ASIC has published Report 486 Sell-side research and corporate advisory: Confidential information and conflicts of interest which reviews the risks related to the handling of confidential information and conflicts of interests, particularly in the provision of sell-side research and corporate advisory services.

The review covered initial public offerings (IPOs) and secondary offerings by investment banks, market participants, securities dealers, independent research houses and corporate advisory organisations (most of which hold an AFS licence).

The report concludes that most firms have policies and procedures in place to deal with these risks. However, the review found considerable variation in the following market practices:

• Identification and handling of confidential information: Some organisations do not have appropriate arrangements to handle situations where staff members come into possession of confidential information. This includes the inadequate use or supervision of information barriers and restricted trading lists.
• Management of conflicts of interest: There is an inconsistency in how conflicts of interest are managed. This includes the structure and funding of research, insufficient separation of research and corporate advisory activities (particularly the involvement of research in soliciting business during the IPO process), decisions about share allocations in capital raisings, and mixed practices in relation to the disclosure of conflicts of interest.
• Staff and principal trading: There is also considerable variation in the strength of controls to manage staff trading, including trading by corporate advisory and research staff. In particular, some questions remained as to whether the approval process adequately addressed the conflicts of interest, and whether a staff member might be in possession of confidential information.
• In mid-sized firms (firms that are usually domestically owned and operated, and generally advise on transactions of less than $100 million), it is more common for staff to participate in capital raising transactions that the firm is managing. This presents an increased risk of unacceptable or questionable activity that firms need to be aware of and manage.

ASIC intends to follow up this report with industry consultation on proposed guidance to ensure that good research practices are followed as well as a review of the practices used by firms to market IPOs to investors, other than institutions. This includes the use of social media and other platforms.