ASX200 companies poor on disclosure

10 January 2006

| By Mike |

Seven of Australia’s major public sector superannuation funds in early November have expressed concern at the findings of research conducted by BT Financial Group. The research found that 60 per cent of Australia’s largest 200 listed companies have failed to meet basic disclosure rules relating to directors’ share trading.

What was most disturbing about the survey findings was that they revealed that directors of about 10 per cent of companies traded during the so-called ‘black-out’ period between the end of a company’s reporting period and the announcement of results.

The research also revealed that directors of 23 companies had traded shortly before the announcement of an earnings upgrade or takeover.

The BT Financial Group research was sponsored by the PSS/CSS, the Catholic Superannuation Fund, the Northern Territory Government Public Sector Scheme, VicSuper, Emergency Services Super, and the Northern Territory Policy Supplementary Benefit Scheme.

Commenting on the outcome of the research, the chief executive of the PSS/CSS, Steve Gibbs, said Australian companies still had a long way to go when it came to managing director share trading.

“The research clearly shows that not all companies are taking director share trading seriously,” he said.

Gibbs said that when directors and companies did not meet basic disclosure requirements there would always be the risk that investors suspected insider trading.

“If investors think the market is tilted in favour of insiders, they may be tempted to take their capital elsewhere,” he warned.

Gibbs said that for this reason the major superannuation funds were calling on directors to make sure they had appropriate policies in place with repsect to share trading and that such policies were enforced.

“We want companies to promptly inform the market of the reason behind major sales by directors and executives, and we want to be confident that changes in directors’ and executives’ interests are notified to the market in accordance with the law,” he said.

The key findings of the research were:

* That directors at 60 per cent of the top 200 companies did not meet the ASX listing rules requiring them to notify any change of interest within five business days.

* 47 per cent of companies did not confine directors and executives to nominated trading windows

* Late lodgement of directors’ change of interest information occurred in 15 per cent of the 2,936 notifications, ranging from a few days to more than four years late.

* Directors at 20 of Australia’s largest companies traded during the period between the end of the company’s reporting period and the announcement of results where directors and executives are likely to be privy to unreleased information regarding a company’s performance.

* Directors at 11 companies breached their company’s stated trading policy

* Shares were purchased shortly before the announcement of an earnings upgrade or takeover by directors at 10 per cent of companies.

* 10 companies where a director sold shares worth more than 1 per cent of the company’s market capitalisation did not explain to the market the circumstances within one business day.

* Three companies did not have a share trading policy.

Commenting on the survey outcome, the head of BT Governance Advisory Service, Erik Mather, said the report showed there was a significant mismatch between what companies should be doing to allay investors’ fears of insider trading and what they were doing.

“Insider trading, whether real or perceived, brings with it community, litigation and regulatory risks,” he said. “If a director sells hundreds of thousands of dollars of company securities a few weeks before the announcement of results or buys just before a take-over bid, what are investors to think?”