ASIC’s review of allocations in equity raising transactions has highlighted areas of improvement for both financial services licensees and issuers when raising equity on listed markets.
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:
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.”
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