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A blog on financial markets and their regulation
There has been a lot of discussion in the press and in the blogs about
an insider trading case launched by the Australian Securities and
Investments Commission (ASIC) against Citigroup Global Markets Australia Pty
Ltd. ASIC’s press
release provides some details and soxfirst.com has published the full
text of ASIC’s Statement of
The facts are that while Citi’s investment bankers were
advising a potential acquirer, its proprietary trading desk was buying the
target’s stock. When the investment bankers came to know about
this, they informally communicated to the traders that they should not be
buying. The traders then stopped buying and in fact sold some
shares. Since the shares rose sharply when the bid was announced, the
traders would have made more money if they had continued
buying or held on to what they had already bought.
Much of the comments that I have read are sceptical about whether
ASIC has any case at all. Several authors have pointed out that Citi
did not profit from its selling and that the client actually gained. But
after reading the statutes that ASIC cites, it appears to me that ASIC
has framed its claim very well.
These statutory provisions seem to imply that in the absence of adequate
Chinese Walls any trading in the securities concerned
becomes insider trading regardless of whether Citi benefited from
such trading or whether anybody suffered due to it.
Some commentators have suggested that modern financial
conglomerates would find it impossible to function in such a
situation. I think this is totally wrong. Conglomerates can still
function freely provided they ensure that they have strong Chinese
Walls and adequate mechanisms for managing conflicts of interest. If
ASIC has its facts right, Citi’s systems were simply inadequate.