ASIC in talks on Canaccord disclosure, defends oversight of ASX’s key CHESS replacement

The corporate watchdog says it is talking with Canaccord Genuity about better disclosure if the investment bank has an interest in companies it is recommending.

ASIC commissioner Cathie Armour says the regulator is making it clear what its expectations are.

The corporate watchdog says it is in discussions with Canaccord Genuity about the investment bank’s sell-side research and the changes it wants to make to better disclose if it has an interest in companies it is recommending that clients invest in.

Appearing at a parliamentary hearing on Friday, the Australian Securities & Investments Commission’s Cathie Armour confirmed the regulator had had “numerous discussions with them about their approach to managing conflicts, particularly in relation … (to) a situation where research may be written about companies in which they or their advisers may have an interest”.

“We are in conversation with them, and will continue to be in conversation with them, about the improvements and the changes they make,” she said.

The Australian reported in early February that Canaccord Genuity, one of the most active investment banks in the country with an extensive number of mid and small-cap deals, would overhaul its disclosures in equities research to explicitly say whether it held options in the companies it was recommending as buy opportunities. As part of the overhaul, Canaccord will also force analysts to sell holdings in stocks they cover.

That followed reports in The Australian that the bank had repeatedly failed to tell clients it had an interest in stocks that it was recommending.

In October, Canaccord circulated a note to clients placing a “speculative buy” rating on ASX-listed lithium explorer Lake Resources and gave it a price target of $1.15. At the time, the company was trading at 77c a share.

In an extensive research paper, Canaccord analysts discussed the “superior sustainability credentials” of Lake Resources’ flagship Kachi project in Argentina, noting that its characteristics “could allow a more rapid cap­acity expansion” and that a lack of sales contracts “significantly” enhanced its strategic value.

However, the paper did not disclose that Lake Resources in July issued 35 million options to Canaccord as payment for investment banking services.

Separately, ASIC told the hearing that it had expanded a probe into superannuation fund executives switching their personal retirement savings out of unlisted assets before valuations were lowered at the onset of the pandemic.

The original probe of 67 people has been expanded to include a further 60 employees, with three trustees and one executive still under investigation.

ASIC has previously said that the behaviour under examination did not breach insider trading laws but was “similar to insider trading and may contravene other provisions of the law”.

The agency also mounted a ­robust defence of the Australian Securities Exchange’s troubled replacement of its CHESS clearing and settlement project.

With the new system – based on distributed ledger technology – due to go live in 14 months, Ms Armour said the regulator and Reserve Bank were actively monitoring and supervising the world-first project.

“We are providing input and making clear what our expectations are,” Ms Armour said. “All our conversations, particularly at board level, indicate they share the same ambitions and expectations we have.”

Labor MP Julian Hill pressed the issue, noting that since the announcement of the $250m project, there had been a string of departures from the ASX, most recently chief executive Dominic Stevens’ announcement on Thursday that he would step down once a successor was found.

In addition to the chief executive, Mr Hill said the original architects of the project had gone, as had the ASX’s chairman, deputy chief executive and the head of the project.

Last November, ASIC had also imposed strict licence conditions on the ASX after its 2020 market outage, including individual accountability for the CHESS replacement project and conse­quences for executive pay if things went wrong.

Ms Armour said several years had passed since the ASX had announced the project in 2017.

“One would expect there would be changes in a corporation over that time,” she said.

ASIC chairman Joe Longo said it was crucial that “when the system is turned on, it works”.