The continuous disclosure guidance note has been amended and released by ASX after completing a public consultation. The amended version comes into force on 1 May 2013.
ASX’s initial changes to Guidance Note 8: Continuous Disclosure: Listing Rules 3.1 – 3.1B are summarised in our article, “ASX updates guidance on continuous disclosure obligations” (November 2012). For a copy of this article, please click here http:// s2.webtemplate.com.au/bridgehead/ PiperAlderman/media/files/9618.pdf. Guidance Note 8 provides guidance on, and assists listed entities to understand and comply with their obligations under, Chapter 3 of the Listing Rules (continuous disclosure).
The purpose of this article is to highlight the six main clarifications made by ASX as a result of the public consultation process.
Clarification 1: what “promptly and without delay” means in the definition of “immediately”
Under the continuous disclosure obligations, an entity is required to inform ASX of market sensitive information “immediately”.
To clarify the concept of “immediately”, ASX has confirmed that the term “promptly and without delay” means doing it as quickly as it can be done in the circumstances (acting promptly) and not deferring, postponing or putting it off to a later time (acting without delay). ASX will take into account the time for the announcement to be carefully drawn so that it is accurate, complete and not misleading. The relevant time for an entity to act will start when an officer of the entity has, or ought to have, come into possession of sufficient information to appreciate the matter is market sensitive. If the market is not trading (i.e. because it is outside of business hours), ASX expects that the announcement should be made before the next trading day starts.
Clarification 2: when to ask for a trading halt
A trading halt may be used if a listed entity has an obligation to give market sensitive information but, for some reason, it is not in a position to act promptly and without delay.
ASX will expect an entity to act very quickly or commence a trading halt where there is an indication that the market sensitive information has leaked and it is, or is likely to have, a material effect on the market price, where ASX has asked the entity to provide information to correct or prevent a false market, or where the information is especially damaging (i.e. “calamitous” news like appointing an administrator or receiver).
However, ASX takes the view that a trading halt would not be appropriate for disclosure issues which are unlikely to be resolved within two trading days.
Clarification 3: the operation of the reasonable person test
The ‘reasonable person’ test is an objective test used to determine whether a reasonable person would expect market sensitive information to be disclosed.
has provided a number of examples where a reasonable person would expect that market sensitive information to be disclosed, namely where an entity has “cherry picked” information (i.e. it discloses “good” information but does not disclose “bad” information), or information needs to be disclosed in order to prevent an announcement of other information required to be disclosed under Listing Rule 3.1 from being misleading or deceptive.
Clarification 4: disclosure of earnings
If an entity becomes aware that its earnings for the current reporting period will materially differ (downwards or upwards) from market expectations, it should consider whether the market needs to be notified of that fact.
ASX has clarified that if analysts provide forecasts on an entity’s earnings, those forecasts can be used as a consensus by the entity to measure market expectations. An entity can calculate the ‘consensus forecast’ of what the market’s expectation of earnings will be by comparing the analysts’ forecasts with their own internal forecasts and excluding any obvious outlier that may distort the results. Further, if the analysts’ forecasts are clustered within a reasonable range, an entity could treat the range as representing the market’s view of its likely earnings.
Out-dated earnings guidance
When determining what is “materially different” from market expectations of its earnings, ASX takes the view that the 5 – 10% range should be used as a guide only. For example, for very large entities that have very stable or predictable earnings, a material threshold close to 5% may be appropriate. However, for smaller entities that do not have stable or predictable earnings, like small mining or biotechnology companies, a material threshold may be 10% (or greater).
Clarification 5: Loss of confidentiality
Information which is confidential and has not ceased to be confidential is not required to be disclosed by a listed entity.
ASX has clarified that in considering whether information has lost its confidentiality, it will have regard to the degree of specificity in the report/rumour if there is a reasonably specific and reasonably accurate media report, analyst report or rumour about the matter. For example, if a report/rumour refers to a transaction with a listed entity and another entity without any details of the transaction, ASX will generally only require the listed entity to disclose the fact that it is in negotiations with the other entity. However, if a report/rumour includes some specific and accurate details of the transaction, ASX will generally expect the entity to confirm those details are correct or are incorrect/still under negotiation. Further, ASX will also consider whether information has lost its confidentiality if there is a sudden or significant movement in the market price or traded volumes of the entity’s securities that cannot be explained by other events or circumstances.
Clarification 6: Monitoring social media
A ‘false market’ can arise where information is incorrect or incomplete in the market and such information compromises the price of an entity’s securities. A ‘false market’ can arise from rumours or speculation circulating the market orally, or via emails, blogs, bulletin boards, chat sites, Facebook, Twitter, or other social media. ASX can request entities to provide information to correct/prevent this false market.
ASX has clarified that listed entities should be aware/monitor such sites where a market sensitive announcement is pending, or market sensitive information is the subject of negotiation. Whilst it is difficult to monitor all reports/rumours, an entity should monitor these sources if there is a material change in the price or traded volume of the entities securities.
Whilst ASX understands that many listed entities may have a policy of not commenting on speculation, ASX may require a response if there is, or is likely to be, a false market.
Consequential changes to other Listing Rules
In addition to the continuous disclosure changes, ASX took the opportunity to make amendments to other Listing Rules (and associated documents), including:
- new streamlined versions of the Appendix 1A, 1B and 1C application forms and listing agreements
- relocating the requirements for information memoranda and supplementary information memoranda into new Listing Rules 1.4 and 1.5
- correcting a definitional error in the reference to “associate” in the note to Listing Rule 14.11 (voting exclusion statements)
- making other minor drafting corrections or clarifications to Listing Rule 1.1 Condition 3, Listing Rule 1.11 Condition 1, 4.2B and 4.3B, and
- updating Appendix 5B so that the quarterly report to cover oil and gas exploration entities now covers mining exploration entities.
To assist with compliance and these recent amendments, ASX has released a user-friendly summary titled “Continuous Disclosure: an Abridged Guide” Click here to view: http://www.asxgroup.com.au/ compliance-downloads.htm).