In its first major update to the Listing Rules in over two years, ASX is proposing to roll out a series of amendments to its listing rules, aimed at clarifying and enhancing the integrity and efficiency of the securities market that it operates.
To highlight some of the most noteworthy changes, the ASX is proposing to:
- apply greater scrutiny in reviewing pre-IPO issues to related parties, promoters and advisers, to ensure that issues for the purpose of conferring a financial benefit (as opposed to raising capital) are escrowed.
- extend the “good fame and character” requirements in the admission conditions to current and proposed Chief Executive Officers. Currently, this requirement only applies to current and proposed directors.
- introduce a ‘two tier’ escrow regime to reduce the administrative burden of complying with ASX’s escrow requirements, by requiring more significant holders of restricted securities to execute formal escrow agreements and allowing entities to rely on a provision in their constitution imposing appropriate escrow restrictions in managing holders of less significant holdings of restricted securities.
- permit entities to issue securities without securityholder approval, pursuant to an agreement to issue securities entered into prior to listing, provided that the existence and material terms of the agreement had been disclosed in the IPO prospectus.
- where securityholder approval is being sought to a proposed placement of securities, require entities to identify the proposed subscribers by name, instead of just the basis of their selection, where the placement is to 10 or fewer persons.
- remove the ability of entities with a market capitalisation of less than $300 million to issue securities under its additional 10% placement capacity under rule 7.1A for non-cash consideration, and revise Appendix 3B to incorporate a clearer and more specific disclosure framework for informing the market about an entity’s use of its additional 10% placement capacity.
- extend the circumstances under which an entity can issue securities to make up the shortfall on a pro-rata issue, without securityholder approval, to expressly permit issues to sub-underwriters and other persons identified by the underwriter.
- extend the exception to securityholder approval for the underwriting of pro-rata issues to other securities that are entitled under their terms of issue to participate in a pro-rata issue to holders of ordinary securities.
- extend the circumstances under which an entity can issue securities on the exercise of options to an underwriter of the exercise, without securityholder approval, to expressly permit issues to sub-underwriters and other persons identified by the underwriter.
- consolidate the two regimes for approving issues to directors under an employee incentive scheme, and introduce a new requirement to disclose the relevant director’s current total remuneration package so as to provide context for securityholders in deciding the reasonableness of an award made to the director under the incentive scheme.
- require persons nominated by a listed entity after 1 July 2019 as responsible for communicating with ASX, to undertake a Listing Rules compliance course and achieve a satisfactory mark.
- require start-up entities to lodge a quarterly activities statement as well as the current quarterly cash flow statement.
- mandate disclosure of certain capital raising underwriting arrangements, including details of the identity of the underwriter, the scope of the underwriting, fees and commissions payable and an overview of the circumstances where an underwriter may avoid or modify its obligations.
- require listed investment entities to make monthly detailed disclosures as to their “net tangible asset backing” (rather than when it becomes aware of the information), with failure to disclose within the prescribed time frame to result in automatic suspension of the entity’s securities.
- prescribe minimum content requirements for notices of meeting where an acquisition or disposal of a substantial asset from/to a person is a position of influence is proposed.
ASX powers and other matters
- formalise and enhance its investigative, monitoring and enforcement powers. Notably, if the proposed changes are adopted, the ASX will be able to publicly censure listed entities that contravene the listing rules in an egregious manner. Further, the amendments would clarify that the ASX has the power to demand information about an entity’s compliance with the listing rules and direct agreements or transactions to be cancelled or reversed, amongst other things.
- adopt new guidance on what constitutes the spin-out of a “major asset” for the purposes of determining whether securityholder approval of the transaction is required.
- shorten the period before suspended entities will be automatically removed from ASX from 3 years to 2 years.
- update its timetables in respect of a range of corporate actions, including in respect of dividends and distributions, interest payment dates, both non-court and court approved reorganisations of capital, offers of specific entitlements and equal access buy backs.
- integrate various standard waivers granted by ASX into the listing rules, to relieve entities of the administrative and financial burden of going through the application process.
This package of proposed amendments addresses many of the practical issues that we encounter on a day-to-day basis in our Equity Capital Markets practice at Addisons, and we look forward to working with our clients to implement the proposed reforms when they come into effect.
ASX is seeking submissions to its consultation paper by 1 March 2019.