21 February 2008
The Editor
Australian Financial Review
1 Darling Island Road
Pyrmont NSW 2009
By email: edletters@afr.com.au
Dear Sir,
SDIA REEFUTES RAMPANT INSIDER TRADING
The Securities & Derivatives Industry Association would like to respond to claims by certain commentators on the issue of insider trading in the Australian market.
The assertion that there is a high level of insider trading in this country that is out of the reach of regulators is simply not borne out by the figures or reality. For example, in the 2007 financial year, there were 60,000,000 equity market transactions on ASX. During that year, ASX made 34 referrals of matters of concern in relation to insider trading to ASIC. This hardly suggests a market awash with insider trading.
The ASX and ASIC have poured millions of dollars into resourcing highly efficient surveillance and monitoring functions, able to detect market misconduct. We are now a leader in the field, with Australian market surveillance systems being used around the world.
SDIA is pleased that the Government is maintaining ASIC’s funding at previous levels, which will enable it to have the necessary resources to keep fighting market misconduct.
Australian stockbrokers must by law have sufficient resources to monitor and control their businesses to prevent market misconduct, including insider trading. Our Members have invested vast sums in these functions, with spending on the compliance function alone increasing around six-fold since 2001.
Our Members are in the unique position of being regulated by ASIC and ASX, with ASX able levy fines of up to $1m for failure to prevent market misconduct, amongst other things. No other sector faces such tight regulation and self-regulation. Standards of training and development are also high.
The suggestion that Compliance Officers within firms should have a direct reporting obligation to ASIC on detection of misconduct is unworkable, and has been rejected as such in other jurisdictions. Compliance departments and officers are an essential support function for Management, the latter which under the Australian Standard on Compliance bears the primary obligation for compliance with relevant requirements. To have a direct reporting obligation to ASIC independent of Management would render the Compliance Officer’s on-going role and relationship with the firm untenable. All firms already have an obligation to report significant market misconduct to ASIC and ASX. This is the appropriate response.
While the problem of proof in prosecutions is well known, the insider trading regime remains a robust weapon to fight and deter any misconduct. The review of the insider trading laws by the Corporations and Markets Advisory Council will further improve the legislative provisions.
Investors can have confidence that their trading is being conducted on one of the most well-regulated markets in the world, conducted by market participants of very high standing.
The SDIA is the peak industry body representing wholesale and retail stockbroking firms, investment banks and practitioners across Australia which account for 98 per cent of the market by value.
Yours faithfully
David W Horsfield
Managing Director/CEO
For further information:
David Horsfield, Managing Director & CEO, SDIA (02) 8080 3200
Doug Clark, Policy Executive SDIA, 0417 168 804
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