Banking royal commission: Insider trading allegations to be probed despite regulator doubts

Regulators will likely be forced to test claims of insider trading on leaked Hayne report details despite internal scepticism.

The indicator board at the ASX the day after the release of the Hayne report. Picture: AAP

The corporate watchdog will be forced to take seriously a claim financial markets investors made a $22 million profit from trading on insider information contained in Kenneth Hayne’s royal commission final report, despite senior regulators doubting the veracity of the claim.

Labor and the Greens have sought to pile political pressure onto the government over the report, which opposition financial services spokeswoman Clare O’Neil described was written by a “respected economic commentator” on the online news site The New Daily, which is operated by industry super funds under the umbrella of Industry Super Holdings.

The allegations centre on a substantial $500m purchase of shares in the major banks at 11am on Monday morning, the buyers of which would have benefited to the tune of $22m when the major bank shares surged on Tuesday.

Although the government received the former High Court Justice’s final report on Friday, it remained unpublished until late on Monday afternoon, after the close of the sharemarket.

Government officials, senior executives in the major regulators, Treasury mandarins, and the solicitors who penned the document, were aware of the contents of the final report over the weekend, while the media and industry groups were given access to the documents at 1pm on

Monday, before being able to publish the information after the close of the sharemarket.

Ms O’Neil has asked the secretary of the Department of Prime Minister and Cabinet, Dr Martin Parkinson, the Australian Securities Exchange and the Australian Securities & Investments Commission to investigate the claims.

Opposition treasury spokesman Chris Bowen on Thursday backed in the potential investigation. “There was very substantial movement in the market. And there absolutely should be the fullest investigation by all relevant authorities, including the government itself,” Mr Bowen said.

“The whole reason, the whole excuse that the government gave us for not releasing the royal commission report on Friday was that it might move the market and the market moved on Monday. Now we want to know, was any part of the royal commission’s report released. And if so by whom and to whom,” he said.

Senior sources at financial market regulators are sceptical of the claims, but will likely be forced to investigate the matter.

On Tuesday, following the release of the royal commission report, shares in the major lenders all surged around 5 per cent. While the major bank stocks rose around 1 per cent each on Monday morning, the increase in the shares coincided with the opening of the Japanese sharemarket, where Japan’s major bank stocks also rose — suggesting the increase of financial stocks were related to favourable global economic data released over the weekend.

However, shares in AMP and IOOF, which both rallied on Tuesday after the release of the report, did not enjoy any benefit from potential insider trading, with both stocks falling on Monday. Mortgage broker shares were also unaffected by any supposed inside information on

Monday, but stocks in the country’s two largest brokers Mortgage Choice and Australian Finance Group, both crashed more than 25 per cent on Tuesday.

Financial market sources suggested some of the rise in bank shares on Monday was attributable to “covering” for short-selling bets.

Short-interest in the major banks was close to five-year highs ahead of the release of the report, and fund managers were likely to take out “insurance” against any possible rise in the shares by “covering” their short positions with long bets on the lenders.

“There wasn’t even anything on Hotcopper,” one regulator source told The Australian, a reference to the enduring online investment forum where rumours and speculation is rife.

The $22 million figure cited in The New Daily, an online publishing project backed by a network of industry super funds, is also believed to be based on buying in at the exact lowest possible point of the bank shares on Monday, and selling out at the highest possible price — both feats would have been nearly impossible to manage, sources say.

Meanwhile, the total cumulative potential profits for big four banks shares on all trading accounts for the entire day was just over $27m, making it extremely unlikely a single trader would account for a $22m profit.

Despite the report sourcing its information from one anonymous fund manager, opposition finance spokesman Jim Chalmers said there was something “very fishy” going on in the market.

“Independent, respected observers of the market have concluded that something very dodgy has happened here, and I think the Australian people need and deserve a proper investigation so they can determine whether or not there’s been some kind of insider stitch-up here and somebody’s made out very well from it,” Mr Chalmers said.

Greens Treasury spokesman, Senator Peter Whish-Wilson, said he would be asking ASIC about the sharemarket trades at Senate Estimates later this month. “Unlike any internal investigation by Treasury, ASIC can and should be able identify who made large volume trades on Monday morning,” he said.

The government is poised to review the funding for financial regulators in this year’s federal budget, after ASIC repeatedly complained it lacked the funding to take rogue financial companies and executives to court to penalise them for misconduct. Kenneth Hayne’s royal commission has gifted a substantial increase to the corporate regulator’s responsibility and remit, which have already ballooned over recent decades.

New ASIC boss James Shipton has complained regulators in Hong Kong, where he previously worked, had a combined budget 50 per cent bigger to cover an industry a third the size.