ASX has recently issued an update of Guidance Note 27 Trading Policies. Whilst completed as a part of ASX’s Guidance Note Refreshment Program, the updated Guidance Note 27 is a considerably expanded edition of the Guidance Note that was first introduced in January 2011 upon the inclusion of Listing Rule 12.12.
Whilst not substantially altering the central requirements for a robust trading policy, the updated Guidance Note provides expanded commentary on issues such as:
- application to people beyond key management personnel (KMP);
- application to transactions beyond the basic trading in shares;
- the process for giving a trading clearance; and
- measures to ensure compliance.
The result is a Guidance Note that offers comprehensive commentary on a range of issues which may affect trading by KMP’s or other personnel having access to inside information.
In this Alert, Partner Michael Hansel and Associate Richard Hanel highlight some of the key commentary and observations arising from the updated Guidance Note. All listed entities should take the opportunity to review its share trading policy against the updated Guidance Note, and update trading policies as necessary to address those circumstances which may be applicable.
The structure and expanded text of the updated Guidance Note suggests an approach by ASX to not only provide guidance to companies on the minimum requirements of addressing Listing Rule 12.12, but also to provide guidance on a broader scale with regards to the policy objectives of the Listing Rule and how companies can use the share trading policy to address broader perceptions of insider trading.
In a press release on 30 January 2015, the ASX noted that apart from incorporating updates to reflect market developments since the last update in January 2012, the new Guidance Note makes it clear that “the purpose of a share trading policy is not only to minimise the risk of actual insider trading, but also to avoid the appearance of insider trading and the reputational damage that may cause”.
The updated Guidance Note provides new guidance on a range of peripheral issues which companies may often encounter when preparing or implementing share trading policy, with suggestions as to what content should be included in the trading policy to address those issues.
Seven key observations taken from the updated Guidance Note are:
- an emphasis on a company to create a fit-for-purpose trading policy for that company, tailored to its specific circumstances;
- commentary on the value of an expansion of the trading policy to family members of KMP’s and other employees (such as IT staff), utilising contractual obligations under employment agreements to establish a legal footing for enforcement and including the use of ad hoc trading restrictions for staff below KMP level;
- expanded discussion on the determination of “closed periods”, including generally accepted “trading windows”, and other prohibited periods, with an emphasis on reserving the right to impose ad hoc restrictions and suggestions for ensuring that such restrictions are implemented in a manner that will not create speculation itself;
- an emphasis on the inclusion of a warning statement within the policy that trading during a permitted period does not preclude a person from breaching inside trading laws if they are in possession of inside information at the time;
- new commentary on approaches for implementing a policy which covers more than simple shares trades – including trading in derivatives, short-term trading activity, short selling activity, hedging transactions, margin lending transactions and trading in securities of other entities;
- increased commentary on the procedure for granting a written clearance to trade, including who should give the clearance, the factors to take into account and the duration of the clearance; and
- expanded examples of suggested steps that a company can take to bring awareness and understanding to the trading policy and to monitor compliance with the policy.
Arising as a result of a periodic review rather than any specific policy change or change to the Listing Rules, the updated Guidance Note may not introduce any new questions for those companies with an already robust trading policy which addresses the matters central to Listing Rule 12.12. However, there is sufficient new commentary in the Guidance Note across a broader range of issues which may give reason for a company to undertake some fine tuning or expansion of the operation of its current trading policy, or to improve its compliance processes. Appropriate updates to the trading policy along the lines suggested in the Guidance Note may enable a company to avoid or at least address some of those circumstances which can give rise to a perception of insider trading which results in an adverse market reaction.