Carbon tax and insider trading: looking for the needle in a smokestack

INSIDER trading has emerged as an unintended consequence of the introduction of a carbon tax/emissions trading scheme. Someone made a killing out of trading steel industry stocks, BlueScope and OneSteel, before the announcement of the carbon tax package's details.

The embarrassing aspect in this instance is that the leaking of market-sensitive information may have come from the government or from public servants who were aware of the details of the package before it was released on July 10.

The particular element of the package that is the focus of the insider trading claim involves the $300 million concession package for Australia's two steel makers, BlueScope and OneSteel. Without it, they would have been put at a serious financial disadvantage by the introduction of the carbon tax.

In the months before the announcement, the steel makers' share prices had been marked down. But in the week before the announcement the share price of each ran up by more than 6 per cent, adding more than $300 million to their sharemarket value.

This was all but ignored by Canberra until the media started to ask questions of the government and the regulator yesterday.

Australian Securities and Investments Commission chairman Greg Medcraft ducked questions, but independent MP Rob Oakeshott and the Greens' Christine Milne registered their disapproval at apparent leaks and trading that took place because of them.

Like much government policy, details of the package were selectively leaked to the media. By the time the full policy detail was announced, much of it, including the starting price of the tax, had already made headlines. The media was also let in on the consumer compensation package.

Politicians are accomplished information managers giving details in advance is nothing new. Giving certain media the heads-up on the carbon price was not particularly controversial, neither was the more general indication of compensation for emitters. But the steel makers' compensation package was specific and involved only two companies, making information on the compensation extremely price sensitive.

There were more than 100 people in Canberra who knew the details of the package, and keeping a lid on such information is difficult.

This will make it extra difficult for Medcraft to get to the source of the problem. It would be far easier if the information was known to a select few investment bankers, which is normally the case when a deal is brewing that alters the value of a listed stock.

Medcraft will now be under pressure to pursue an investigation to find a needle in a haystack.

Since taking over at ASIC a couple of months ago, he has made it clear that insider trading is a focus for his enforcement team.

There are plenty of examples of glaring insider trading in recent weeks Sundance Resources stock moved up almost 20 per cent on higher than usual turnover just before the news that Hanlong Mining had made a takeover approach.

Pre-announcement share movements are anything but unusual. Insider trading has been a difficult crime to prosecute. But in the interests of maintaining transparency in financial markets the regulator must continue to pursue them. ASIC has full carriage in this sphere and does not need to wait for a referral from the ASX to start an investigation.

Joining the dots in the BlueScope and OneSteel case won't be easy. ASIC will have to cope with investors kicking up a stink because they were not apprised of the carbon package details. They want some action.

And because the independent MPs are getting their first taste of being inside the loop on sensitive data, they are now aware of how the information game can have wider ramifications than just public relations.

There are traders who profited from this Canberra leak and others outside the loop who lost millions. Politicians don't understand investment markets and never have. But asking their own regulator to police a market that Canberra abuses is outrageous.

Having played the selective-leaking game, Canberra has a nerve asking ASIC to get tough on insider trading.