Continuous disclosure continues to be front of mind for listed companies.
This is clearly evidenced by the Fortescue Metals case, renewed warnings by ASIC Deputy Chair Belinda Gibson and the "speeding ticket" handed out to Nufarm at the end of last year (to name just the most recent examples).
A new ASX Guidance Note aims to encourage the use of trading halts and voluntary suspensions to manage continuous disclosure issues – although it also highlights their limitations.
Listing Rule 3.1 requires the immediate disclosure of price-sensitive information about a company.
This is subject to a few exceptions (such as where the information relates to a confidential and incomplete proposal). However, the scope of those exceptions is narrow and getting narrower.
So what should a company do if it's about to get into a price-sensitive situation, but can't make full disclosure to the market?
The answer is to seek a trading halt from ASX. This prevents trading in the company's shares on the basis of imperfect knowledge.
Trading halts are not the complete answer to the problem: they have to be individually negotiated with ASX, and they are very short term.
The new Guidance Note addresses one of these issues (by detailing ASX's policy on granting halts) but highlights the shortcomings created by the brevity of halts.
When will a single halt be granted?
Trading halts come in two flavours:
- a single halt of up to two trading days;
- back-to-back halts (a maximum of two consecutive trading halts).
They are not granted automatically, but the new Guidance Note provides a number of examples in which ASX would be likely to grant a halt:
- a halt to allow a "Competent Person" to review and consent to an announcement of a significant assay report for a mining company, where the Competent Person was out in the field and not immediately available;
- a halt to allow experts to examine damage to a mine affected by an earthquake;
- a halt to allow a company to complete negotiations which had become the subject of accurate speculation in the media (ie. the negotiations were no longer confidential);
- a halt to allow a company to conduct a book build as part of a significant issue of securities;
- a halt to allow a company to facilitate a book build for a major shareholder's sale of a significant stake.
In each case, the halt would be for no longer than was necessary to complete the process.
When would back-to-back trading halts be granted?
The new Guidance Note confirms our experience that back-to-back trading halts are less commonly granted.
It says that the "exceptional" circumstances required for a back-to-back halt for issues of securities have only been granted where the issue:
- is significant in the context of the entity’s issued capital;
- is essentially pro rata to all holders (eg. an accelerated offering conducted in two stages, such as a Jumbo, AREO or SAREO offer); and
- involves the use of a book build process and requires a halt in trading of more than two, but not more than four, trading days to be implemented.
This reluctance to grant halts of more than two days is, in ASX's view, due to the availability of voluntary suspensions.
Voluntary suspension – not "a less attractive option"
Where a company's inability to disclose price-sensitive information is going to last more than a couple of days, ASX says that it should apply for a voluntary suspension from quotation.
A voluntary suspension can be for any period of time (even months).
On the surface, therefore, it appears to be a suitable avenue when a trading halt would be too short. However, as the new Guidance Note concedes, the problem with a suspension is that it can handicap the company's fundraising activities:
"30. Entities should be aware that one of the conditions of their eligibility:
- to offer securities without a disclosure document or product disclosure statement under a 'low-doc' rights issue (sections 708AA or 1012DAA of the Corporations Act) or under a share or interest purchase plan (ASIC Class Order 09/425); or
- to rely on the 'cleansing notice' provisions in relation to a secondary sale of securities issued without a disclosure document or product disclosure statement under a placement (sections 708A(5) or 1012DA(5) of the Corporations Act),
is that their securities have not been suspended for more than a total of 5 days during the shorter of the period during which the class of securities was quoted, and the 12 month period before the relevant offer or issue."
In other words, if the securities have been suspended for more than 5 days in 12 months, securities and rights issues become considerably more complicated and expensive (although ASIC may be prepared to grant relief if it believes that the suspension has not prevented the market's being fully informed).
It should also be noted that suspensions of more than two trading days prevent a company's offering shares or options to employees without a prospectus (under Class Order 03/184).
ASX comments that, "apart from this one issue, a voluntary suspension should not be perceived as a less attractive option for managing continuous disclosure obligations than a trading halt."
The new Guidance Note is welcome, because it provides companies and their advisers with precedents to use when approaching ASX for a trading halt. Given the short timeframe within which continuous disclosure decisions have to be made, this is a very useful tool.
At the same time, however, the Note also highlights the shortcomings of trading halts and suspensions as a continuous disclosure management tool.
The inability to trade in securities for a day (let alone an extended period) can create significant issues for all investors in those securities. This is why issuers avoid doing so unless there is no alternative.
Another issue is the qualitative difference between trading halts and voluntary suspensions. Despite ASX's comment that suspensions should not be seen as the "less attractive" of the two, the reality is that the adverse effects of a suspension will continue to dog their use.