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Insiders have the running, alas

ASIC's new examination of leaks, spin and insider briefings confirms that the local market leaks like a sieve. The fact that other markets do too is cold comfort.

ASIC sat in on analyst briefings, and says in its report that it saw no evidence of selective disclosure of market sensitive information. It didn't attend many meetings, however, and my colleague Georgia Wilkins uncovered another issue. Did the companies and the analysts they were briefing know that ASIC was in the room? Yes. Might they have adjusted their behaviour? Yes.

ASIC says its sample of meetings was too small to deliver a firm conclusion. Analysts were competitive, it said. They might try to get unreleased market-sensitive information, and might pass it on if they succeeded. Some companies had rules for briefings, some did not. Those that had rules didn't always appear to follow them.

ASIC says it will therefore conduct more research, and work with companies, industry groups and others to improve the disclosure regime. The conclusion former ASX chairman Maurice Newman reached last year when he reviewed Newcrest's disclosure debacle is the obvious one, however. Selective briefings are accident-prone. Listed companies should use them less, and use the ASX's announcement platform more.

ASIC also looked at market soundings - calls brokers put in to big investors to see if a share issue will be supported.

The risk of a leak rises as calls are made, and ASIC says share prices fall when soundings occur. It wants fewer soundings and fewer people called, but there's no easy fix.


Companies are reluctant to launch issues without testing the market. If they are forced to launch issues untested, underwriting fees and the cost of capital will rise.

ASIC also looked at deliberate leaks, including what it calls strategic leaks. That's information intentionally leaked, usually through the media, with the aim ensuring the success of a deal, or managing the impact of a coming announcement.

Here the regulator obtained a meaningful sample, 40 takeovers and 40 share issues between July 2006 and March 2013, and its findings will probably shock investors.

Between July 2006 and June 1010, no less than 45 per cent of takeovers and 35 per cent of share issues leaked ahead of formal announcements. Takeover leaks fell to 20 per cent after June 2010 following the publication of new guidelines, but leaks about share issues rose, to 40 per cent.

As ASIC noted, overseas markets leak, too. The leak rate in London over the same period was 50 per cent for both takeovers and share issues. Half of the takeovers announced in Canada leaked, although interestingly not to the media.

In Hong Kong, 20 per cent of takeovers leaked to the media, but there were no leaks about share issues. ASIC also notes that strategic leaks almost always occur when a company's shares are not trading: Monday morning is a favourite time.

Off-market trades are possible, however, and all the companies and advisers that ASIC spoke to said they had rules against leaking. Those rules are being ignored. If ASIC wants to end leaks it will need to do more than just warn those involved to lift their game, as it is doing now.

Eye on OzForex

OzForex's tight float was rushed last October. The shares sold for $2 each, and rose almost 30 per cent on day one. They were $3.27 on Monday, but the currency exchange group's March year result on Tuesday pushed them almost 20 per cent lower, to $2.62.

OzForex actually beat its March year prospectus earnings forecast. It was the way it did it that triggered the selloff. Net operating income was $72.5 million compared with a prospectus forecast of $68.2 million, but new foreign exchange customer numbers were 10.8 per cent below forecast, albeit 38 per cent up on a year earlier.

Transaction numbers were 4.9 per cent below forecast, and softer new customer numbers resulted in promotion costs per new customer coming in 22 per cent higher than expected.

Net income beat the prospectus forecast because OzForex's average transaction value rose by 18 per cent to $23,400. Total transaction turnover was 8.2 per cent above forecast.

The group says it is on track to hit its September half year earnings target, but it is assuming that average transaction values stay up, and that is where the uncertainty lies.

Transaction values benefit in $A terms from a weaker Australian dollar, and are rising as OzForex expands offshore.

The group also said however that it had done less ''white label'' or unbranded transactions than expected through its partnerships with UK-based Travelex and US-based MoneyGram. That bears watching, and average transaction values also rose because a high volume, low margin client in the travel sector departed: investors will hope that was a planned move.