NZX’s updated guidance notes on continuous disclosure and trading halts and suspensions have now been published.
They provide an important steer on how the NZX interprets the relevant provisions in its own Listing Rules. Contravention of continuous disclosure rules can give rise to civil liability for issuers and persons involved in a contravention, via the Financial Markets Conduct Act 2013.
Alignment with ASX guidance
Chapman Tripp was among the submitters in the consultation round last year to recommend alignment, where practicable, with the equivalent ASX guidance.
We think this is important given the increasing number of companies that are dual-listed on both the NZX Main Board and the ASX as any differences between the regimes give rise to a compliance headache for those issuers.
The NZX has responded to this suggestion to some extent – although the ASX guidance remains far more detailed (and, in our view, more helpful to issuers).
Other key issues are identified below.
The reasonable person test – this is fundamental to deciding what is “material information”. NZX has adopted the formulation used by ASX, where a “reasonable person” is a person who commonly invests in securities, "and holds such securities for a period of time, based on their view of the inherent value of the securities.” The intention is to exclude traders whose investments are based on short term fluctuations in price and market dynamics, rather than the underlying fundamentals, as the effect of including such investors would be to reduce the level of price movements that might be regarded as material.
We assume NZX's motivation is the same although it has not explained its rationale in the guidance. An explanation would have been helpful as this represents somewhat of a grey area, given that the exclusion of these types of traders is not contemplated by the statutory definition from which the rules are drawn.
When material information must be provided - NZX has adopted our submission in rationalising potentially conflicting guidance as to when material information should be released. It is now clear (as with ASX) that NZX considers the obligation to release “immediately” to mean “promptly and without delay”. Where release to NZX’s MAP platform is not practicable at the time of public release, the issuer should provide the announcement to NZX as soon as reasonably practicable and before the next market open.
When price movements constitute a material effect - NZX has adopted price movement “rules of thumb” to indicate what is considered a material effect (>10% will generally be treated as a material effect; <5% will generally not be treated as a material effect). In response to submissions, it has now also provided additional guidance on factors which will be relevant – and which might adjust the rules of thumb in particular circumstances (such as market capitalisation and liquidity, price movements within the market generally, and the period of time between the release of information and the price movement).
Incomplete proposals or negotiations - some issuers have run into difficulties when seeking to manage their disclosure obligations via the scheduling of board meetings or signing legal agreements. Again, more detailed guidance on this area has been provided by ASX.
NZX has acknowledged the issues raised by Chapman Tripp. Although in general a proposal or negotiation only requires disclosure when legally binding documentation is executed between the relevant parties, in some circumstances it can become complete and binding prior to that point.
NZX has also sought to clarify a particular point of concern for listed property investors, who operate in an industry where market practice is to execute a preliminary option or conditional agreement to buy at an early stage. It has done this by distinguishing between:
- agreements entered into for the purpose of facilitating the negotiation of a transaction (which would generally not be expected to be disclosed unless material in their own right), and
- agreements which give effect to a transaction (which generally should be disclosed).
NZX has identified a range of matters for further consideration – either because further work is required (e.g. to align procedures on trading halts with the ASX model) or because they were out of scope (i.e. they would have required changes to the Listing Rules, rather than to the guidance).
We will continue to encourage NZX to provide more detailed practical commentary for issuers and to stay abreast of how market practice develops, where possible aligning itself with ASX’s approach.