- ASX has finalised its guidance on continuous disclosure rules in preparation for release in May.
- The updated guidance contains even more on immediacy, trading halts, rumour monitoring and announcement triggers.
- Targets would be well advised to ensure that their defence manuals (and continuous disclosure policies) factor in the new guidance on disclosure and trading halt decisions and processes.
More guidance on immediacy, trading halts, rumour monitoring and announcement triggers
The final version of the guidance note seeks to address feedback received during the public consultation. Of particular relevance in an M&A context, ASX has given more guidance on the questions:
- what does the new “immediate” mean, when it says “promptly and without delay”?
- when should you request a trading halt or voluntary suspension?
- what media should you monitor for rumours and when?
what will cause ASX to think that you need to make an announcement:
- a material spike in price and volume will indicate loss of confidentiality or a false market.
- coverage on social media can indicate loss of confidentiality, so social media requires monitoring.
ASX has confirmed that the “reasonable person test” would not require disclosure of a bid proposal that would otherwise not require disclosure because it was incomplete and confidential. It has removed the example exception to this proposition, where the bid proposal was for a second bid and the first bid was open for acceptance. ASX also gives further guidance on:
- when prospective earnings changes will require disclosure,
- M&A and ECM transaction scenarios, eg a condition precedent to an M&A agreement becoming legally binding will not obviate the obligation to disclose the agreement upon signing, and
- general disclosure of terms of underwriting agreements needs to be made on signing.
What does the new guidance mean for M&A practitioners in a public M&A context?
The new guidance means that even at the whisper of a deal you need to:
Be Prepared – with draft leak announcements, with mechanisms to update the draft leak announcements, with means and processes to decide whether you have a disclosure obligation, and with draft trading halt requests and internal procedural mechanisms to allow the trading halt requests to be made to ASX within a matter of minutes, and
Be Vigilant – not only on traditional media and analyst coverage but also the chat sites that cover you.
Putting in place this ASX endorsed preparation and vigilance can only mitigate the continuous disclosure rule risks for targets, bidders and their directors. Prospective targets would be well advised to ensure that their defence manuals (and continuous disclosure policies) factor in the new guidance on disclosure and trading halt decisions and processes.
There is possibly no scenario more risky for breach of the continuous disclosure rules than the scenario of a confidential prospective M&A transaction. The high risk of spikes in price and volume if prospective M&A deals are leaked, in turn leads to a greater interest by class action plaintiffs, and that is in addition to ASIC’s keen objectives to ensure market integrity and in particular to avoid the prospect of insider trading.
What is the context of this continuous disclosure guidance update?
The guidance note is a reissue of ASX’s former Guidance Note 8.
ASX released the draft Guidance Note 8 for public consultation in October 2012. We published 2 articles on the effect of the draft guidance note in the context of M&A transactions and ECM transactions.
“Promptly and without delay” is the “new” immediate, but what does it mean…?
In its draft guidance note, ASX confirms that the requirement for disclosure to occur ‘immediately’ means ‘promptly and without delay’ rather than ‘instantaneously’.
The final guidance note explains that ‘promptly and without delay’ means:
- disclosing 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’).
The time which an entity can take to prepare announcements will depend on the circumstances and the nature and content of the announcements.
ASX has responded to the James Hardie dilemma of immediacy versus accuracy. In assessing whether an entity has acted promptly and without delay, ASX recognises the need for an announcement to be carefully drawn so that it is accurate, complete and not misleading.
When should an entity ask for a trading halt?
Not just to assess whether disclosure under the listing rule is required.
ASX clarifies that while there is a greater willingness to offer trading halts, ASX will not expect an entity to request a trading halt in order to assess whether disclosure under the listing rule is required.
ASX says the first part of the process is assessing whether there is a disclosure obligation. It is only after the entity has
- assessed that there is a disclosure obligation, and
- realised that it cannot give the required announcement promptly and without delay,
that the entity should request a trading halt or suspension.
Quickly after determining that it needs to disclose and it cannot do so promptly
ASX considers that an entity should have in place internal mechanisms to seek a trading halt in a “matter of minutes”.
Not in every case, only in some cases
ASX does not see trading halts as suitable in every case. ASX gives examples of circumstances which do warrant a trading halt, including:
- where there are indications that the information may have leaked ahead of the announcement,
- the entity has been asked by ASX to provide information to correct or prevent a false market,
- the information is especially damaging and likely to cause a significant fall in the market price of the securities,
- the announcement is considered so significant that it ought to be approved by the board prior to being released to the market but the board meeting is not able to be held promptly and without delay,
- where there is uncertainty surrounding the transaction or particular situation which is likely to resolve itself within a relatively short period (within 2 trading days), and
- where a market sensitive announcement has to be delayed and the market will be trading during any part of the delay.
The final guidance note also encourages listed entities to request a voluntary suspension where the resolution of the disclosure issue likely to take longer than the maximum of two trading days permitted for a trading halt.
ASX recommends an entity which decides not to request a trading halt or voluntary suspension to monitor closely the market price of its securities, enquiries from analysts or journalists and media publications for signs of leaks.
What and when are you justified in looking on chat sites and Facebook, following Twitter and checking social media for market rumours? (Tell the boss ASX said you had to!)
What should you monitor for market rumours?
Not only traditional media and media or analyst reports.
ASX expects entities to monitor rumours circulating the market through other media including emails, blogs, bulletin boards, chat sites, Facebook, Twitter or other social media to determine whether the information has ceased to be confidential (and therefore needs to be disclosed) or whether a false market has arisen due to market rumours.
Are there some limitations on what “rumours” you need to respond to by disclosure, sites you need to visit and time you need to spend on screen?
Yes, you don’t need to respond to all rumour and speculation.
ASX only considers information has ceased to be confidential if it is reasonably specific and accurate. The scope of the response that is needed also depends on the specificity of the market rumours. If the rumour coverage merely refers to the entity being about to enter a particular transaction, ASX will only expect the entity to disclose that it is in negotiations with the other party without providing details about the transaction. If the rumours include transaction details, ASX will expect the entity to confirm or correct the details or simply indicate that the details are inaccurate or are still under negotiations, as appropriate in the circumstances.
ASX does not expect listed entities to respond to market rumours which appear to be mere supposition or idle speculation, or merely confirm a matter that is generally understood by the market, (and in either case, does not appear to have a material effect on market price or traded volumes).
But you can’t just rely on a stated policy position of not commenting on media speculation or market rumours.
Having this policy is generally acceptable, but where there is, or is likely to be, a false market, and ASX requires the matter to be commented upon, the listed entity must be prepared for the policy to give way.
Guidance on when you satisfy the “reasonable person test”
The final guidance note provides extensive additional guidance on when a reasonable person would not expect the information to be disclosed (in which case you satisfy ‘the reasonable person test’ and don’t need to disclose if you satisfy the other carve-out requirements).
ASX provides that the reasonable person test has a ‘very narrow field of operation’. This is because the test is intended to capture particular circumstances and information which are exceptions to the general rule that certain confidential prescribed categories of information are excluded from disclosure.
ASX confirms its view which was expressed in the draft guidance note that a reasonable person would not expect a non-binding confidential takeover approach or an offer from another entity to enter into a control transaction to be disclosed, so the ‘reasonable person’ test would be satisfied.
Relevantly, the final guidance note does not expressly provide, as the draft guidance note did, that a reasonable person would expect concurrent takeover offers to be disclosed. Instead, the final guidance note sets out a more general statement that surrounding circumstances may mean a reasonable person would expect the information to be disclosed.
Guidance Note 8 is expected to be published and come into effect on or around 1 May 2013.