This process ruled out any grey area of the possibility of manipulating switch options within the super fund based on inside information. To switch options, Sicilia must file an application to SuperPartners. If the application is received before the last five days of the month, the change is made half way through the month after the request. If the application is received with less than five days of the month to go, the change is not made until the start of the second month after the request is made.

Maged Girgis, a partner at Minter Ellison Lawyers who specialises in superannuation, recounts a situation at a super fund – which he declined to name – in the days when the rate of return was capped by the fund and announced during the year as an interim rate of return, before the end of year’s final rate was announced to members. Wherever a member’s money was at that end of year cutoff, whether they had recently subscribed to that investment option or not, was the rate of return their account was topped up with.

Girgis says some of the investment staff knew the fund was going to declare a certain rate of return on the investment option they were in. It was going to be less than the interim rate the fund had declared earlier. So they pulled their money out to get a better rate elsewhere before the fund had made the information public. “These people were never prosecuted – they weren’t taken to court – but they were asked to leave,” he says. Girgis assists funds in formulating standards around how to manage employees’ personal trading accounts. He had not seen or heard of a CalPERS-like directive involving a dollar threshold over which trades required more disclosure.

The law in Australia generally is not prescriptive on how funds should manage the possibility of a staff member front-running the market. The clause related to insider trading was repealed from the Superannuation Industry Supervision Act when the Financial Services Reform Act was passed in 2001. But while it was taken out of the SIS Act, the reference to insider trading in Corporations Act – point 7.10 – was expanded from dealing with securities to dealing with financial products.

However, the law is not unambiguous.

Leo de Bever, chief investment officer of Victorian Funds Management Corporation, says part of the problem some funds managers have in applying behavioural codes around the personal trading rules is that the law is not laboriously clear – a good thing in some respects – but which nevertheless can create ambiguity.

Leave a comment