ASIC has accepted an enforced undertaking from boutique investment banker Foster Stockbroking after its associates failed to disclose conflicts of interest during an IPO.
Following an investigation, ASIC found that that directors from Foster Stockbroking, which had been the sole lead manager for an initial public offering of small cap technology company Reffind Limited in 2015, had scaled back subscription bids of its directors “disproportionately less” than that of other investors and had failed to fully disclose the shares allocated to its directors.
“ASIC is concerned that by FSB giving preferential treatment when allocating shares to its directors that it failed to adequately manage conflicts of interests,” the statement said.
In addition, ASIC also found the research report about Reffind had been written by FSB’s head of investment banking, who held a corporate advisory role with the technology firm.
The corporate regulator also found that he, and other FSB directors, failed to adequately disclose their holdings in the report, and that statements in the report relating to FSB’s objectivity were “potentially misleading”.
“ASIC is concerned that conflicts between the commercial and personal interests of FSB and its directors and the interests of FSB's clients to receive independent and objective research were not appropriately managed by FSB in relation to the report,” the statement said.
ASIC commissioner Cathie Armour said meeting standards was necessary for investors to have confidence in the integrity of financial markets.
“ASIC considers the process of allocating securities by stockbrokers in capital markets raisings should be efficient, honest and fair, and the publication by those stockbrokers of sell-side research on securities should be independent and objective,” she said.
As part of the undertaking, FSB has agreed to appoint an independent expert who will oversee a number of changes to be implemented including adequate disclosure of the interests of its research analysts; new disclosure procedures requiring consent from an issuer; and longer ‘restricted trading’ periods whereby directors and staff cannot trade in certain securities, among other things.
FSB will also pay $80,000 to The Ethics Centre as a community benefit payment.
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