Should regulators attend analyst briefings?

R Sivanthy from the Business Times (Singapore) wrote the article "Regulators should attend analyst briefings" on July 12, 2013.


"Analyst briefings are interesting affairs from the regulatory standpoint because there's plenty of scope for material information to be selectively disclosed, information that could then be used by recipients to gain an unfair advantage over others in the market.

However, most regulators take the view that unless it can be proven that company secrets are routinely revealed to the select few who are invited to attend, no specific regulations are needed to police such events. Though this has not been explicitly stated, it might be presumed that the thinking is that the costs outweigh the benefits.

Over in Australia, the Australian Securities and Investments Commission (ASIC), which is the non-profit maximising primary market regulator, disagrees. Last week its commissioner Cathie Armour announced that ASIC will selectively sit in on analyst briefings to observe what actually goes on at these events and to see for itself whether its disclosure rules are being followed.

This comes in the wake of a recent scandal involving an Australian Stock Exchange-listed firm named Newcrest Mining, which allegedly held selective meetings between analysts and its management in the days leading up to a massive profit downgrade.

These allegations emerged after analysts at six investment banks issued downward revisions to their 2014 estimates a few days before the company issued a statement lowering its 2014 guidance.

"This is about raising the standards the gatekeepers (company managers and investor relations teams) operate by," said Ms Armour. "Part of the exercise is to test whether we are comfortable with current practice."

It is the second time since 2008 that ASIC is probing the way company management interacts with the investment community. The first instance only involved the regulator listening in on phone conference calls. This time though, regulators will physically be present at briefings that typically come after results have been announced.

The ASIC move has plenty going for it. In a disclosure-based regime, the onus is on companies to ensure all relevant information is made known to everyone at the same time, and that no party or parties should have access to privileged data that could enable an unfair profit to be made. So, having a regulator present when corporates meet with their investors or the broking community must surely mean that everyone will be on their toes and all stops would be pulled out to ensure the rules are followed.

Of course, cynics might argue that there is still ample opportunity for inside information to be passed on outside of formal meetings - a simple phone call or SMS, for example, would suffice. This is true but at least the ASIC move is a useful deterrent, a better-than-nothing step in the difficult fight to ensure a level playing field.

If ever the Singapore Exchange (SGX) were to consider adopting the Australian example, it should go further and extend its surveillance not just to post-results briefings and informal broker/manage- ment meetings but also roadshows and other promotional presentations conducted by broking firms to cultivate interest in particular companies.

It is safe to assume that stockbrokers which organise roadshows invariably hold stakes in the companies they promote. After all, none of them would host roadshows out of kindness, and so there is infinite scope for inside information to be quietly passed on at these events.

The exchange should therefore scrutinise how these gatherings are organised and advertised, and perhaps draw up guidelines for brokers and listed companies since experience has shown that, sometimes, even knowing in advance the names of participating firms is material information that can be used for unfair profit."


For more information about the Newcrest Mining case, for instance the following article from Financial Review:

"Newcrest downgrades ‘incredibly suspicious’: Wilson"

I like to add that I regularly visit websites of many large, international blue chip companies, and that it is completely normal for them to publish conference calls and analyst presentations on their website, to even the playing field between fund managers and retail investors.

Here is for instance the Investor Relations website from Microsoft, disclosing the webcast and transcripts of Conference Calls and BreakOut sessions. Next to that we can find the last annual report, the graph of the share price, the detailed voting at the last AGM, upcoming events, investor services, etc., all conveniently displayed.

Definitely too much work for small listed companies at Bursa Malaysia, but surely the largest say twenty listed companies can comply to this kind of standard?