Insider trading: Canberra leaks then seeks answers

Someone made a killing out of trading the steel industry stocks Bluescope and OneSteel before the announcement of the detail of the carbon tax package.

It could turn out to be a hot potato that no one really wants to be left holding, but one that will gain enough media attention it cannot be ignored.

The embarrassing aspect of this particular instance is the leak of market-sensitive information came from the ranks of the government or the legion of public servants who were aware of the details of the carbon tax package before it was released to the public on July 10.

The particular element of the carbon tax initiatives which is the focus of the insider-trading claim centres on the $300 million concession package for Bluescope and OneSteel, Australias two steelmakers. Without it, steelmakers would have been seriously financially disadvantaged by the introduction of the carbon tax.

In the months leading up to the announcement of the carbon tax detail, the pairs share prices had been marked down.

In the week before the official announcement the share prices of both companies ran up by more than 6 per cent  adding more than $300 million to their combined sharemarket value.

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

The new chairman of the Australian Securities and Investments Commission, Greg Medcraft, ducked media questions on the issue but the independent MP, Rob Oakeshott, and the Greens Christine Milne registered their disapproval at the apparent leaks and the trading that took place as a result of them.

As with much government policy, the details of the carbon tax package were selectively leaked to the media in advance. 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 especially accomplished information managers  giving details in advance is nothing new. Some of this is done more widely and some is selectively.

Giving certain media channels the heads up on the carbon price was not particularly controversial  nor was giving out the more general indications of compensation for emitters. There were hundreds of them.

But the steelmakers compensation package was more specific and involved only two companies  thus the information on the compensation was extremely price sensitive.

The trouble is that there were more than 100 people in Canberra who knew the detail of the package, and keeping a lid on such information is difficult.

This will make it additionally 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, however, will now be under some pressure to pursue an investigation, one with a highly difficult task.

He does not actually need a kick up the backside to focus his tracker dogs on insider trading. Since taking the top job at ASIC a couple of months ago, he has made it abundantly clear that this is already focus for the enforcement team. (For that matter it was also a focus of his predecessor, Tony DAloisio).

There are always plenty of examples of glaring insider trading  in recent weeks one has been trading in Sundance Resources stock, which moved up almost 20 per cent on higher-than-usual turnover just before the news the Chinese explorer, Hanlong Mining, had made a takeover approach.

It is sad to say that these examples of pre-announcement share movements are anything but unusual.

Traditionally insider trading has been a difficult crime to prosecute  and successes have been few. But in the interests of maintaining transparency in financial markets the regulator must continue to pursue them and apply maximum pressure.

ASIC now has full carriage in this sphere and does not need to wait for a referral from the ASX on aberrant trading to start an investigation.

In a recent interview an ASIC commissioner, Shane Tregillis, noted that rather than being the cop that comes in after the accident, ASICs new role as market supervisor meant it had to intervene immediately.

Joining the dots in the Bluescope and OneSteel case wont be easy. ASIC will nonetheless have to cope with numerous investors kicking up a stink because they were not apprised of the detail of the carbon package. They want to see some action.

And because the independent MPs in Canberra 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 out there who profited from this Canberra leak and others outside the loop who lost millions.

Politicians dont understand investment markets and never have. But asking their own regulator to police a market that Canberra abuses is outrageous. Having played with selective leaking of information, Canberra has a nerve asking its regulator to get tough on insider trading.