Journal of Applied Research in Accounting and Finance

Vol 6 (2) December 2011

Editorial

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All in All, Just Another Brick in the Wall: The Use of Chinese Walls As A Defence to Insider Trading by Juliette Overland

Insider trading is acknowledged globally as a significant threat to market integrity. Unfortunately, the laws which govern insider trading are, in many respects, convoluted, vague and unclear. This problem is further exacerbated by the comparatively small number of cases available to interpret the relevant legislative provisions. This is particularly true of the 'Chinese wall' defence to insider trading.

This article will examine the Chinese wall defence in detail, considering its nature, requirements and the problems associated with its use, and will conclude with recommendations for an improved legislative solution.

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A Case for Persistence in the Disclosure Obligation by Josephine Coffey

The corporate regulator, the Australian Securities and Investments Commission (ASIC), has experienced some lack of success in attempting legal action to address breaches of the Corporation Act's continuous disclosure provisions. This was evident in the initial failure of proceedings against Fortescue Metals Group. ASIC's action sought orders to impose civil penalties on the company and, for the first time, on an individual, the chief executive. The regulator’s belief that the lower court decision warranted 'review by an appeal court' was endorsed when, on 18 February 2011, the Full Court of the Federal Court of Australia upheld ASIC's appeal. If, as requested by the company, leave is granted to appeal to the High Court against these findings, then any future decision by Australia's highest court could be of assistance in establishing the legal parameters of the continuous disclosure obligation.

The difficulty in mounting a criminal prosecution for intentional breach of the disclosure rules saw the first prosecution for this offence discontinued in January 2009. As a result, ASIC has relied on the civil penalty and infringement notice regimes for subsequent enforcement of continuous disclosure by listed companies. Greater powers have been given to ASIC to pursue market misconduct but these ‘market integrity rules’ do not interfere with the continuous disclosure provision or the related ASX listing rule.

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Price Queries and the Enforcement of Australia’s Continuous Disclosure Regime by Cary Di Lernia and Angelo Aspris.

A crucial element of market regulation in Australia geared towards achieving and maintaining market integrity is the obligation of listed and other disclosing entities to continuously disclose material information to the market: ASX Listing Rule 3.1. ASX Compliance (a wholly-owned subsidiary of ASX Ltd) fulfils the ASX's market oversight obligations by monitoring and enforcing compliance with the market's operating rules. If concerned that less than transparent behaviour may have been responsible for unusual movement in a company’s share price or trading volumes, the ASX may issue a query to the company concerned. Details of the response and the query sent by the ASX are then made available through the announcements platform on the ASX website. This paper represents an initial investigation into this element of the practical reality of enforcement of the continuous disclosure regime. It analyses company responses to ASX price queries with a view to gaining a deeper understanding of the explanations provided by listed entities and the frontline of ASX enforcement activity surrounding the regime.

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