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Allocations in equity capital transactions: ASIC releases “better practice” recommendations for company boards and brokers
Date : 31 January 2019
Author/s : Belle Jing, Adrian Palladino
Type : Focus Paper


On 20 December 2018, the Australian Securities and Investments Commission (ASIC) issued “better practice” recommendations with respect to the practices of issuers and their brokers in the allocation of securities in equity raising transactions.1 ASIC’s report follows global scrutiny of allocation practices and associated conflicts of interest, and echoes the guidance recently released by the International Organization of Securities Commissions (IOSCO) on the subject.

On the issuer side, ASIC is calling for greater involvement and engagement by company boards in the allocation process of equity raising transactions. In particular, ASIC is encouraging company boards to:


  • carefully consider and clearly communicate the purpose of the capital raising to brokers, including the desired treatment of existing security holders for secondary capital raisings;
  • have continuity of engagement with brokers throughout each stage of the transaction (e.g. pitching, marketing and allocations);
  • engage in greater scrutiny and interrogation of the allocations recommendations put forward by brokers, having regard to the issuer’s objectives and the broker’s allocation policy; and
  • make inquiries of brokers to better understand the composition of the demand for the issuer’s securities (including whether it includes any inflated or exaggerated bids or bids from related investment managers, employees or principal accounts), before making market announcements that comment on the nature and level of demand for the transaction.

For brokering firms, ASIC acknowledges that most already have policies and practices in place to avoid conflicts of interest during the allocation process, but have put forward the following “better practice” guidance:


  • have standalone policies and procedures for managing allocation recommendations, which ensure the issuers’ objectives are placed above the licensee’s;
  • communicate the rationale behind allocation recommendations to the issuer, including specifically how they meet the issuer’s objectives. ASIC also recommends having an internal process for approving allocation recommendations before they are provided to the issuer;
  • ensure that potential conflicts are identified, managed, monitored and disclosed to the issuer throughout the transaction. Of particular concern are allocations to employees or principal accounts of the licensee and related entities, which should be avoided altogether except where an offer is undersubscribed and the allocation is limited to the extent necessary to raise the funds sought. These allocations are also expected to be disclosed to other investors in the capital raising who have received an allocation;
  • set out the role of the firm’s compliance or control function in monitoring compliance with allocation policies and procedures. This should be clearly articulated and documented and licensees should consider their compliance with regulatory obligations on an ongoing basis. Specifically, transactions should be periodically reviewed on a sample basis to check for compliance with the licensee’s policies and procedures; and
  • establish clear processes and responsibilities for communication with issuers and investors, and ensure that all messages are provided in writing. Where messages are sent to investors, this should be done at the same time or as close together as is practicable. Where previously communicated information becomes in accurate, this should be corrected by an update message.

ASIC is planning a similar review of the market practices in debt capital market transactions. Debt market participants should take note the above recommendations to the extent that they apply, in anticipation of ASIC’s guidance to come.

1. ASIC Report 605 – Allocations in equity raising transactions.

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