Corporate Disclosure - A benefit or a burden?
Powered by Research Breakfast Series - July 29, 2009
Presented by Professor Alex Frino
Research Forum Debates Bedrock of Financial Markets
Download video (mp4, 195.47Mb)
A research forum sponsored by the Faculty of Economics and Business at the University of Sydney brought together market leaders to discuss one of the bedrock principles of financial markets - continuous disclosure rules. The panel was lead by Professor Alex Frino and included panellists from the market operator (ASX), the market regulator (ASIC) and the media.
Continuous disclosure rules require companies to report to the market information they believe is market sensitive as and when it becomes available. These rules are considered the bedrock principle underpinning market integrity and confidence.
The growing incidence of class action suites in Australia associated with a recent high court decision has heightened the pressure on companies in their decision making around continuous disclosure. Historically, a breach of continuous disclosure rules resulted in an infringement notice from ASIC with a maximum penalty of $1 million, however the advent of class action suites means that an error in reporting price sensitive information could expose companies to millions of dollars in damages claims.
Without questioning the fundamental importance of continuous disclosure, the panel discussed the challenges in complying with the disclosure requirements. These challenges include the difficulty of understanding what information is likely to be market sensitive and the need to potentially disclose competitive information in complying with the rules.
Professor Frino also questioned the practice of "halting" or pausing trading in the market at the time price sensitive information is released by companies. He argued that rather than giving the market time to digest information before resuming to trade, recent evidence suggests that they merely delayed price discovery and increased uncertainty and price volatility.
Panel members countered that exceptions to the continuous disclosure obligations protect the legitimate interests of companies, and that market pauses and halts are used to prevent false and disorderly trading to allow time for considered investment decision-making and to promote fairness and to.
The panel was comprised of Matthew Gibbs, head of corporate relations at the Australian Securities Exchange, Alex Erskine, the Chief Economist of the Australian Securities and Investments Commission and Elisabeth Sexton, a senior journalist with the Sydney Morning Herald. The panel was moderated by Alan Cameron, the Chairman of ASX Markets Supervision and Deputy Chancellor of the University of Sydney.