Good morning!


Placings

An issue arose yesterday, where a share I hold dropped 20% because Tom Winnifrith revealed that the company was conducting a discounted Placing.

I'm the first to agree that the whole system is bad. There's no way shares should remain trading whilst a discounted placing is being organised. What this means is that a considerable number of people are insiders, and theoretically are barred from trading the shares.

However, in the real world, the news leaks out, and unscrupulous insiders just trade through a third party - selling in advance, thereby locking in a guaranteed profit. It's illegal, but it's obvious from the trades that it happens. Such people should go to jail, but sadly the regulators only seem able to catch the occasional culprit. Thus the law seems little deterrent for the unscrupulous, who seem happy to take their chances, with such favourable odds.

So whenever a placing is being organised, there is clearly a false market in the shares. This has to be changed. I suggest that we need a new, accelerated fundraising process, where the shares are first suspended.

Then, a book build should be conducted online, with existing shareholders having precedence (to recognise pre-emption rights). The fundraising would then complete, with the price being set by an auction process. The company could set a minimum price at (say) a 20% discount to the current share price.

This would be fair to all, and completely transparent. Therefore there's no chance of it ever actually happening!

Revealing price sensitive information

I've taken part in a few placings over the years. The golden rule is that once you are made an insider, then you cannot trade the shares, nor reveal any information about the placing, to others. Not until the deal is announced anyway. Once it is announced, then you are free to trade the shares again.

I've always scrupulously respected these rules. Sometimes to my own disadvantage. I took part in a placing at Synety (LON:SNTY) and watched in dismay as the share price collapsed before the placing was announced. It was obvious that someone was insider dealing. However, as I was an insider, I had to sit tight, and watch the value of my existing shares roughly halve. With hindsight, it would have been far better if I'd not been told about the placing, and could have sold in the market - as it was obvious…

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