Don’t let a leak sink your ship

In what has been a relatively quiet period for equity capital markets (“ECM”) transactions, we are starting to see an uptick in behind-the-scenes preparations for potential secondary raisings.  Given this, it is timely for listed entities and their boards to remind themselves of the Australian Securities and Investments Commission’s (“ASIC”) recent focus on leaks ahead of fundraising and takeover activity and what can be done to seek to minimise the regulatory risks associated with this.

Regulatory guidance

In its Corporate Finance Update in December 2023, ASIC reminded all parties involved in fundraising and merger and takeover activity to manage the risk of leaks or mishandling of confidential information vigilantly.^[1] The aim of this is to help minimise the risk of potential market misconduct, insider trading and continuous disclosure breaches, and in turn keep Australia’s equity markets clean.

ASIC expects listed entities to manage information about any fundraising or control transactions they are involved in proactively, including by:

• requiring consultants and contractors to enter into confidentiality agreements;
• having appropriate arrangements to handle confidential information, including limiting access on a ‘need to know’ basis;
• recording who has been provided with the confidential information – and when; and
• actively monitoring and meeting continuous disclosure obligations in relation to fundraising and control transactions.^[2]

As part of this, ASIC strongly recommends that listed entities put in place a formal leak policy outlining steps to prevent, monitor and react to any leaks of proposed transactions.

Monitoring and enforcement

ASIC notes that it will continue to monitor trading around significant market announcements to identify potential market misconduct, insider trading and continuous disclosure issues, particularly where it appears that information has been leaked to the media.^[3]

We expect that if there is a leak of a transaction, that listed entities can expect to hear from ASIC and / or the Australian Securities Exchange (“ASX”).  They will have questions on the surrounding circumstances and what steps were put in place to manage the flow of information.  This may be the case whether or not the proposed transaction goes ahead.  Depending on the responses and any resulting investigations, enforcement action may ensue.

Recommendations for listed entities

We recommend that listed entities put in place a formal leak strategy at the outset of their preparations for a fundraising or control transaction.  This includes (among other things):

• preparing a formal leak strategy paper which sets out the proposed process for the handling of confidential information, the monitoring of any potential leaks and how to respond in the event of alternative leak scenarios;
• preparing and maintaining an “insider’s list” of those within the listed entity, their advisers and others who became aware of the proposed transaction and at what time;
• preparing draft trading halt requests that can be used quickly in the event of a specific leak; and
• monitoring the media and trading activity for any signs of a potential leak.

While this may seem overly administrative and procedural, it can be a useful game plan for handling an unexpected leak.  It may also be helpful in showing a regulator what steps were taken to seek to minimise the risk of that leak occurring in the first place.  Don’t let an unexpected leak sink your ship!