
Overall, CSA supports the government's efforts to tighten the insider trading regime and welcomes the latest round of consultation in relation to the Department of Treasury's Position and Consultation Paper on Insider Trading.
"However the government's acceptance of a new two-day time limit for directors' disclosures is misguided and should be rejected," said Mr Sheehy.
