Most Read Contributor in Australia, September 2016
On 13 March 2013 the Australian Securities Exchange
(ASX) released its final version of Guidance Note
8 on the key continuous disclosure obligations under Listing Rule
3.1 (Guidance Note). The Guidance Note is expected
to become operational on or about 1 May 2013.
Listed companies should review their current disclosure
practices and policies to ensure they will comply with the new
requirements once they become effective.
We have previously written about the draft version of the
Guidance Note which was released by ASX in October 2012 - see
link. The final Guidance Note is not radically different to the
draft, but it does contain some important "upgrades"
(amendments and clarifications). Below we discuss some of the key
changes compared to the October 2012 draft Guidance Note.
What does "immediately"
If information is required to be disclosed under the continuous
disclosure obligations it must be disclosed
"immediately". In the October 2012 draft Guidance Note
ASX said that "immediately" means "promptly and
without delay". ASX has now expanded on the meaning of these
critical words. To do something "promptly and without
delay" it must be done "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
Of course, announcements unavoidably take time to prepare. The
passing of time by itself does not mean there has been a
"delay", but rather the issue is whether the entity is
going about the process as quickly as it can in the circumstances,
without deferring, postponing or putting it off to a later
Use of trading halts to manage continuous
The emphasis on trading halts remains in the final Guidance
Note, this time with greater detail provided by ASX on when ASX
would expect a trading halt / voluntary suspension to be used and
when it would not.
Trading halts might be required, for example, if:
there are indications that information has leaked and it is
having (or likely to have if the entity's securities are not
currently trading) a material effect on the price or volume of the
the entity has been asked by ASX to provide the information to
correct or prevent a false market; or
the information is especially damaging and likely to cause a
significant fall in the securities' price,
and, where the market is trading, the entity is not in a
position to make an announcement straight away or, if not trading,
will not be in a position to do so before trading commences.
While trading halts will continue to be a key tool in managing
disclosure obligations, notably they are not appropriate in all
circumstances. For example, trading halts last for two days.
Therefore, if complex and protracted matters are unlikely to be
resolved within that time, a trading halt may not be sufficient and
a voluntary suspension might be necessary. ASX also does not expect
an entity to go into a trading halt before it has assessed whether
the information is market sensitive.
Of course, any trading halt must be actioned quickly. If it
needs to be approved by the Chairperson / CEO the process to do so
"must be able to be activated and any necessary approvals
obtained within a matter of minutes". The process should also
include contingencies if the decision makers are not
Earnings guidance and in principle
approval of financial statements and dividends
ASX has continued its theme of providing detailed discussion on
earnings surprises, which we discussed in our previous article. In
its revised Guidance Note, ASX has clarified the following:
The benchmark for a company estimating what the market is
expecting its current period earnings to be are (in order):
published earnings guidance by the entity for the current period,
sell side analysts' forecasts and, thirdly, earnings for the
prior corresponding period.
In terms of using analysts' forecasts for the current
reporting period, ASX says that there are a number of approaches
that an entity may legitimately use. These include consensus
forecasts (which the entity may calculate itself or obtain from an
information vendor). If an entity feels that the consensus estimate
is being distorted by an obvious outlier it may adjust the
consensus to exclude those outliers. Others may not use consensus
estimates at all but rather plot analysts' forecasts and if all
or most cluster within a reasonable range, treat that as being the
market's view of their likely earnings.
ASX has also provided further guidance on the materiality
thresholds for entities to consider. As with the October draft
version of the Guidance Note, above 10% should be presumed to be
material, and below 5% should be presumed not to be material.
Between 5-10% requires judgment from the entity and entities should
look at the consistency of their earnings – for very large
entities or those with very stable earnings it may be more
appropriate to adopt a threshold that is closer to 5%, however,
smaller entities or those with relatively variable earnings may
choose to adopt 10% (or close to it) as its materiality
ASX has also noted that it is common practice for listed
company boards to approve in-principle financial reports and
dividends, with formal approval given just prior to the release
date (this is often done to ensure that any post balance date
events are reflected in the financial statements and factored into
the dividend decision). ASX has confirmed it has no issue with this
approach and that disclosure is not required at the in-principle
Emphasis placed on the objective nature of
Importantly, the continuous disclosure test is an objective
test. Namely, the fact that an entity's officers may honestly
believe that the information is not market sensitive and does not
need disclosure will not avoid a breach of Listing Rule 3.1 if that
view is found to be incorrect objectively. This merely states the
current law, but it is given prominence in the revised Guidance
The exceptions to the continuous disclosure requirement also
require that a "reasonable person" would not expect the
information to be disclosed (there are 3 limbs to satisfy the
exceptions, with the final limb being the reasonable person test).
That has been, and remains, an objective test as well. But ASX has
now said that "the reasonable person test ... has a very
narrow field of operation". The reason for this, in ASX's
view, is that where the other two prerequisite limbs are satisfied,
generally this will also mean that the reasonable person limb is
satisfied (the other two limbs are a requirement for
confidentiality and a requirement to fall within one of five
exceptions including that the information concerns an incomplete
proposal or negotiation).
When does an entity become aware of
The test for when an entity becomes "aware" of
information has not changed between the draft and final Guidance
Note (although it has changed compared to the existing policy and
Listing Rules). It is when an officer has, or ought reasonably to
have, come into possession of the information in the course of the
performance of their duties. In the final Guidance Note, however,
particular attention is drawn to the "ought reasonably"
test which deems an entity to become aware of any information known
to anyone within the entity that is of such significance that it
ought to have been escalated and brought to the attention of an
officer. Therefore, it is important that listed entities "have
in place appropriate reporting and escalation processes" so
that there are no gaps between what the officers actually know and
what they ought to know.
Dealing with market
ASX has clarified that market reports and rumours need to be
"reasonably specific and reasonable accurate" for
confidentiality to be lost which would result in the exceptions to
the disclosure requirement not applying. ASX will assess the degree
of specificity in the rumour or report in deciding the extent to
which there has been a loss of confidentiality.
Examples in the Guidance
ASX has also amended some of the examples that are included in
the Guidance Note. In particular, ASX has removed the example that
provided that a reasonable person would expect a confidential and
non-binding proposed control transaction to be announced by a
target that is subject to a competing bid at the time.
As we noted in our previous article, ASX has produced an
abridged version of the Guidance Note which is specifically
targeted at directors and other officers. We recommend that listed
companies should review their current continuous disclosure
practices and policies to ensure compliance once the new Guidance
Note and Listing Rule changes become effective in a few weeks'
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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