Australian financial regulator ASIC has issued a report reviewing marketing practices used in Initial Public Offerings (IPOs), which includes a warning to both underwriters and issuers involved in IPOs in Australia to ensure their marketing campaigns comply with the letter and spirit of the law, particularly when using emerging social media strategies.
An ASIC review of marketing practices in IPOs has found that so-called ‘traditional’ means of communication – telephone calls, emails and websites – remain more important for the marketing of an offer to retail investors. The review found that the use of social media is not yet pervasive; it is only used occasionally by small to medium-sized firms to market IPOs.
ASIC’s report REP 494 Marketing practices in initial public offerings of securities details the review’s findings, highlights areas of concern and provides for consideration ASIC’s recommendations to improve marketing practices for IPOs in the future.
Between October 2015 and March 2016 ASIC reviewed the online and social media marketing of 23 IPOs where a prospectus was lodged. ASIC then conducted a more extensive review of the marketing practices and materials of 17 firms that were involved in 7 of the original IPOs. ASIC also monitored the marketing of other IPOs as part of its usual prospectus review work.
Key findings of the report included:
- 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.
- 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.
- 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
- Some good practices were adopted by firms to ensure that communication was consistent with the prospectus information.
John Price, ASIC Commissioner
ASIC Commissioner John Price said the purpose of the review was to understand current market practices and identify areas of particular concern. Price stated:
The way that an IPO is marketed may unduly influence the decision to invest in an IPO.
We are living in more innovative times where we are seeing new interactive methods of communication and marketing used in many corporate and commercial arenas, including taking a company public. While we embrace such innovation, 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.
ASIC regularly reviews prospectuses and may monitor the advertising and publicity that takes place during the IPO to ensure compliance with Australia’s Corporations Act.
ASIC also plans to carry out further work this year focusing on investor decision making.
The ASIC report on marketing IPOs can be seen here.