Canaccord Genuity to reveal options holdings in disclosure overhaul

Canaccord Genuity will overhaul the disclosures in its research reports to explicitly include whether it holds options in companies that it is spruiking as investment opportunities.

Canaccord, led by veteran banker Marcus Freeman, will tighten increase its disclosures in equities analyst notes. Picture: Megan Powell

Canaccord Genuity will overhaul disclosures in its equities research to explicitly say whether it holds options in companies that it is spruiking as buy opportunities.

The investment bank – one of the most active in the country, working on an extensive number of mid- and small-cap deals – said it had undertaken a 10-day review of its disclosure practices following reports in The Australian that it had repeatedly failed to tell clients it had an interest in stocks that it was recommending.

While the front page of its research notes will now state whether it holds options in companies, crucial details will not be immediately apparent to clients; the number of options held, their strike price and expiry dates will only be included in a disclosure section at the back of the report. As part of the overhaul, Canaccord will also force analysts to sell holdings in stocks they cover.

“We have recently reviewed the content and prominence of disclosures in our analysts’ research reports,” Canaccord’s local executive team told staff in a note seen by The Australian.

“Whilst we have always disclosed material positions and any analyst holdings in covered companies in accordance with our regulatory obligations, we have made the decision to enhance these disclosures.”

Marcus Freeman, the bank’s chief executive, said option positions would be reported “irrespectiveof materiality”.

“Any reader will be in a position to easily access all details in the disclosure pages of the report,” Mr Freeman said.

The bank owns options in “less than 15 per cent” of the companies its research analysts cover, Mr Freeman added.

The changes come after The Australian revealed several instances where the investment bank was issuing buy calls on companies while failing to provide clear disclosures about the potential for conflicts of interest.

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 per share.

In an extensive research paper, Canaccord analysts discussed the “superior sustainability credentials” of Lake Resources’s 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.

The paper does not disclose, however, that Lake Resources in July issued 35 million options to Canaccord as payment for investment banking services. Those options, which can be converted to shares for 55c each, would vest in four tranches as the company’s long-run share price rose.

Disclosures of Canaccord’s ownership positions in companies it covers would be given greater prominence in future and would now appear on the front page of each research report, the investment bank said in its note to staff.

“We will be removing materiality thresholds in the disclosure of Canaccord Genuity Australia’s options positions in covered companies,” it said, while “additional detail on options positions held in any covered company will be ­contained within disclosure pages”. Specifics on its capital raising history will feature more prominently, appearing on the front page of any stock it has done a transaction for in the past.

Meanwhile, its analysts will be forced to sell any holdings they have in a company they publish research on: “Our policies will be adjusted such that publishing analysts will no longer hold positions in their companies covered.”

The disclosure overhaul will be in place by the end of February.

But no adjustments have been made to the timing of its research in proximity to capital raisings. At least twice, once in the case of Alcidion and a second time with Eagle Mountain Mining, Canaccord was named joint lead manager for a raising within days of putting out research to clients recommending they buy the stock.

Canaccord in January told The Australian that its research analysts were “completely independent from its sales and investment banking operations”.

“This independence is reinforced by information barriers and compliance systems designed to separate research from other parts of our business and manage any conflicts of interest that arise.

“A research analyst would have no visibility over any discussions that the investment banking team would have on a proposed capital raising,” the company said.

It is understood to be comfortable with its current information barriers and compliance systems, with no changes expected.