ASX has recently released for public discussion a substantially revised version of ASX Listing Rule Guidance Note 8 on continuous disclosure for listed entities as well as proposed changes to certain Listing Rules regarding continuous disclosure obligations. Partner, Craig Yeung and Lawyer, Jarrod Wilksch review the proposed changes.
The proposed changes to Guidance Note 8 are the product of a lengthy consultation between ASX and ASIC and are the first amendments to the guidance note since 2005. The amendments seek to address the developments in the law, market practice and ASIC’s enforcement practices since that date as well as to provide listed entities with more detailed information to help them comply with their continuous disclosure obligations. On the day the proposed amendments were released ASIC released a media statement confirming that it is in support of the proposed revised guidance and encouraged the business community to also have their say on the proposed changes.
Guidance Note 8 changes
The Guidance Note 8 changes are a complete rewriting of the guidance note. The proposed new Guidance Note 8 is nearly three times the length of the existing Guidance Note 8. The increase in length of the Guidance Note is an attempt by ASX to provide listed entities with clearer, more detailed information to help them understand and comply with their continuous disclosure obligations. However, given the length of the document and the many technical issues it seeks to cover, it is likely that the revised Guidance Note will be of most interest to legal and other professional advisers.
To this end, ASX has also released a shorter more accessible guide titled “Continuous Disclosure: An Abridged Guide”. This guide aims to summarise the key continuous disclosure issues for directors and other officers of listed entities. This guide does not bind ASX and it is likely that more difficult and technical questions regarding continuous disclosure obligations will still require consideration of Guidance Note 8.
The key areas in which Guidance Note 8 provides new or revised guidance are as follows:
- The test for what constitutes material information – ASX explains how it interprets and applies the test set out in section 677 of the Corporations Act when determining whether information is likely to be material to an entity’s share price and therefore within the scope of Listing Rule 3.1. In particular, ASX states that officers of listed entities should ask themselves the following two questions when considering whether information should be disclosed:
- Would this information influence my decision to buy or sell securities in the entity at their current market price?
- Would I feel exposed to an action for insider trading if I were to buy or sell securities in the entity at their current market price, knowing this information had not been disclosed to the market?
- The meaning of “immediately” – ASX has clarified that “immediate” disclosure to ASX should not be read as meaning “instantaneously”, but rather as meaning “promptly and without delay”. In making this statement ASX has recognised that the speed with which a listed entity can assess material information and prepare an announcement to the market can depend on a range of factors, examples of which include where and when the information originated, the forewarning (if any) the entity had of the information, and the amount and complexity of the information concerned.
- Use of trading halts to manage disclosure issues and obligations – The Guidance Note explains how trading halts can be used by listed entities to manage their continuous disclosure obligations particularly where the entity becomes aware of market sensitive information where it is not in a position to issue an announcement straight away and/ or where it becomes aware of such information out of trading hours.
The Guidance Note also confirms that ASX will invariably grant a trading halt where the entity, when requesting the trading halt to allow it time to prepare an announcement under Listing Rule 3.1, informs ASX of the nature of the information in question and ASX considers that the information is of a character that is likely to be market sensitive.
- False market – ASX provides further guidance on what constitutes a false market for the purposes of Listing Rule 3.1B and outlines how ASX deals with specific situations where that rule is commonly invoked. ASX also provides guidance on when and how it expects listed entities to respond to comments or speculation in the media (both conventional and social) or analyst reports commenting or speculating on particular matters involving a listed entity.
- Worked examples – ASX has provided a number of further worked examples of how it considers certain disclosure issues should be dealt with. The examples include areas such as control transactions, acquisitions, issues of securities, mineral discoveries, law suits and variations in earnings estimates.
- ASX enforcement practices – a new section has been added to the Guidance Note to explain how ASX monitors and enforces compliance with Listing Rule 3.1. This includes an explanation of the use and role of “price query letters” and “aware letters”. ASX also provides details on its policy for dealing with complaints or allegations of noncompliance from third parties as well as when it will refer a contravention of Listing Rule 3.1 to ASC.
- Facilitating compliance – The proposed new Guidance Note 8 also contains a section with a list of steps that ASX considers entities should take to help facilitate compliance with their continuous disclosure obligations.
Listing Rule changes
The proposed changes to the Listing Rules themselves are relatively minor, the most significant of which may be summarised as follows:
- revising the examples of potentially disclosable information given in bullet points under Listing Rule 3.1
- changing the order of the exceptions in Listing Rule 3.1A to de-emphasise the “reasonable person” test to make it clear that this should be the last, rather than the first, matter to be considered when applying the disclosure exemption test under Listing Rule 3.1A
- modifying Listing Rule 3.1B (regarding false markets) to make it clear that a listed entity must give ASX the information it “asks for”, rather than the information “needed”, to correct or prevent the false market, and
- adding further specific disclosure requirements in respect of specific events/matters which must be disclosed to ASX under Chapter 3. Examples of these matters include deactivating or reactivating a dividend or distribution plan, the material terms of any employment, service or consultancy agreement entered into with a CEO, director or related party of such persons, and copies of any information about substantial holdings of securities obtained under Part 6C.2 of the Corporations Act or under any equivalent overseas law or provisions in the entity’s constitution.
Consultation on the proposed changes will end on 30 November 2012 with ASX indicating that it hopes to adopt the revised guidance and Listing Rules in the first quarter of 2013.
Until that time entities should take note of the new guidance in considering their obligations as indicative of ASX and ASIC’s views and attitude towards continuous disclosure issues and enforcement.