Most Read Contributor in Australia, September 2016
The Australian Securities Exchange has put continuous disclosure
in the spotlight again, with a comprehensive redraft of its
guidance note on the continuous disclosure provisions that are
critical to market integrity and efficiency. The attention is
welcome, especially in light of the recent controversial High Court
decision in Fortescue Metals.
The ASX has also made minor amendments to the text of the
continuous disclosure Listing Rules; however, the significant
changes are in the Guidance Note.
Compliance with the ASX's continuous disclosure Guidance
Note is not necessarily a safe harbour from ASIC or court action.
However, the Guidance Note is the product of extensive consultation
between ASX and ASIC and notes that ASIC is in "broad
agreement with the thrust and contents" of it.
Consequentially, it should be taken into account immediately by
disclosing entities even in its draft form.
Below we detail some of the key features of the proposed new
What information is market sensitive?
Listing Rule 3.1 requires disclosure of information that a
reasonable person would expect to have a material effect on the
price or value of the securities.
But how does a disclosing entity make this determination? ASX
suggests its officers ask two questions:
Would this information influence my decision to buy or sell
securities at their current market price?
Would I feel exposed to an action for insider trading if I were
to buy or sell at the current price (knowing this information has
not been disclosed to the market)?
If yes to either, this is an indication that the information is
What does "immediately" mean?
The need to disclose "immediately" remains. But it
does not mean "instantaneously", it means "promptly
and without delay".
What "promptly and without delay" means will vary in
the circumstances. Relevant factors include the source of the
information, any forewarning the entity had, the amount and
complexity of the information, the need to verify the accuracy or
bona fides of the information and, in some cases, the need for
The standard is high: ASIC has issued infringement notices for
delays of 60 and 90 minutes.
Does the need for board approval impact
The requirement for the matter to be dealt with "promptly
and without delay" remains. An entity needs to have structures
in place to enable this to occur. For example, can the matter be
dealt with by delegations to senior management or a disclosure
committee, rather than the full board?
In practice, and in our view, some matters will unavoidably
need to go to the full board. In these circumstances the entity
needs to think carefully about how it will manage its disclosure
obligations (so that disclosure can be made "promptly and
without delay"). The entity should carefully consider whether
a trading halt is needed to prevent the market trading on an
How can trading halts be used?
Trading halts are a key tool to balance competing forces: the
need for speed and the need for accuracy.
Request a trading halt promptly. Delay in doing so is a factor
that ASX and ASIC will consider in determining whether a breach of
the continuous disclosure rules has occurred. In one case, a delay
of 38 minutes was an aggravating factor in ASIC's view.
If a trading halt is not sought, ASX recommends that the entity
monitor the market, press and blog sites to see whether the
information has leaked.
Importantly, while the Listing Rules continue to apply during
the trading halt (including the continuous disclosure rules), ASX
will not apply the rules during that period in a technical way, but
rather in a way that accords with their spirit, intention and
purpose. If a company promptly requests a trading halt and promptly
makes an announcement afterwards ASX considers this complies with
the spirit, intention and purpose of the listing rules.
Overall, while the trading halt provides breathing space, it is
only a little extra space.
If possible, enter into material contracts that require an
announcement outside of trading hours so that a trading halt is not
needed (allowing an announcement before trading commences on the
What about information that would be prejudicial to the
The ASX has withdrawn the statement: "A reasonable person
would not expect information to be disclosed if the result would be
unreasonably prejudicial to the entity". ASX considers that
this statement has been misconstrued by some to mean that entities
in material financial difficulty do not have to disclose materially
negative information. ASX has now provided more detailed guidance
for entities in financial difficulty.
Are there materiality thresholds in certain
Yes there are, but they only apply in certain
The thresholds apply to published earnings forecasts (the
principle being that earnings reports should not contain earnings
surprises). The thresholds are that a variation of less than 5%
from published earnings guidance is presumed not material, greater
than 10% is presumed to be material, and between 5 to 10% requires
Thresholds also apply in ASX's consideration as to whether
there has been a breach of the continuous disclosure rules (which
it would refer to ASIC). ASX will examine the share price before
and after the (late) announcement. If the movement exceeds 10%
(relative to other securities in the market or the entity's
sector) ASX will regard it as market sensitive and refer it to
ASIC. Between 5% and 10% will be determined on a case-by-case
basis. Of course, these are after the fact tests. Nonetheless, they
will provide helpful guidance to disclosing entities – if ASX
uses these thresholds disclosing entities are well advised to as
Thresholds do not apply to consensus forecasts from analysts,
nor to comparisons to the prior corresponding period. In these
cases ASX does not consider it appropriate to lay down general
rules, but simply suggests that the entity ask the same questions
as to whether the information is 'market sensitive'.
What about takeover approaches and bear
ASX does not consider that a reasonable person would expect
disclosure of confidential and incomplete proposals to enter into
control transactions. If a potential target rejects such a proposal
which is still confidential, while it needs to be considered on a
case-by-case basis, ASX guidance suggests that there are strong
arguments the rejection would not need to be disclosed. Disclosure
would also not be required if the target board writes to the
potential bidder saying that they are prepared to negotiate and
recommend the offer in the absence of a superior proposal if the
proposal is still incomplete. However, when a 'merger
implementation agreement' is signed disclosure would be
required. Also, if confidentiality is lost before the proposed
transaction ceases to be 'incomplete' this changes the
disclosure obligation, as does the emergence of an interloper
Of course, this does not mean the "bear hug" is
futile. A suitor simply needs to leak the information as this may
trigger the requirement for the target to publicly respond. Nor
does it mean that the target cannot disclose (to start an auction)
– this is a strategic decision, not a legal one (subject to
Guidance on these matters is to be firmly welcomed, especially
in light of market uncertainty as to whether disclosure is required
and the implications for the market if premature disclosure is
The draft new guidance note contains numerous examples which
will prove very helpful to disclosing entities. The ASX has also
produced an abridged guidance note (as the main guidance note is 69
pages). The shorter document is targeted at directors and other
officers, while the main document will be more relevant to legal
and other professional advisers.
The consultation period ends on 30 November 2012. ASX expects
that the final Guidance Note will be released in early 2013. We
will keep you updated of significant developments.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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