Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Friday, March 26, 2010

IR as gatekeeper - again

Sitting here this afternoon trying to organise my thoughts for an appearance on a BBC radio programme on Sunday on the subject of insider trading. First thought is that it is interesting that this is thought be an interesting subject for a general audience. Next is “why now”?

Obviously we have seen a sequence of prosecutions around insider trading and market abuse in recent days and weeks. Which begs the question of whether this level of insider trading is new, or we have become better at detecting it. Certainly the FSA signalled its get tougher stance 4 or 5 years ago, a 'heavy hand' to go with the ‘light touch’ approach.

All of which should be welcome; insider trading is inherently unfair, makes proper price formation impossible, to the disadvantage of most investors. Mind you, it wasn’t always that way. In the 1950’s it was almost the norm that insiders took advantage of their status.

So will the new range of prosecutions make any difference? Will they deter as they are presumably are meant to? Is the existence of an improved Sabre oversight system which analyses trading data and identifies patterns of possible illegal dealing going to make the difference? There are few problems with this idea.

First, investment banking is full of inherent conflicts of interest, which must be resolved by improved procedures. Next the ‘chain’ of controlling inside information – on which insider dealing must be based – is very long. In the past we seen prosecutions of accountants on transactions, of financial printers, of company employees and even solicitors .

So the idea that insider trading/ market abuse is limited to City Slickers is not correct. But this heightened activity does say that IR teams may want to look – once again – at their Inside Information policies to see whether the controls are in place.


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