The ASX has recently released a consultation paper with a number of proposed amendments to the requirements for admission to the Australian Securities Exchange. The paper, Updating ASX’s admission requirements for listed entities, was released on 12 May 2016 and outlines the proposal to update the Listing Rules to ensure the market maintains its quality, integrity and international competitiveness. The proposed amendments would require applicants for admission to the official list of ASX to ensure they satisfy certain increased thresholds and requirements. The changes, although tightening the admission requirements, will still be administered subject to the ASX’s absolute discretion.

We have set out below an analysis of the key changes proposed in the ASX’s consultation paper, together with some relevant commentary. Importantly, and subject to the consultation process, the expected timing of the new the ASX listing rule requirements coming into effect is 1 September 2016 (ie the current listing rule admission requirements will continue to apply to all applications received by the ASX up to 31 August 2016).

1. Increasing the financial thresholds for listing on ASX

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Commentary

The proposed increases to these financial thresholds are intended to ensure that the minimum standards for size, quality and operations of ASX-listed entities are maintained, without adversely impacting on the international competitiveness of the ASX (compared to overseas exchanges). It is also expected to provide greater certainty to the market and investors that the listed entity (particularly those in the early stages of their lifecycle) has sufficient resources to carry on its business for a reasonable period. Of course, the corollary of this is that many ‘start-ups’ will need to defer their listing ambitions until they have built up their profit history or asset reserves to the new levels required by ASX.

2. Introducing a minimum free float requirement

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Commentary

In the past, ASX took a relatively flexible approach to an entity’s ‘free float’ requirements. The proposed amendments; requiring a 20% minimum proportion of the entity’s securities, seek to strike a balance between supporting liquidity in the secondary market and emerging growth industries. ASX has, in any event, been exercising its discretionary powers of late to require a minimum level of free float (often somewhere between 10% and 20%). In many respects, providing certainty by amending the listing rules to include this requirement is a good thing for applicants and investors.

3. Changing the spread test

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Commentary

In summary, the proposed spread changes allow a listing entity to have fewer security holders in order to satisfy the spread test, but with each security holder needing to have a registered holding with a higher value. The primary purpose of this rule change is to ensure that there is sufficient investor interest in an entity to warrant its listing on the ASX (which may not be the case where an entity has many security holders having a low-value parcel, which can lead to suggestions that the spread has been satisfied by artificial means).

4. Applying the same working capital requirements to all entities satisfying the assets test

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Commentary

Applicants must also be aware that they need to include a company or expert statement in their IPO prospectus or PDS confirming they have sufficient working capital to carry out their stated objectives.

5. Requiring audited accounts from entities seeking admission under the “assets test”

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Commentary

These proposed changes are aimed at ensuring there is consistency in the requirements to produce audited accounts in both the profit test and assets test. ASX will retain its discretion to accept audited accounts for less than 3 full financial years. However, this will only likely occur in circumstances where ASIC also accepts such accounts in approving the IPO disclosure document (thereby creating consistency between the regulators).

6. Reinforcing ASX’s discretion to refuse admission to the official list

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Commentary

In its consultation paper, ASX set out a non-exhaustive list of examples such as:

  • ASX is not satisfied with the qualifications and experience of the entity’s auditor;
  • the applicant is from an emerging market and ASX is not satisfied with the level of corporate regulation in that market;
  • the applicant’s board has no directors with experience in directing or managing a listed entity or an entity of the type of the applicant;
  • ASX has had prior unacceptable dealings with the applicant entity (or one of its directors, brokers or professional advisers);
  • the applicant appears to be seeking listing on ASX for collateral purposes unrelated to accessing Australian capital markets;
  • ASX considers that the applicant has priced its IPO securities at an artificially high price to meet the admission requirements;
  • ASX believes the entity may not have sufficient capital to meet its business objectives because there is no minimum subscription condition in the IPO disclosure document or ASX regards the minimum as being insufficient;
  • the applicant has been denied admission to an official list of another exchange; or
  • ASIC, or another corporate regulator, has expressed concerns to ASX about the admission of a particular entity.

7. Changes applicable to ASX Foreign Exempt listings

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Commentary

ASX proposes to list the exchanges it considers to have a regulatory framework broadly equivalent to the ASX official list. These accepted exchanges include those such as EuroNext (Brussels), TSE (Tokyo) and TSX (Toronto).

As outlined above, ASX’s consultation paper proposes a number of amendments that will affect entities applying to enter the official list. Any interested parties are invited to provide their submissions on the proposed changes by 24 June 2016.

This article was written with the assistance of Nhu-Thuy Dinh, Law Graduate.