By Annabelle Yip and Hon Yi Lim
The Australian Securities Exchange ("ASX") issued a revised Guidance Note 8 on Continuous Disclosure ("Guidance Note") on 13 March 2013. It is anticipated that the disclosure-related ASX Listing Rule changes and the revised version of Guidance Note 8 will come into effect on or around 1 May 2013. We highlight below some of the newly included guidance that may be of interest to our clients.
The ASX Listing Rules require that information which may have a material effect on the price or value of an entity's securities ("market sensitive information") be disclosed promptly and without delay. The Guidance Note explains that doing something "promptly and without delay" means doing it 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 Guidance Note states that the ASX recognises that how quickly an entity can give an announcement of particular information will be dictated by the circumstances confronting it at the time, and that it will consider the following factors when assessing whether an entity has complied with its obligation to disclose market sensitive information promptly and without delay:
- Where and when the information originated;
- The forewarning (if any) the entity had of the information;
- The amount and complexity of the information concerned;
- The need in some cases to verify the accuracy or bona fides of the information;
- The need for an announcement to be carefully drawn so that it is accurate, complete and not misleading;
- The need in some cases for an announcement to comply with specific legal or ASX Listing Rule requirements; and
- The need in some cases for an announcement to be approved by the entity's board or disclosure committee.
The Guidance Note further states that, in addition to the above factors, the ASX will also take into account the state of the market. In this regard, the ASX recognises that the sensitivity of the market to information is at its highest during trading hours on licensed Australian securities markets, which is when and where most trading in ASX-listed securities takes place and when the need to issue information promptly takes on greater significance.
When an Entity Is in Possession of Information
Under the ASX Listing Rules, an entity becomes aware of information if, and as soon as, an officer (which includes a director, secretary, or senior manager) of the entity has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as an officer of that entity. The Guidance Note explains what the ASX will regard as information that an officer "ought reasonably have come into possession of". This refers to information that is known by anyone within the entity and it is of such significance that it ought reasonably to have been brought to the attention of an officer of the entity in the normal course of performing their duties as an officer. The Guidance Note also clarifies that the officer must have, or ought reasonably to have, come into possession of sufficient information about an event or circumstance to appreciate its market sensitivity, because sometimes the initial information is such that the entity cannot reasonably form a view on whether or not it is market sensitive and the entity may need to await further, more complete information, or to make further enquiries or obtain expert advice.
Request for Trading Halts or Voluntary Suspensions
The Guidance Note also explains that requests for trading halts or voluntary suspensions should not be made indiscriminately, but that an entity should only request for one after it has first assessed whether the particular information in question is in fact market sensitive and therefore needs to be disclosed. The Guidance Note includes scenarios of when a trading halt may not be suitable (e.g., for more complex or protracted disclosure issues which are unlikely to be resolved within two trading days) and when a trading halt or voluntary suspension may be appropriate or necessary.
The Reasonable Person Test for Non-Disclosure
One of the exceptions to the disclosure requirement provided in the ASX Listing Rules is that a reasonable person would not expect the information to be disclosed. The SGX Listing Manual contains a similar provision. The Guidance Note explains that the test is an objective one, to be judged from the perspective of an independent and judicious bystander and not from the perspective of someone whose interests are aligned with the listed entity or with the investment community. It also makes clear that the reasonable person test has a very narrow field of operation, and sets out specific examples of information that the ASX considers a reasonable person would not expect to be disclosed.
The Guidance Note also considers the relevant issues that an entity should consider in determining whether it is required to make an announcement if it becomes aware that its earnings for the current reporting period will differ materially from market expectations, including how to determine what the market is expecting its earnings for the current reporting period to be and when a difference in earnings compared to market expectations ought to be considered market sensitive.
The Guidance Note sets out the following baselines an entity should consider in determining the market expectations:
- If the entity has previously published earnings guidance for the current reporting period, then it should use that as the baseline.
- If the entity has not published earnings guidance for the current reporting period and it is covered by sell-side analysts, the earnings forecasts of those analysts should be used as the baseline.
- If an entity has not published earnings guidance for the current reporting period and it is not covered by sell-side analysts, its earnings for the prior corresponding period should be used as the baseline.
There is no general rule of thumb or percentage guidelines on when a difference in earnings compared to market expectations ought to be considered market sensitive, but the Guidance Note suggests that entities apply thresholds of 5% (may be more appropriate for large entities) and 10% (may be more appropriate for smaller entities).
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.