ASIC has released Regulatory Guide 264: Sell-side research, which acts as a warning to analysts who produce reports for capital raising transactions.
Sell-side researchers provide information to investors about unlisted companies that are looking to go public.
As such, analysts on the sell-side are privy to knowledge that could constitute inside information, ASIC said.
“Poor practices in handling inside information can threaten market integrity and risk contravention of the Corporations Act 2001,” ASIC said in its guidance.
“Conflicts of interest may arise when the interests of a licensee’s corporate advisory clients conflict with the interests of the licensee’s investing clients (including potential clients).
“Conflicts can also arise between the interests of a licensee’s clients (e.g. corporate advisory and investing clients) and the business interests of the licensee or the personal interests of the licensee’s directors, employees and agents.”
The business model of the licensee the sell-side analyst works for can exacerbate any potential conflicts, ASIC said.
Business practices, remuneration structures and shareholdings held by a sell-side licensee or its staff can also create conflicts, the report said.
Even a company’s physical layout can present a problem (if, for example, the research staff sit in close proximity to the brokers selling a client’s stock in an IPO).
ASIC commissioner Cathie Armour said, “The timely flow of information and objective research analysis is vital to fair and efficient markets. Investors consider sell-side research when making investment decisions. It is critical that sell-side research represents the genuine, professional opinion of analysts.
“Wholesale investors want early information and analyst insights on companies undertaking capital raising.
“Firms that manage this process must manage the conflicting interests of their issuing and investing clients when preparing investor education research. It is important that this deal-related research does not undermine the prospectus disclosure or continuous disclosure requirements.”
