How Australia's share markets are among the world's most fair and transparent

While it may not always be obvious to the end investor, investing in a clean and well-run share market is vital for all participants. A 'dirty' share market can lead to huge unexplained share price moves, leaks in key company announcements, and a rise in "pump and dump" shareholder activity which distorts pricing. But Australian investors can rest assured that our stock markets are among the world's cleanest, according to a new report from ASIC. 

A six-year study from the financial markets regulator suggests Australia consistently rank among the most "clean" and high-integrity share markets in the developed world. Of the 1,000+ material and price-sensitive announcements from 2023, less than 5% of them were preceded by unusual share trading activity.

Equally of interest, less than 1% (0.56%) of share trading accounts were deemed to have taken part in anomalous activity last year - a remarkable figure given the rise of "pump and dump", "finfluencer", and insider trading risks since the COVID-19 pandemic. 

In this wire, we'll take you through the report's key numbers and share how ASIC plans to apply these same standards to the increasingly popular world of private markets.

The key numbers

• Prior to the release of 1,056 price-sensitive announcements, just 4.75% of pre-announcement share trading volume was considered "anomalous"
• M&A announcements attracted "less clean" trades, as did positive news (as opposed to non-M&A announcements and negative news respectively)
• ASX market statistics suggested $126 billion of secondary capital was raised in 2020 and 2021
• Over 2009 to 2022, just 3.8% of M&A deals were leaked
• Australia had the lowest rate of M&A deal leaks among global peers over that same period but noted that there was a deterioration in market cleanliness at the end of 2023, caused by "an increase in media reports ahead of announcements of takeovers, mergers and capital transactions, indicating potential leaks of inside information."

Why does this matter?

As ASIC Chair Joseph Longo described it in a Bloomberg event held this morning, it's about "conversations and confidence." From the conversation side, Longo said:

"We're very engaged with market participants - the ASX, hedge funds, key players, the banks, everyone. We're very interested in knowing what's going on in this dynamic between private and public markets. We're very interested in getting feedback about what ASIC can do about regulatory settings, and how they might change will be adjusted to encourage the activity that we're all interested in."

From the confidence side, Longo had this to offer:

"We can say objectively now for some time, Australia is one of the cleanest markets in the world. Investors can come to this country and be confident about the standards of transparency and efficiency around raising capital," he said.

"I think that confidence aspect is something we all need to remind ourselves of. We're among the most sophisticated capital markets in the world. There is a competition for capital but we get our fair share."

The de-equitisation trend is not new

This confidence issue is not just true for existing companies but also for IPOs. The $2.2 billion IPO of Mexican fast food chain Guzman Y Gomez (ASX: GYG) demonstrated how, in the words of ASX CEO Helen Lofthouse, "the window is open for the right companies." 

But it's also true that the GYG IPO was the largest local float for more than two years - highlighting just how much even the largest companies are interested in staying private. 

Longo stressed that this trend is not new.

"The issue we're talking about didn't just happen in the last 12 months. The idea of de-equitisation and then the number of IPOs declining has been with us actually for a long time. Now, it's becoming a more obvious problem and challenge for markets."

As a regulator that is now dealing with this issue, ASIC says it's open to hearing "actionable ideas" on how it can make the IPO process easier and regulation more applicable to today's market environment.

"ASIC is very interested in hearing and figuring out what it is about the current settings that are causing an unnecessary friction in the system," Longo said before adding that the regulator is consistently asking the following question.

"Are we part of the problem [or] are the regulatory settings part of the problem? If there are things we can change or adjust, that will enable more confident investments whether it's private markets or public markets, [then we will]," Longo added.

ASIC's two next frontiers

ASIC has identified private markets as the next frontier for assessing and maintaining investor cleanliness. So much so that it has identified private markets as one of the regulator's top five priorities next year and that it's now set up a dedicated team to cover the space.

"We are monitoring changes in the structure of capital markets to consider how we might assess cleanliness in private markets," ASIC said.

"Private markets have reduced financial reporting, disclosure and corporate governance requirements. This reduction in transparency can affect accountability. As private markets increase their activities there are more touch points with public markets, increasing the risk of insider trading," they added.

This will become particularly relevant as Australian investors continue to flock to private markets as an investment destination. Private equity revenues in Australia are growing at a CAGR of 8.1%, according to data from IBISWorld while Citi's estimates suggest the local private credit market has grown 45% in just five years. Global firms from KKR to Nuveen and Oaktree-Brookfield are all entering or have entered the Australian market, offering private credit access for retail and wholesale investors alike.

In addition to private markets, ASIC says it will be increasing surveillance of listed equity markets as well as "pump and dump" or social media schemes that have the power to distort pricing and destabilise markets.

"We will continue to monitor developments in innovative data science tools, such as artificial intelligence and machine learning, to consider potential applications for surveillance."