The review underscored the potential impact of conflicts of interests in allocation decisions after a review of large and mid-sized licensees found a range of discretionary factors in allocation recommendations.
The purpose of the review was to understand current practices in how allocation processes are managed and decisions made, as well as to identify areas of concern.
ASIC found a range of factors were taken into account including objectives of the transaction, investor types and investor bidding into the bookbuild.
The issuer’s objectives should be the primary driver of allocation recommendations said ASIC’s commissioner Cathie Armour.
“The fair and efficient allocation of securities in equity raising transactions promotes market integrity, improves market efficiency and increases investor confidence,” she said.
Ms Armour said that licensees had an important responsibility to manage issuers transactions and needed to be aware of how to manage conflict.
“The licensees appointed to manage these transactions for the issuer must appropriately manage conflicts of interest and confidential information about transactions.
“Otherwise, there is a risk that a breach of financial services laws may occur. This may include misleading and deceptive conduct, breaches by licensees of their general conduct obligations, insider trading and market manipulation,” she said.
ASIC made a range of recommendations on improvements that licensees could make which included:
- improving the documentation, accuracy, timing and delivery of messages to investors during equity raising transactions
- Engaging with issues at various stages during the transaction to promote an active interest in the allocation process
- Review the adequacy of their allocation policies and procedures, compliance arrangements and record keeping
- Avoiding allocations to connected persons; and
- Identifying and managing potential conflicts of interest when making allocation recommendations by doing things like disclosing conflict to the issuer with an explanation of how it is being managed.
Ms Armour said ASIC would continue to monitor selected transactions to test that allocation decisions are consistent with financial services laws.
“All licensees should review this report and consider whether their controls for the allocation process in equity raising transactions – including policies, procedures and monitoring – are appropriate and sufficiently robust to meet legal and regulatory requirements.”
