INVESTORS URGED TO KEEP DIRECTOR TRADING REVIEW IN PERSPECTIVE

Date: 30/06/2008

Title: Investors urged to keep director trading review in perspective

Type: Media & Communications: Media Release

Abstract:

The Australian Institute of Company Directors (AICD) today urged investors to keep the results of ASX’s review of directors’ trading in perspective, as interest groups have sought to discredit directors by drawing conclusions without complete consideration of the regulatory framework governing share trading practises and the fiduciary duties of directors.

As the peak body promoting professional directorship, AICD has long advocated that where directors are found to have broken the law by trading with the benefit of inside information, regulators should take the appropriate enforcement action. Non-compliance with disclosure requirements is also unacceptable, but breaches should be reviewed on a case-by-case basis.

“Regulators need to be vigilant and act forcefully and without delay when they have evidence that inappropriate trading activity is occurring,” AICD chairman, Mr Story, said. “To that end, we welcome the undertakings from ASX and ASIC that late disclosure and suspect trades will be investigated.”

However, AICD is concerned that investor confidence in directors and the market is being undermined without due cause, as late disclosure and trading in black-out periods has been mistakenly confused as evidence of actual insider trading.

For example, late disclosure may be as innocuous as inefficient administrative processes.

AICD believes it is important to note that the governance framework of trading windows and black-out periods was adopted before Australia’s continuous disclosure regime was introduced. Today, it is no longer adequate when analysing director share trades to ask whether a trade occurs within a window or a black-out. Rather, the essential question is whether the director traded with access to price-sensitive information which had not yet been disclosed to the market.

“Continuous disclosure has brought much greater sophistication to our market. Directors are very careful to ensure that all price-sensitive information is disclosed to the market in accordance with ASX Listing Rules,” said Mr Story.

“It is also a focus of companies to ensure that market expectations reflect results announcements, as the consequence of surprising analysts through poor disclosure is punishment to the company’s share price.”

AICD does not condone or seek to justify inappropriate behaviour, but it does not accept that late disclosure or trading between books-close and results announcements is evidence of insider trading.

“On a careful reading of the ASX report, we do not believe that the claims of widespread criminal activity are justified,” Mr Story said.

“If it is established that directors are using their position for personal gain by trading with the benefit of inside information, it is a breach of the director’s fiduciary responsibilities and this should be penalised by regulators accordingly.”

As Australia’s membership institute for directors, AICD strongly encourages directors to comply with existing laws and regulations, ensuring that they are fulfilling their responsibilities as directors and maintaining the trust of the investment community.

For media inquiries, please contact:
Juliet Chandler, Communications Advisor
(02) 8248 6624 or 0412 580 402

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