New rules under consideration by the ASX to implement share trading blackout periods will increase increase market speculation, not decrease as the rule is hoped.
While the new proposed Listing Rule on company trading windows and blackout periods will go a long way to curb perceptions of market manipulation, the proposal to disclose trading in all prohibited periods could have the opposite effect and set market tongues wagging long before disclosure is required or indeed desired.
In its submission to the ASX Regulatory and Public Policy Unit on the proposed new Listing Rule, Chartered Secretaries Australia (CSA) makes the point that there can be legitimate reasons why a director might need to trade in a company’s prohibited period that is separate from its results blackout periods i.e. those periods when deals are underway but not yet discloseable to the market.
CSA recommends that a company should have a trading policy that clarifies what constitutes a legitimate reason for any director or executive to trade in such a prohibited period, but that this should not extend beyond genuine financial hardship or a court order.
“In a robust continuous disclosure regime that hands out heavy penalties for non-disclosure of materially sensitive information, if a director discloses trading activity outside the traditional results prohibited period, the market is going to ask why,” CSA’s chief executive Mr Tim Sheehy says.
“The fact that a director is trading in a company-specified prohibited period other than the results blackout period, to meet genuine and personal financial obligations, could set in a train a whole lot of speculation as to what the company is up to — is a deal in the wind?.
“That is a significant and dangerous unintended consequence of the proposed new Rule.
“It will drive, not curb, market speculation, which in turn could set in train ill-founded rumours that are not in the best interests of the market, the company or shareholders,” Mr Sheehy said.
