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Appendix

Published in:
Casino capitalism? Insider trading in Australia / R Tomasic
Canberra : Australian Institute of Criminology, 1991
ISBN 0 642 15877 0
(Australian studies in law, crime and justice series) ; pp 143-146

Methodology

The research project reported in this book arose out of the increasing level, of concern evident from the mid-1980s about the level of insider trading activity in Australia and the apparent incapacity of legal mechanisms to respond to this problem. The public reaction to the 1986 National Companies and Securities Commission report, Insider Trading Legislation for Australia: An Outline of the Issues and Alternatives, by Philip Anisman, was such that there was a perceived need for further empirical work to be undertaken to provide further information about the nature and extent of insider trading in Australia. In this context, funds for such a study were sought from the Criminology Research Council. The funding application received the support from the then Chairman of the Ministerial Council on Companies and Securities and the then Commonwealth Attorney-General.

Funding for the project was announced in June 1987 (Australian Financial Review, 1 July, p. 43). Thereafter, approaches were made to the State Corporate Affairs Commissioners to obtain their support for this research. All of those approached agreed to allow interviews of them or their staff. The one exception was the Queensland Commission. Similar support was obtained from the branches of the Australian Stock Exchange in the cities to be included in the study. The survey questionnaire was drafted during the second half of 1987. The draft interview schedule was pre-tested in September 1987 and revised prior to the commencement of the inter-views in Perth in February 1988. Thereafter, interviews took place in Melbourne, Sydney and Canberra during the first half of 1988.

As part of the background to the Australian interviews, a wide ranging literature review and a series of comparative interviews took place. The comparative interviews took place with officials from the Securities and Exchange Commission in Washington, the Ontario Securities Commission in Toronto and the Department of Trade and Industry in London. Stock Exchanges in London and Toronto were also visited and material was obtained about stock surveillance practices on a number of American stock exchanges.

A total of 79 interviews took place in four Australian capital cities. The interviewees were selected by resort to a number of different criteria. In the case of the regulatory authorities, interviews were conducted with the Commissioner in each state and territory visited. Usually, one or two other senior CAC or NCSC officers were present at these inter-views. Senior officers from the executive, investigations, companies and litigation areas were interviewed at the NCSC. As Table A shows, a total of 25 regulatory officials were interviewed.

Table A: Occupational designation of insider trading study interviewees and respondents in Canberra, Melbourne, Perth and Sydney
Occupational Designation Number of Interviews Persons Interviewed
Brokers 20 21
Lawyers 13 17
Financial Advisers 13 17
Market Observers 10 10
Stock Exchange Officials 6 9
Regulatory Officials 17 25
Total 79 99

Interviews were conducted with the manager and director of enforcement in each of the Sydney, Melbourne and Perth branches of the Australian Stock Exchange. Interviews were also conducted with 20 stock brokers in each of the four cities. The interviewees tended to be the most senior and experienced brokers in the firms involved and were usually at least directors of their respective firms. Senior securities lawyers, almost all of whom were partners from the major law firms were also interviewed. These were usually high profile and experienced commercial law partners in their firms. The project also covered merchant bankers, fund managers, accountants and investment advisers chosen from well known firms active in each of the cities. This group, amounting to 17 interviews, were referred to as the financial advisers. Observers of the market, such as financial journalists from major capital city daily newspapers, were also interviewed to provide the perspective of those who systematically reported on the market. The geographical distribution of interviewees across Australia is shown in Table B. Mail questionnaires were also sent to Corporate Affairs officials and stock exchanges in other capital cities. Four mail responses were received in this way.

Table B: Geographical distribution of insider trading interviews
City Number of Interviews Number of Persons Present at each Interview
Perth 17 23
Sydney 21 27
Melbourne 27 33
Canberra 10 12
Mail responses from other cities 4 4
Total 79 99

Each interview was undertaken face-to-face with the two principal investigators present. The interviews generally lasted from about 45 minutes to 90 minutes each. The interviews were not tape recorded due to an assessment that this would greatly disturb the flow of the interview. Some of the interviewers expressed fear about tape recording at the time that the interviews were set up by telephone. With the presence of two interviewers it was, however, possible to both retain control of the interview as well as to produce a fairly accurate transcript of the interview by comparing long hand notes taken during the course of the interview. There is much to be said for the presence of two interviewers when sensitive matters are being discussed with securities industry actors. As one interviewer is always able to maintain eye contact with the interviewee, it proved possible to retain good control of each interview, despite the fact that many of the interviewees were quite able to get carried away in expanding upon particular points.

