‘The most significant change to insider trading rules in decades’

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“In order for Australians to keep building competitive, global and durable companies, we need to ensure the incentives are there for founders to take the risk. To do this we need to ensure Australia is a fair and transparent market for founders, executives and investors,” Mr Cowan said.

Company founders such as Mike Cannon-Brookes, Richard White and Leigh Jasper have all supported the proposed changes, which were discussed at last week’s Senate committee for financial technology and regulatory technology, which is chaired by Andrew Bragg.

The proposed change – in line with the US Rule 10b5-1 – would allow founders or other “insiders” to signal their intention to sell a parcel of stock at the start of a set period. Then their shares are sold by a broker, usually in small parcels at regular intervals over the period, without creating the kind of suspicion attached to block sales in Australia.

At the hearing, ways to ensure that the share sale plan could not be gamed were discussed. This included a “cooling off period”, which means that once a sale plan has been lodged, a month or so must pass before it commences.

Remuneration package

It was also proposed that existing share sale plans could be cancelled only during trading windows, so there was less risk of them being turned on and off when a director or executive was in possession of information that would cause a company’s shares to rise.

Jones Day partner Shannon Finch, who is the chair of the Law Council’s Corporation Committee, said the changes would be significant and important.

“If we put this through, it would be the most significant change that has happened to insider trading rules in decades,” she said.

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“Founders all talk when they’re planning an IPO … The more we can harmonise corporate structures and regulation, the better chance you have of growing the Australian exchange as a hub of activity.”

Ms Finch said that more restrictive trading regulations could also hurt a group’s ability to competitively hire staff, particularly in the US where shares are a big part of the remuneration package.

“In Australia we’ve set such strict limits around share plans and trading windows that it is not competitive.” she said. “For example, US taxing points might or might not line up with Australian trading windows.”

ASX executive general manager Max Cunningham said in addition to encouraging more companies to list in Australia, the changes would increase liquidity across the entire market.

Shannon Finch, corporate partner at Jones Day: “If we put this through, it would be the most significant change that has happened to insider trading rules in decades.” 

Usually, large founder sell-downs were done in a block trade, where shares were offered to fund managers by a broker. The proposed changes would mean shares were offered to the entire market at no discount.

“You get an increase in volume in those shares through the market over time,” he said. “More importantly is that all investors, the entire market, are informed about the founders’ plans at the same time and the scheme is lodged publicly.”

Mr Cunningham agreed that if changes are made, they should incorporate best-practice elements of offshore markets.

“This change gives companies and the market another option,” he said. “We would adopt the best principles of the US and overlay with high levels of disclosure and reporting.”