December 19, 2018 / 10:03 PM / 6 months ago

Australia corporate regulator to seek harsher penalties for errant stockbrokers

SYDNEY, Dec 20 (Reuters) - The Australian corporate regulator said on Thursday that it will seek harsher punishment, including possible criminal sanctions, for stockbroking houses that benefit unlawfully from IPOs or other capital raisings.

In a report published on Thursday, the Australian Securities and Investments Commission (ASIC) said a study it conducted found too many mid-sized stockbrokers were allocating new shares to employees despite conflicts of interests from the moves.

“Where personal interests take precedence over client interests this may reduce the allocation available for clients and result in poor advice or outcomes for clients,” the report said.

The report did not name the companies that had engaged in such practices nor say how many had done it.

ASIC has been under pressure since a public inquiry into Australia’s finance sector misconduct drew criticism that it was failing to police the sector effectively.

Its report said that between 2014 and 2018 shares sold in initial public offerings (IPOs) gained an average 11.6 percent on their first day of trading and shares sold into a secondary placement gained an average of 5.4 percent, suggesting the shares were being sold too cheap.

“That’s 5.4 percent that should have gone arguably to the issuer not into the hands of institutional investors, i.e. the brokers’ clients,” ASIC Commissioner Cathie Armour told Reuters.

“Why is there this transfer of wealth from issuers to institutions? The real question is: are issuers getting the best deal they can from their capital raisings?”

Armour said for broking firms which broke the law ASIC would consider the full range of penalties available, including licencing, civil and criminal action, depending on the conduct.

ASIC previously typically accepted pledges by brokers to rectify its concerns about their capital markets dealings, along with modest fines but more recently has resorted to stronger action, including a lawsuit in a case.

The report also said ASIC will review the practices of firms in the debt capital market. (Reporting by Paulina Duran; Editing by Byron Kaye and Muralikumar Anantharaman)

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