In preparing for the research, a deliberate decision was made to emphasise the public policy and practical dimensions of the research project. Interviewees seemed to be far more relaxed about participating in this study when they thought that the study was likely to have wider consequences than many academic research projects. Advantage was taken of this and the interviewers sought to present themselves as professionally as possible, using a fairly low-keyed approach. Communication with interviewees was by fax machines rather than by letter and the most was made of the official support which the study had been able to attract. However, the fact that the researchers were academics was also useful in ensuring that the research project would be seen as being fairly neutral, avoiding any "taint" of association with regulatory agencies. In the case of the agencies, the official support which had been obtained for this project also served to open virtually all doors. At the completion of each round of interviews in each city, the notes from each interview were transcribed, checked and prepared for analysis.

Almost before any field work commenced, the media took considerable interest in this project (for example, see McIntosh 1987). The media interest continued through 1989 and into 1991. The findings on the research project were released in four reports over a period from August 1988 to February 1989. Each report received considerable print and electronic media coverage across Australia1. The exclusive rights to publish each report on project findings was given to a financial journalist from one newspaper. Usually, the first story was an in-depth article. This was followed by reports in other newspapers, magazines, radio and television which then provided further coverage of the findings from the study. The extent of the media coverage of the findings from the project was such as to lead the House of Representatives Standing Committee on Legal and Constitutional Affairs to obtain a reference from the Federal Attorney-General in February 1989 to look at the "extent of insider trading and other forms of market manipulation". This Committee reported on its insider trading inquiry in October 1989. A further inquiry by this Parliamentary Committee into corporate practices and the rights of shareholders was purportedly given impetus by this insider trading research project (see Clark 1990) and announced in May 1990. It is interesting to note that the methodology used in this study was such as to generate a great deal of public policy and media interest. Qualitative data of the kind presented here had not been previously available in Australia and was found to be of great value in focussing the debate in this area. However, research of this kind is not without its critics. One stock exchange official, for example, sought to dismiss the findings as being anecdotal. Similarly, some economically oriented commentators were critical of the lack of statistical information from this study (see English 1989, pp. 28-34). These criticisms were largely based upon a failure to appreciate the need to adopt research methods appropriate to the phenomenon under scrutiny. As a largely hidden form of conduct, it is simply not possible to readily examine insider trading by traditional statistical methods. As this study showed, interactive methods are far more effective than many had appreciated.

Endnote

1.For examples of the print media coverage received by this study see: Peter Gill, Australian Financial Review, August 30, 1988 at pp1-2 and 13; Stuart Kennedy, The Bulletin, September 6, 1988 at p. 141; David McKnight, Sydney Morning Herald, August 31, 1988 at p. 46; Margot Somerville, The Australian, August 31, at p. 19; Madonna King, The Courier Mail,(Brisbane), August 31, 1988 at p. 7; Marianne Bilkey, Daily Telegraph, (Sydney), August 31, 1988 at p. 4; Anthony Curtis, Daily Mirror, August 30, 1988 at pp. 1-2; The West Australian, August 30, 1988, Stuart Kennedy, The Bulletin, November 1, 1988 at p. 130; Brent Davis, Australian Business, October 26, 1988 pp. 30-31; Peter Gill Australian Financial Review, October 24, 1988, at p. 3; Butterworths Company Law Bulletin, No 16 of 1988 at pp. 362-363; Daily Mirror (Sydney), October 14,1988 at p. 42; Mark Drummond, The West Australian, 25 November 1988 at p. 66; Brent Davis, Australian Business, February 22, 1989 at pp. 16-18; Laurie Nowell, Daily News (WA) , February 10, 1989 at p. 18; Stephen Dabkowski, Herald, (Melbourne), February 10, 1989 at p. 1; Andrew Cornell, Sun (Melbourne), February 9, 1989; Chris Falvey, Daily Mirror (Sydney) February 9, 1989; Ian Davis, The Canberra Times, February 9, 1989 at p. 13; Crispin Wood, The Advertiser (Adelaide), February 9, 1989 at p. 26; Peter Gill, Australian Financial Review, February 10, 1989; David McKnight, Sydney Morning Herald, May 17, 1990 at pp. 31 and 35; David McKnight, The Age, (Melbourne) May 17,1990, at p. 19.