Wednesday, November 19, 2008

Don't spread "false information"

Our government's on to you

'Rumourtrage', or the spreading of false information would become illegal under a suite of measures put forward by Corporate Law Minister Nick Sherry to improve the workings of markets.

Speaking to the National Press Club Senator Sherry said although some forms of rumourtrage were already outlawed under the Corporations Act, the government needed to do more.

"After the collapse of Lehman Brothers in September the level of irresponsible stories and rumors that were floating around in the Australian market significantly increased," the Minister said.

"At least some of it was deliberate targetting of sound businesses."

"When you have a position where sound businesses are targeted, and I would accept it was by a small number of hedge funds - a very small number - irresponsibly, you have to act in the national interest"...

Conceding that the spreading of a false rumour was very difficult to prove, the Minister said that in normal market circumstances the practice caused little harm.

"Normally people simply shrug their shoulders and laugh, and think 'that's nonsense', but some of the stories spread after the Lehman's collapse are personally distressing, some simply shocking and clearly aimed to cause great stress, anxiety and even distress not just to the shares but also to the staff of the companies being targeted."

Declining the name the businesses he said had been unfairly attacked by hedge funds, the Minster said that for some it had been a "fair call".

"But when it reaches the point of sound businesses and it is not a fair call I think government has a responsibility to act," he told the Press Club.

The Minister has referred the practice of rumourtrage as well as closed analysts' briefings, margin borrowing by company directors and so-called 'blackout trading' to the government's Corporations and Markets Advisory Committee for advice. He has asked it to report within 6 months.

He said although blackout trading by directors and senior staff in the leadup to corporate results was outlawed by many companies, the rules were openly flouted.

"This is unacceptable and makes a mockery of the rules," the Minister said.

"Active trading by directors between the close of books and the release of results has the potential to affect confidence in the integrity of Australia's markets. From a policy perspective such confidence is central to manintaing Australia's attractiveness as an investment destination."

The blanket ban on short-selling was lifted Wednesday. Senator Sherry said the ban on short selling financial stocks would remain in place at least until January 27.

He called on the Opposition to support the bill before Parliament which would ban 'naked' or uncovered short selling in perpetuity.