Every investor knows them and every company secretary dreads receiving them.

But who send those hundreds of official query letters to ASX listed companies each year?

That would be the 65-strong ASX compliance team — which makes sure that everything that should be public, is public.

The ASX’s head of compliance, Kevin Lewis, says while he “can’t send in the stormtroopers like ASIC can”, his team lays the groundwork for the impending raid.

In an interview with Stockhead, Mr Lewis said the query letter and the inevitable “please confirm you are in compliance with the Listing Rules” request is aimed at getting companies to commit in writing that they’re toeing the line.

If it turns out they’re not, the paper trail is there for ASIC to follow.

Pic: ASX
ASX chief compliance officer Kevin Lewis.

Following ze rules

Up to 30 matters are referred to the corporate watchdog  every year for breaking ASX rules or breaching the Corporations Act.

So far this financial year the ASX has referred five matters to ASIC.

Of the 34,252 announcements made in those three months, there have been 74 price queries, 52 continuous disclosure queries, and 23 aware letters.

Mr Lewis says a surveillance department monitors the market for unusual trading patterns using the Nasdaq’s SMARTS software.

“I can’t tell you the exact parameters because after I do, I will have to shoot you,” he laughed.

A little over a year ago the New York exchange said it was building machine-learning into its technology so it could better track suspicious trading patterns.

When an odd pattern pops up with no explanation, the company gets a phone call.

If they say ‘yes, we’re working on a confidential deal’, the ASX advisor may tell them it’s clearly no longer confidential, so please go into a trading halt.

If they say ‘no’, they receive a price query letter to respond to.

Mr Lewis says there are occasions where companies say they have nothing to declare over the phone, “and lo and behold a few weeks later it turns out they were working on a big deal”.

That’s when they get an ‘aware’ letter asking them to explain when they knew about the news — and this can result in a referral to ASIC.

Zoono and Neurotech have both been subject to this process recently.

The ASX spelled out the meaning of ‘aware’ to Zoono after it was all innocence, claiming it had no idea why its share price was surging, only to announce a large contract a week later.

Neurotech was pinged when its “outstanding preliminary results” were revealed to a conference days before it told the market.

Behind-the-scenes phone calls

In many cases there is no announcement to the market — just a behind-the scenes phone call from the ASX to a company secretary.

ASX phone calls resulted in 391 trading halts and 110 suspensions in the September quarter.

“There’s a lot of phone calls and other activities going on behind closed doors which no one ever sees or knows about,” says ASX spokesman Matthew Gibbs.

And yes, there are repeat offenders the ASX keeps an eye on — both companies and directors.

Known malefactors are usually weeded out in pre-listing reviews.

“We have a listings admission process where we look at those issues rather more closely, earlier in the process,” he says.

But if a company is already listed and a pattern of bad behaviour appears with a known bad egg, there’s not much they can do.

“[When bad directors pop up again] the market is very good at regulating that sort of thing, eventually.”

Overseas companies can also have early run-ins with the market operator.

Before the ASX changed admissions standards last year to enforce a minimum 20 per cent free float, they had some Chinese companies that were only offering very low floats.

One business from China wanted to list only 0.4 per cent of the company.

They’ve also had applications from overseas where none of the directors was based in Australia or had any ASX experience.

They are told to restructure the board before they apply again.