Short selling consistently increases before capital raisings

Committee on 4/06/2024

Item: Economics Legislation Committee – 04/06/2024 – Estimates – and – TREASURY PORTFOLIO – Australian Securities and Investments Commission

Senator RENNICK:  I’ll give you an example that happens a lot. You’ll often see a significant increase in the number of short sells before a raising of capital. It’s happening a lot on the market, which suggests insider trading. Do you track that at all, and do you track insider-trading behaviour on the ASX?

Mr Longo: We do a lot of market surveillance with the ASX. We have a system called Artemis which, as it turns out, is a prize-winning piece of software which does a lot of real-time surveillance work in the market to see whether pre-transaction leaks are affecting trading behaviour. In fact, we’re shortly going to be publishing a market cleanliness report. I think Commissioner Constant might be able to give you a bit more colour about our surveillance activity. Overall, what I can reassure the committee about is that our overall market cleanliness around continuous disclosure, insider trading and timeliness of announcements is actually very good. We benchmark ourselves against a range of global benchmarks.

The only other thing I would say before I hand over to Commissioner Constant is market abuse is an enduring priority. We have a number of continuous disclosure matters going from time to time. In the last 10 days we’ve had a number of insider trading matters in court, as my opening statement said, and there’s a matter before the Federal Court at the moment where ANZ have appealed a case we won against them a little while ago.

Senator RENNICK: How do you track custodians? Custodians are often separated from the real owners and they’re behind a wall, so to speak. How do you know that custodians don’t own shares in both companies, for example, or that they don’t use insider information, given it’s very difficult to track true ownership once they’ve enhanced custodians?

Ms Constant: The response to that is part of the response to your first part of inquiry. We have various data sources we use for surveillance in terms of understanding cleanliness of market. The chair has spoken about the work we’ve recently done and we’ve refreshed, which looks at almost exactly your opening scenario—so what happens before there is a significant announcement. You talked to shorting and maybe others just acquiring. We then put that data together. That will be part of our published report into the listed market. Using Artemis, we track all sorts of links and connections, including data about anonymised—so safely used, to understand connections between individuals, including business relationships. That includes custodians. The idea is to be multifaceted and multidimensional. We have pre-imposed trade data. We have data sources understanding connections. We look at unusual profit—so when we see an unusual profit and the link with announcements. All that goes into our surveillance to understand where there might be risk and where we might see an issue.

I would also add: you might be getting at the fact there are significant holdings being built up with regard to listed and also unlisted stocks, and custodians of the superannuation funds, who look after those funds or funds management, are really mindful of that. When we release the cleanliness report on the listed equities market, we will make announcements about what we’re are doing in the next phase to look at the broader funds management and holding industry, because we’re aware—and I gave a speech last week, on the record—that the larger these entities become and the more variety of investments they have, the more potential for touch points. Whether with their custodians, with advisers or with consulting firms, more touch points raises the risk of insider trading. We’re equipped for that in regard to the surveillances I explained, but we’re very mindful of that.

Senator RENNICK: Thank you very much.