- ASX has released a consultation paper setting out proposed amendments to the Listing Rules to facilitate accelerated rights issues—Jumbos, RAPIDS and SAREOs—and to seek to address issues associated with accelerated rights issue trading halts and the Exchange Traded Options market.
- ASX hopes to introduce these amendments in the second quarter of 2011.
- ASX is inviting comments on their proposed amendments by Friday, 25 February 2011.
- Freehills proposes to make a submission and we invite you to contact us if you have issues you wish us to include.
ASX has kicked off the New Year by releasing a consultation paper1 setting out amendments it proposes to make to the Listing Rules to facilitate accelerated rights issues—Jumbos, RAPIDS and SAREOs—and to seek to address issues associated with accelerated rights issue trading halts and the Exchange Traded Options market.
Facilitating accelerated rights issues
The proposed amendments to the Listing Rules will recognise accelerated rights issues as pro rata issues for the purpose of Listing Rule 7.1 and include new timetables which reflect the common accelerated rights issue timetables.
The Listing Rules amendments are intended to facilitate rights issues made using a prospectus or product disclosure statement as well as the growing number of ‘low doc’ rights issues.
The amendments to the Listing Rules reflect the increased use of accelerated offer structures over the last five years and will generally avoid the need for listed issuers to seek waivers to facilitate accelerated rights issues. Issuers will continue to have the option to seek waivers for accelerated rights issues, for example, if it is intended to use a different timetable. Waivers associated with accelerated rights issues such as seeking to expand the issuer’s placement capacity having regard to the underwritten component of the rights issue will still need to be applied for as needed on a case by case basis.
Some refinement of the proposed timetables will need to be discussed with ASX including to take account of early retail settlement for accelerated rights issues for listed managed investment schemes.
We consider that this is a great initiative by ASX which recognises that accelerated rights issues are a key part of the Australian capital markets and which will simplify the execution of many accelerated rights issues by avoiding the need to obtain a waiver. As ASX notes in its consultation paper, the amendments to the Listing Rules will also increase transparency around the types of capital raisings that can be undertaken under the Listing Rules and contemporise the Listing Rules by bringing accelerated rights issues within the Listing Rules.
Impact of trading halts on the ETO market
ASX is also proposing to address an issue which has arisen on a number of accelerated rights issues and their interaction with the Exchange Traded Options (ETO) market.
The trading halts used in accelerated rights issues can impact the ETO market if they cross over the ETO expiry date for ETOs over the issuer’s securities. The ASX Market Rules prohibit the ETO market being open when the underlying listed securities are in trading halt. ETO expiry dates are usually in the last week of a month.
A trading halt over the ETO expiry date increases risk and uncertainty for option holders and writers as it may prevent ETOs being rolled or closed out in the one or two days prior to the ETO expiry date and limits the available pricing history or a final closing price for the listed securities. Issues can also arise in relation to stock borrowing to ensure settlement of expiry exercise obligations.
To address this issue ASX has in the past opened the ETO market for the halted securities for two hours on the afternoon of the expiry date to give option holders and writers the opportunity to roll or close out their positions.
ASX is proposing to amend the Listing Rules to require an entity to give ASX two business days notice if it intends to issue a trading halt for an accelerated rights issue which will coincide with an ETO expiry. The consultation paper states that the aim of the notification is to give ASX time to notify ETO holders of the special arrangements that will apply for that expiry and to put those arrangements into place. A fee will also be payable by the listed entity unless the timing of the halt is outside the control of the entity.
We have concerns with this proposal as it would not be appropriate for ASX to notify ETO holders of an upcoming trading halt and consequently the rights issue—which may or may not occur as two days out from a proposed accelerated rights issue it is not unusual for the dates of the trading halt to change or for the offer to not proceed—and which in any case remains a confidential transaction. The potential for the accelerated rights issue is confidential information not available in the market and it will be unsatisfactory from the perspective of the potential issuer and the ETO holders for such information to be available to ETO holders. Equally it is not an acceptable alternative to prohibit issuers going into trading halt for an accelerated rights issue because it coincides with an ETO expiry date.
This is an issue which will need to be discussed with ASX and alternatives considered.
The ASX is inviting comments on their proposed amendments by Friday, 25 February 2011.
Freehills proposes to make a submission to ASX on the proposed amendments. Please contact a member of the Equity Capital Markets team if you would like to discuss any aspects of the proposed amendments or issues for inclusion in the submission.