ASIC commissioner Cathie Armour told the Financial Review that nothing in the report should surprise anyone in investment banking and stockbroking.
But its contents have sparked intense debate. Some are of the view that the report does not go far enough. If stockbrokers are allocating a disproportionate amount of stock to the personal accounts of their directors, or to their most favoured clients, that is not far off from theft.
ASIC in examining multiple capital raisings has clearly found plenty of instances of questionable activity. But there is little in the form of recommendations. It simply does not go far enough in prescribing rules and guidelines.
Excuse not good enough
One example would be to force better disclosure of the fees paid to raise new capital, and to disclose parties that have received large allocations at deep discounts.
Then again, is fairness the main objective? There are multi-factoral decisions in raising capital – one of which is attracting large institutions that have the ability to provide funds at a future point. Bankers and brokers also need to make sure investors have a good experience and can support an issuer as it grows.
Others say ASIC has overstated the gains fund managers are making from participating in capital raisings and block trades.
The report pointed out that the average one-day gain on a capital raising over the past four years is about 4.1 per cent, which Ms Armour said seemed generous relative to the risk the funds were taking.
But offshore hedge funds say Australia is actually known for having tight discounts, which means many players that seek to make a buck from providing liquidity to raisings don’t actually bother playing Down Under.
They say discounts are tight because the vast bulk of the fund management industry is reluctant to deviate too far away from their indices.
The report should, however, serve as a reminder to those at the big end of town, and the small end, that they are on notice.
And the excuse that it is standard market practice, simply is not good enough.
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