Business Daily Media

Australia's insider trading laws don't apply to most superannuation products – here's why they should

  • Written by Juliette Overland, Associate Professor, Corporate Law, University of Sydney Business School, University of Sydney
Australia's insider trading laws don't apply to most superannuation products – here's why they should

Insider trading is something that only happens in companies listed on the stock exchange, right?

It could be happening in Australian superannuation funds.

The Australian Securities and Investments Commission suspects so.

It has examined the behaviour of 23 members of the trustee boards of Australian super funds (both retail and industry) during the early days of the pandemic.

Super funds hold assets which are only revalued on its books from time to time[1], sometimes monthly, sometimes quarterly.

When asset values were falling sharply last year, it meant super fund trustees had early access to information about valuation decisions and the ability to influence those decisions.

Using information ‘for personal gain’

ASIC wanted to find out whether some trustees were “using this information for personal gain” by switching their own personal super investment options based on their knowledge of the timing of the revaluations yet to be announced.

It says the conduct it uncovered “fell below ASIC’s expectations”.

The investigation follows an inquiry by the parliament’s economics committee[2] that found executives at AustralianSuper, NGS Super, Rest, First State, Hostplus and Intrust Super had switched their own personal super out of options exposed to revaluations at the start of the pandemic.

Read more: Insider trading has become more subtle[3]

It’s behaviour that seems to have a lot in common with insider trading[4], in which insiders use inside information for their own benefit at the expense of other investors.

But while insider trading in relation to financial products is illegal, the definition of financial products used in the Australian legislation excludes superannuation products that are not provided by a “public offer entity”.

Not caught by the law

This means that the laws do not apply to some industry super funds, but might apply to others that are open to all members of the public regardless of the industry they work in.

As well, “trading” in financial products is held to only occur where a person applies for, acquires, or disposes of those products, or enters into an agreement to do so.

This means that insider trading laws might apply when a person first joins a public superannuation fund, but not when they switch their investment options within a fund.

Read more: Insider trading is greedy, not glamorous, and it hurts us all[5]

ASIC has conceded this result in its announcement, saying the activity it has detected might not be caught by the insider trading prohibition, but is “similar to insider trading and may contravene other provisions of the law”.

Not always glamourous. 20th Century Studios[6]

When insider trading laws were last amended two decades ago under the 2002 Financial Services Reform Act[7], the financial products to which the laws applied were expanded to include “functionally similar” products – but not to all super funds.

At the time super funds held less than A$500 billion[8].

They now hold more than $3 trillion[9], which is much more than the entire Australian economy turns over in a year, and constitute for most Australians their biggest financial investment outside the family home.

The restriction, especially the distinction between some kinds of industry funds and others, no longer makes sense.

The Australian Law Reform Commission[10] is currently undertaking an inquiry into financial services regulation, which includes the provisions of the Corporations Act prohibiting insider trading.

We invest more in super than in shares

It would be timely to amend insider trading laws so that they catch the switching of superannuation investment options within funds and eliminate the distinction between different types of funds.

Australians invest more money in super than in the Australian share market[11].

There is no obvious reason why it shouldn’t be as well regulated.

References

  1. ^ from time to time (www.afr.com)
  2. ^ parliament’s economics committee (www.afr.com)
  3. ^ Insider trading has become more subtle (theconversation.com)
  4. ^ insider trading (www5.austlii.edu.au)
  5. ^ Insider trading is greedy, not glamorous, and it hurts us all (theconversation.com)
  6. ^ 20th Century Studios (www.20thcenturystudios.com)
  7. ^ Financial Services Reform Act (www.legislation.gov.au)
  8. ^ A$500 billion (www.apra.gov.au)
  9. ^ $3 trillion (www.apra.gov.au)
  10. ^ Australian Law Reform Commission (www.alrc.gov.au)
  11. ^ Australian share market (www.rba.gov.au)

Authors: Juliette Overland, Associate Professor, Corporate Law, University of Sydney Business School, University of Sydney

Read more https://theconversation.com/australias-insider-trading-laws-dont-apply-to-most-superannuation-products-heres-why-they-should-171112

Business Reports

How Australians are missing out on retirement returns

Australians are missing out on potential returns by not regularly salary sacrificing, according to new research by Finder, Australia’s most visited comparison site. A new Finder survey of 722 people with super revealed only...

6 Ways to Improve Customer Experience

When it comes to a great customer experience, how you treat your customers, the quality of your products or services, and the overall customer journey are all important aspects. Here are six ways you can improve your business...

Investment by Jucy Set to Reduce Australia’s Rental Vehicle Shortage

Multi-Million Dollar Investment A multi-million dollar investment in Australia’s international tourism infrastructure is expected to ease a critical shortage of rental vehicles. Jucy, one of Australasia’s largest vehic...

The climate bill could short-circuit EV tax credits, making qualifying for them nearly impossible

Today's EVs rely heavily on China and other countries for materials.Shen Chunchen/VCG via Getty ImagesThe U.S. Senate passed a far-reaching climate, energy and health care bill on Aug. 7, 2022, that invests an unprecedented US$370...

Solve HR growing pains with these simple steps

In today’s ever-changing climate, businesses must be geared up and able to embrace change. This means being equipped with the right technology to ensure readiness for the challenges that lie ahead.  During the pandemic, many...

Leading AI mining tech company Plotlogic welcomes climate change legislation

A global leader in mining process optimisation, Plotlogic, has welcomed the news that the Australian Government’s carbon emissions bill will pass through Parliament.  Following The Greens announcement that the party would...

Web Busters - Break into local search

WebBusters.com.au