ASIC

ASIC reviews allocations practices in equity raising transactions

ASIC has reviewed allocations in equity raising transactions, underscoring the potential impact of conflicts of interests in allocation decisions.

ASIC has highlighted areas of improvement for both financial services licensees and issuers when raising equity on listed markets.

“The fair and efficient allocation of securities in equity raising transactions promotes market integrity, improves market efficiency and increases investor confidence,” ASIC commissioner Cathie Armour said.

She advised that issuers should be engaged with their capital raising transactions with particular focus on raising funds on the best terms possible.

“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,” Ms Armour said.

“This may include misleading and deceptive conduct, breaches by licensees of their general conduct obligations, insider trading and market manipulation.”

ASIC’s review of a range of large and mid-sized Australian-based licensees found a range of discretionary factors are taken into account in an allocation recommendation, including the objectives of the transaction, investor types and the investor bidding into the bookbuild.

As a result, the commission has made several recommendations on improvements to licensee practices in the conduct of allocations.

“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,” Ms Armour advised.

ASIC noted it will continue to monitor selected transactions to test that allocation decisions are being made consistently with financial services laws.

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