Introduction

The ASX released the final revision of Guidance Note 8 (the Guidance Note) on 13 March 2013, which came into effect on 1 May 2013. It provides a number of updates to assist companies in understanding and complying with their disclosure obligations set out under Listing Rules 3.1, 3.1A and 3.1B of ASX Limited. These updates to the Guidance Note provide guidance for directors in relation to the type of conduct and standard required of them when making disclosures to the market. The main points covered in the Guidance Note include:

  • When information is “market sensitive”;
  • The meaning of the word “immediately”;
  • The use of trading halts to manage disclosure obligations;
  • The exceptions to the requirement to disclose immediately;
  • The meaning of “false market”;
  • Responding to media and market rumours;
  • Earnings guidance; and
  • The ASX’s enforcement practices.

When is information market sensitive?

Section 677 of the Corporations Act sets out the test for determining when information is “market sensitive”. This test provides that “a reasonable person” is taken to expect information to have a material effect on the price or value of an entity’s securities if the information “would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of them. This test is an objective one so the ASX recognises that it is the entity that must form a view as to whether information it knows and holds is “market sensitive” and therefore requires disclosure. The Guidance Note points out two questions which may be helpful to entities making this decision:

  • Would this information influence my decision to buy or sell securities in the entity at its current market price? and
  • Would I feel exposed to an action for insider trading if I were to buy or sell securities in the entity at its current market price, knowing this information has not been disclosed to the market?

If the answer to either of these questions is ‘yes’ then the Guidance Note advises that this could be taken as “a cautionary indication that the information may well be market sensitive”.

The meaning of “delay” as defined by the word “immediately”

Listing Rule 3.1 provides that market sensitive information must be disclosed to the ASX “immediately” upon the entity becoming aware of the information (unless it falls within any exceptions set out in Listing Rule 3.1A). The ASX has interpreted the word “immediately” in this context to mean “promptly and without delay”, but not “instantaneously”. It means doing it as quickly as possible, within the circumstances and not putting it off to a later time. However, the passing of time will not necessarily mean there has been a delay in the disclosure. For example, an announcement to the ASX may take longer in some situations than others, and it is important to ensure that there is no delay in going about the process in preparing the announcement.

Relevant factors that the ASX may take into account when assessing whether disclosure is made “promptly and without delay” include:

  • where and when the information originated;
  • the forewarning (if any) the entity had of the information;
  • the amount and complexity of the information concerned;
  • the need in some cases to verify the accuracy or bona fides of the information;
  • the need for an announcement to be carefully drawn so that it is accurate;
  • the need for the announcement to comply with specific legal or other Listing Rule requirements; and
  • the need for the announcement to be approved by the entity’s board and/or relevant disclosure committee.

The Guidance Note states that the exceptions set out in Listing Rule 3.1A are in place in order to balance the legitimate commercial interests of listed entities and their security holders with the legitimate expectations of investors and regulators concerning the timely release of market sensitive information. The exceptions set out under Listing Rule 3.1A will only apply if:

  • it would be breach of law to disclose the information;
  • the information concerns an incomplete proposal or negotiation;
  • the information comprises matters of supposition or is insufficiently definite;
  • the information is generated for the internal management purposes of the entity;
  • the information is a trade secret.

The use of trading halts and voluntary suspensions to manage disclosure issues

More guidance is also provided in relation to when directors should consider implementing trading halts and voluntary suspensions in order to control the disclosure of market sensitive information to the ASX. The impact of this can be beneficial to both the entity and the market. By making an application for a trading halt or voluntary suspension, this can ensure the entity’s securities are not trading on the ASX and can also signal investors that market sensitive information is about to be released.

The “reasonable person” test

Listing Rule 3.1A.3 provides that Listing Rule 3.1 will not apply to particular information if a reasonable person would not expect certain information to be disclosed. Further clarity is provided in the update where the ASX notes that the reasonable person test has a “very narrow field of operation”. Two examples provided in the Guidance Note include:

 

 

  • where an entity ‘cherry-picks’ its disclosures, only disclosing information which is likely to have positive consequences; or
  • where the information needs to be disclosed in order to prevent an announcement of other information from being misleading or deceptive.

Conclusion

The Guidance Note remains consistent with the overall objectives of the continuous disclosure regime which has been described as enhancing “the integrity and efficiency of Australian capital markets by ensuring that the market is fully informed”. These updates clarify the existing framework in order to achieve more of a balance between what is required by the Guidance Note and what is actually carried out in practice. Whether these updates will have a material change on market practice remains to be seen.