Marketing practices in initial public offerings (IPO) of securities Report 494

From Report 494 Marketing practices in initial public offerings of securities September 2016.

The report outlines the key findings from reviews we conducted by ASIC to examine how initial public offerings (IPOs) are marketed to retail investors. ASIC particularly considered the extent to which social media has become important for marketing. The report identifies some risks and recommendations that may be useful for firms and issuers to consider when developing an IPO marketing strategy.

Of particular importance was the area of concern identified in the report. They are summarised below.

Oversight weakness: Telephone communications

Firms should apply tighter controls over the marketing and selling of IPOs by telephone, such as:

1. providing employees with standardised telephone scripts;
2. recording and routinely reviewing telephone calls with clients;
3. applying stricter requirements on documenting telephone calls with clients; and
4. compliance staff routinely sitting at the sales desk when telephone calls are made
   to clients.

Oversight weakness: Social media posts

Firms should apply controls on social media posts similar to those in place for other
marketing, such as:

1. educating employees on using social media for marketing IPOs in compliance
   with the Corporations Act; and
2. ensuring that social media posts are reviewed before being posted.

Misleading communication: Marketing an IPO other than on its merits

Firms should ensure that marketing:

1. is based on the merits of the IPO itself; and
2. is not based primarily on asking investors to assist with meeting spread
   requirements, or on comparisons with other successful IPOs conducted by
   the firm.

Misleading communication: Prominence of forecasts

Firms and issuers should:

1. take care when using forecasts to market IPOs, and not give undue weight to
   forecasts in the marketing messages; and
2. if forecasts are used, ensure the assumptions and risks of the forecasts are also
   included in the marketing material.

Misleading communication: Marketing of emerging market issuers

Firms and issuers targeting investors from a non-English speaking background
should:

1. ensure that communications are clear and accurate (including any statements
   about the regulatory framework in Australia and about ASIC’s role); and
2. if marketing material is being produced in a language other than English, ensure
   these materials are fully understood by the firm or issuer, including getting
   translations before publication (if necessary).

Failure to monitor: Failing to update multimedia marketing including videos

Firms and issuers should check that:

1. the content of videos used to market IPOs is accurate and consistent with
   disclosure in the prospectus; and
2. the content of any videos remains correct after any changes or updates are made
   to a prospectus.

Inadequate controls on access to information: Access to institutional roadshows

Firms should apply tighter controls and educate their employees to limit access to
institutional roadshows to AFS licensees and their representatives.

Inadequate controls on access to information: Potential access to pathfinder prospectus

Firms should:

1. apply tighter controls and educate their employees to limit access to restricted
   material (including pathfinder prospectuses) to sophisticated or professional
   investors;
2. educate their employees about the need to limit circulation of restricted material
   (including pathfinder prospectuses) before the prospectus is lodged with ASIC;
   and
3. ensure that restricted material (including pathfinder prospectuses) or passwords
   to access restricted material are not distributed by email.

Inadequate controls on access to information: Disseminating information
before a prospectus is lodged

Firms and issuers should not provide materials about an upcoming offer to the
media. If marketing is given to persons before a prospectus is lodged with ASIC, on the
basis of those persons being a sophisticated or professional investor, firms and
issuers should ensure that the recipient actually falls within this category.

Before providing the information, firms and issuers should undertake additional
verification (e.g. obtain an accountant’s certificate) to ensure that the person is a
sophisticated or professional investor. Self-certification by a person is not sufficient.