06/08/2009 - 00:00

Director dealings under regulatory spotlight

06/08/2009 - 00:00

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THE release of a report recommending tougher regulations concerning insider trading and director share trades has prompted an outcry from a group protecting directors' interests.

Director dealings under regulatory spotlight

THE release of a report recommending tougher regulations concerning insider trading and director share trades has prompted an outcry from a group protecting directors' interests.

This week, the federal government's key corporate law adviser, the Corporations and Market Advisory Committee, released its 'Market Integrity' report, which made final recommendations on current corporate governance standards.

The 176-page report follows a process started in November last year when the government asked CAMAC to investigate four key areas of market regulation in the wake of the global financial crisis.

Of particular concern to the government was the role margin lending played in events such as the collapse of Opes Prime and the spreading of rumours and short selling that targeted specific companies.

The government also requested CAMAC investigate so-called 'blackout' trading by company directors.

In its report CAMAC, which accepted submissions from a variety of industry participants, recommended a ban on directors trading shares in the blackout period, such as in the time between the close of books and the release of financial results, when directors could hold privileged information

CAMAC also recommended directors disclose their margin loans and, as a matter of best practice, have share trades cleared by the board.

"While they [directors] should not be prevented from entering margin lending or other loan arrangements as such, a clearance procedure should apply, having regard to possible conflicts of duty and other problems that can arise where securities of the company are used as collateral," CAMAC said.

The recommendation prompted an outcry from the Australian Institute of Company Directors, which said directors would be taking on greater risk if they invest and had substantial company holdings should the ban be implemented.

"The consequences of this are likely to be a reluctance of directors to hold shares - certainly not in the current quantities that many do," AICD chief executive John Colvin said.

CAMAC also recommended a further tightening of insider trading provisions so they applied to lenders and borrowers under margin lending and other financial arrangements.

The report also proposed civil penalties replace criminal prosecution, making it easier for the Australian Securities and Investments Commission to prove market manipulation.

It also said that phone tapping would be a boost in the "regulatory armoury" but stopped short of backing ASIC's proposal to be allowed to intercept calls and text messages.

Currently ASIC can request the federal police to intercept calls on its behalf in suspected serious cases.

CAMAC has also recommended a tighter protocol for checking information in briefings to analysts and making it more accessible, suggesting the internet should be used more.

The report will be considered by the federal government. A spokesperson for Corporate Law Minister Chris Bowen told WA Business News a response would be made in due course.

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