Australia: Insider trading and continuous disclosure - how market sensitive are Hamish and Andy? - 10 September 2015

In the wake of the recent ASX market correction, radio comedy star pairing, Hamish and Andy, asked listeners to ring in and demonstrate how ignorant they were of stock market jargon by challenging participants to construct a sentence using as many market related terms as possible in one sentence. The sentence with the most words and least meaning was declared the winner by Hamish. It is therefore somewhat ironic that the market sensitivity of Hamish and Andy or, more accurately, the duo's star power, is now reportedly the subject of ASIC investigation.

Tuesday's Australian Financial Review1 (AFR), reported that the corporate regulator, is investigating director share trading at Southern Cross Media Group (Southern Cross) occurring in the days prior to Southern Cross's announcement on 29 October 2014 of it signing up Hamish and Andy to fill the lucrative drive time radio slot on Sydney's 2DayFM, a radio station owned by Southern Cross.

It is reported that former Southern Cross chairman, Max Moore-Wilton acquired $250,000 worth of shares in the listed Southern Cross on 24 October while the deputy chairman acquired approximately $100,000 worth of shares on 27 October.

The Southern Cross share price increased by 16 per cent, in the week Southern Cross confirmed the signing of the comedy duo, sparking questions about the directors' trading and continuous disclosure

In this alert, Partner Michael Hansel and Senior Associate Katherine Hammond highlight the corporate governance lessons that listed companies and their directors can draw from the scrutiny brought on Southern Cross, even though there has been no comment from the regulator (ASIC) or any finding of wrongdoing.

Key points

  1. The continuous disclosure regime requires that, subject to limited exceptions, a listed company is required to immediately disclose any information concerning it that a reasonable person would expect to have a material effect on the price of a listed company's securities (Market Sensitive Information). Relevantly, an exception applies so that a company will generally not be required to disclose Market Sensitive Information where it is confidential and a matter of supposition or insufficiently definite.
  2. Insider trading laws mean that directors must not trade financial products with, procure trading with or communicate for the purpose of a person trading with, undisclosed Market Sensitive Information ("inside information").
  3. Listed companies must have a trading policy under the ASX Listing Rules, and directors (and other key management personnel (KMP)2) are still exposed to the insider trading laws even if the share trade was during a permitted period under the trading policy and even if the trade has been sanctioned by the board.
  4. Directors must also be mindful of the market perception and associated potential repercussions of any share trade notwithstanding that they may not in fact be in possession of undisclosed Market Sensitive Information.

The Australian Corporations Act3 imposes heavy penalties on persons found to be guilty of insider trading – up to 10 years jail and/or $765,000 in fines may be imposed. Insider trading occurs when a person trades in the listed securities in possession of inside information. Inside information is any information that is generally not available and if that information were available, a reasonable person would expect it to have a material effect on the price of the relevant company's shares. Information for the purposes of this provision includes matters of supposition and other matters that are insufficiently definite to warrant public disclosure being made.

Under the continuous disclosure rules of the ASX and Corporations Act, Southern Cross is required to publicly disclose, by ASX announcement, any information concerning it that a reasonable person would expect to have a material effect on a price or value of its securities. However no disclosure is required to be made if the matter in question is confidential and subject to supposition or is insufficiently definite to warrant public disclosure being made.

The AFR reported the trading by the directors in question took place during a designated trading window under Southern Cross' trading policy following the Southern Cross AGM.

For trading to have occurred in accordance with the trading policy and the insider trading laws, whether or not the trade was during a "designated trading window" under the Southern Cross trading policy, the directors must not, at the time of the trade, have been in possession of any "inside information".

Any investigation carried on by ASIC would likely include an examination of the status of information relating to the signing of Hamish and Andy on the trading days leading up to the formal announcement on 29 October, whether that information constituted Market Senstive Information requiring disclosure under the continuous disclosure regime, and whether that information could constitute inside information.

Reports of this investigation follow the recent high profile investigation and subsequent clearance by ASIC of insider trading allegations levelled at Channel 9 CEO David Gyngell in the wake of his sale of more than $1.5 million worth of Channel 9 shares in the weeks leading up to a profit warning by that media company.

The reported investigation of Southern Cross highlights the critical importance that needs to be placed on listed company boards in ensuring that:

  1. its continuous disclosure obligations are discharged promptly and without delay; and
  2. the board satisfies its share trading policy which should, amongst other things, prohibit the trading of securities where inside information or the appearance of inside information may be known by the board and its executives, notwithstanding that the board and executives would otherwise be permitted to trade during a trading window under the policy.

The AFR also reported that it is believed that Southern Cross engaged an industry expert to assess whether Hamish and Andy's signing was in fact market sensitive.

Whilst engaging of such an industry expert may ultimately assist Southern Cross in substantiating the position that the information was, at the time of the trades, not market sensitive, such measures, whilst probative, do not provide an automatic and complete shield from regulatory scrutiny or market criticism. Director trades prior to the release of information that is arguably market sensitive are viewed forensically through the eyes of disgruntled investors and motivated regulators and should always be initiated with the utmost caution and vigilance.

  1. 13 Tips for company directors to comply with ASX's new continuous disclosure rules - 19 March 2013
  2. Continuous disclosure crackdown: five important tips for listed companies and directors - 1 August 2013
  3. Seven Corporate Governance Lessons from David Jones - 28 February 2014
  4. ASIC crackdown on analyst briefings – 10 tips for listed companies handling confidential market sensitive information - 5 June 2014
  5. Crackdown on insider trading goes beyond shares - 10 June 2014
  6. Christmas in jail for perpetrators of Australia's worst case of insider trading - 18 December 2014
  7. Record seven year jail sentence for perpetrator of Australia's worst instance of insider trading - 18 March 2015
  8. 8 key tips around proposed changes to continuous disclosure regime to do with earnings guidance, analysts, forecasts and briefings - 21 April 2015


1 Australian Financial Review, Tuesday, 8 September 2015, StreetTalk, page 14; The Australian, Wednesday 9 September 2015, ASIC probes Southern Cross directors over share trades (online).

2 As defined in Accounting Standard AASB 124 Related Party Disclosure.

3 Corporations Act 2001 (Cth).

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