BEN REBBECK, EXECUTIVE DIRECTOR

Oct 5, 2016

On 19 September 2016, ASIC reported on its review of the marketing of initial public offerings to retail investors. The notable feature of this review is that ASIC is now taking a close look at the marketing capital raisings via social media and other platforms, in addition to traditional marketing.

A copy of their report is available here.

While using social media to market capital raisings is not yet pervasive in Australia, it is increasingly used occasionally by small to medium-sized firms to market IPOs and secondary raisings.  Recent examples of offerings that utilise social media in their marketing include ASX-hopefuls Bitcoin Group and H2Ocean, which counts former MP Wyatt Roy and TV personality David Koch as independent directors.

Aligned with this increased social media use, is ASIC is increasing surveillance.

Specifically, over the 6 months to March this year, ASIC reviewed the social media and online activities associated with:

1. 23 IPOs where a prospectus was lodged;
2. 17 brokerage and securities firms marketing practices and materials; and
3. conducted a more extensive review of 7 of the original IPOs.

ASIC fires shot across the bows

ASIC Commissioner John Price said the purpose of the review was to, “understand current market practices and identify areas of particular concern.”

“…we also want to remind firms and issuers to ensure that their marketing practices comply with the advertising and publicity restrictions in the Corporations Act,’ he said.

ASIC’s not so thinly veiled ‘shot across the bows’ was further emphasised in its report by specifically calling out two capital raisings where ASIC found information about IPOs was “mis-stated” on Chinese micro-messaging site WeChat.

While in neither example the float was cancelled or blocked due to a loose tweet, ASIC stated “In both cases, we took regulatory action to have the issuer [or the firm] remove or retract the post,” ASIC’s report said.

ASIC’s findings

Key findings of ASIC’s report included:

1. “There were some oversight weaknesses in relation to marketing done via telephone calls and social media, and in ensuring that marketing material is kept up to date.
2. The use of forecasts in communications or the targeting of investors from a particular background means special care may need to be taken to avoid misleading investors.
3. Firms and issuers did not always properly control access to information about the offer to ensure retail investors base their decision on the prospectus; and
4. Some good practices were adopted by firms to ensure that communication was consistent with the prospectus information.”

Overall, ASIC’s review paints a healthy picture of the marketing process, but sends a clear message that there may be gaps in compliance and monitoring procedures, leading to exposure for the firms and marketers of an IPO.

With both old and new media, it is essential to plan appropriately, develop compliance plans, and monitor procedures to ensure compliance. This is generally easier with ‘old’ marketing methods, as the procedures have been bedded down for longer and the compliance gaps are easier to identify.