Federal Govt. of Australia is going to Crackdown on director share deals and insider trading a lesson for India
CAMAC(Corporations and Markets Advisory Committee), in a 176 page report released on 30th July 2009, recommended for companies to ban their directors trading in shares during blackout periods and that the government to introduce civil penalties for market participants engaged in so-called rumourtrage, in addition to the criminal sanctions that exist.
It said the introduction of civil penalties would make it easier for ASIC to prove sharemarket manipulation offences.
The said recommendations came out after accepting submissions from a wide range of industry participants -- including corporate governance experts Regnan and RiskMetrics, academics, the Australian Securities Exchange, the Australian Securities and Investments Commission and superannuation groups.
CAMAC report encourages ASIC, the ASX and industry bodies to develop "further guidance" to companies on how to respond to rumours about them.
The proposal to force the recording of traders' telephone conversations and text messages was opposed by brokers who argued that it would impose significant additional costs on the industry at a time when revenues and profits were collapsing. So the same was scrapped.
CAMAC recommended companies disclose more of the contents of analyst briefings. The directors and executive officers should not be permitted to deal in the securities of their company insensitive blackout periods. It also proposes clearance processes and restrictions on dealings, either through the ASX Corporate Governance Council or by including it in the ASX Listing Rules. It said that if this did not work, the government should consider legislative changes.
There is a further recommendation for tightening the insider trading provisions so that they apply to lenders and borrowers under margin lending and other financial arrangements in the same way as they apply to other market participants.
In November 2008, the new Prime Minister of Australia, Kevin Rudd asked CAMAC to investigate four key areas of market regulation that hedge funds had used short selling and rumourtrage to target companies such as ABC Learning Centres, Allco Finance Group and Babcock & Brown -- particularly where directors held margin loans. The govt. was worried after the collapse of Opes Prime and was concerned with the corporate law.
The govt. became more concerned in 2008 due to the rumors that the companies including Macquarie Group and Babcock & Brown complained to the corporate watchdog.
ASIC's investigation into rumourtrage resulted in the banning of a stockbroker for 18 months for sending out emails alleging there was a run on Macquarie Cash Management Trust.
The CAMAC recommendations, if implemented by the Labour Party Govt. of Australia, will affect investors, directors, stockbrokers, traders and hedge funds.
The main thrust of the report is to reinforce good corporate practice and enhance disclosure of dealings by directors and executive officers in the shares of their company. To promotes responsibility by market participants in the dissemination of information and assists enforcement of the law against market manipulation,
The steps taken by the Rudds govt. is appreciable and very nicely struck a balance between protecting investors, and not putting onerous restrictions and regulations on directors. It will lead to better coporate governance. This reminds us the recent corporate fraud by the Satyam compnay’s directors in India. It is submitted that the Indian corporate policy makers should take reference from Australia and do overhauling of the corporate law of India.