Brokers mull insider incident

By Nick Stride

Friday 24th January 2003

Sharebroking bosses and fund managers met yesterday to consider their response to an insider information incident that has shaken the investment industry.

Heads of research from major sharebroking firms gathered at ABN Amro's Auckland office to discuss the pre-Christmas incident in which a fund manager blew the whistle on a UBS Warburg analyst who allegedly offered it confidential Sky City Entertainment Group management information.

The Securities Commission is investigating at the request of the Stock Exchange and sharebrokers fear the incident could prompt regulators to impose rules that would adversely affect the relationship between analysts and listed companies.

The meeting on "research independence" was run under the auspices of Infinz, the professional society of investment analysts and corporate treasurers.

While not specifically called to address the UBS incident it is understood the ramifications were high on the agenda.

According to media reports the UBS analyst, Malcolm Davidson, arrived at a December 4 meeting with the fund manager with documents showing the financial performance of Sky City's Auckland and Adelaide casinos over the previous five months had been much stronger than equity analysts had estimated.

The fund manager, alarmed that the documents appeared to contain price-sensitive information that had not been made public, alerted Sky City and UBS Warburg.

Mr Davidson left the company before Christmas. He declined to comment.

A Sky City spokesman confirmed Mr Davidson's brother, who worked for the company in its casinos division, had also left his job.

Sharebroking sources believe the fund manager concerned was Brooke Asset Management.

Brooke principal Simon Botherway would neither confirm nor deny his firm was involved.

But he said Brooke had a clear policy, where it believed it had inside information, to do whatever was necessary to make sure the listed company disclosed the information to the market so that Brooke would be discharged from its status as an insider.

Echoing other sharebroking industry sources, he said the Securities Commission "has to understand that fund managers and analysts are constantly seeking an information advantage.

"But there is quite a difference between piecing together material public information over a period of time and having material non-public information."

Among the questions the Securities Commission's investigation will address is the extent to which the information was disseminated before Sky City disclosed it, on December 6, to the market.

Mr Davidson did not cover Sky City for UBS.

Its analyst for the company is based in Australia.

On December 5, the day after Mr Davidson's meeting with the fund manager, an article in the Australian Financial Review discussed the Auckland and Adelaide casinos' strong performance.

A spokesman for the Australian Securities and Investment Commission said it was not investigating the incident.

The commission would not do so unless there was an indication inside information had been traded on in the Australian market.

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