Rules for analyst briefings and roadshows needed

05 May 2010

The thing about stock market disclosure is that it’s supposed to be timely, ongoing and cannot favour any particular group over others. Problem is, even though listed companies know this, few actually practise it.

Often, research reports are circulated in which a new investment recommendation is made based on information gathered at an analyst briefing, or private (sometimes informal) meeting with management. More often than not, because the information is new and is not previously known to the investment world at large, it has an impact on the share price.

Invariably of course, these reports would be of the ‘buy’ variety as managements are highly unlikely to share negative information with analysts, but the point is that together with presentations given at roadshows, there is ample opportunity for material data to be passed on to a privileged group before the broad market receives it.

If ever the Singapore Exchange (SGX) decides to toughen its listing and disclosure rules, it’s clear that the one glaring area it has to address relates to analyst briefings and roadshows.

Consider the roadshow, a popular means of promoting one’s company to a band of investors, often with the aid of a broking firm who organises the event.

Companies’ senior managements are gathered by that broker, a hotel function room is booked, invitations are sent. The event, which is essentially a marketing exercise aimed at pushing share prices higher, basically involves each company’s boss or finance officer pulling out all the stops in selling his firm’s story to attendees, many of whom are fund managers looking for undiscovered gems.

As a networking tool it’s great; as far as selective disclosure goes though, it’s a regulatory minefield – the opportunities for inside, non-public information to be passed are endless.

The same goes for analyst briefings. We’ve lost count of the number of times we’ve seen a ‘buy’ call that starts with the words ‘At an analyst briefing yesterday, management said…’

Is it good enough to claim that the handful of analysts who were present at these invite-only briefings sufficiently represent all the interests of the wider market?

Of course not. By the time these reports enjoy widespread circulation, the new information is already in the price. There is no justification, in today’s disclosure-based regime which demands prompt and non-selective dissemination of important data, to allow such practices to continue.

In Australia, steps are currently being taken to plug this disclosure gap. The Australian Stock Exchange (ASX) – which has lost almost all regulatory powers over the broad market but still retains the right to enforce its own listing rules – last Friday proposed various changes to its listing rules, one of which was that ASX-listed companies will have to arrange group analyst briefings in advance so that the market knows that they are about to take place, and thereafter broadcast the proceedings of those briefings ‘live’ via webcast and/or conference calls, thus allowing any interested party access.

(The other interesting proposal was that ASX-listed companies have to report the number of female directors, executives and employees in their annual report and if they don’t, they’ve to explain why. Companies are also required to set gender targets and report progress in achieving those targets).

This is a proposal certainly worthy of study here. It may even be necessary to examine how to extend the rule to banks/brokers who organise roadshows because in the halcyon days of 2007 when China companies were all the rage here, the mere circulation of the list of companies attending an upcoming roadshow was highly sought-after, often leading to price gains well before the roadshow began on the assumption that there’d be further gains after the roadshow ended.

Granted, policing roadshows and analyst briefings would be difficult and surely highly unpopular – both among brokers and companies. But it isn’t about doing what’s popular, it’s about doing what’s necessary to ensure as level a playing field as possible and so rules to govern analyst briefings and roadshows should be top of the list of things to do when SGX next tweaks its listing rules.


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