By Erin Brown
ASX recently released its final version of ASX Guidance Note 8 and its changes to the continuous disclosure obligations contained in the ASX Listing Rules. The Guidance Note, which is anticipated to come into effect on 1 May 2013, is aimed at providing listed entities with greater clarity about the standards of disclosure expected of listed entities.
This article focuses on ASX's interpretation of the disclosure requirements set out in ASX Listing Rule 3.1 and, in particular, the requirement for the immediate identification and disclosure of market sensitive information.
Listed entities are required to immediately disclose to ASX any information that a reasonable person would expect to have a material effect on the price or value of the entity's securities. The changes proposed by ASX do not substantively modify this obligation but instead provide guidance on how ASX will interpret and regulate a listed entity's compliance with its continuous disclosure obligations.
The key aspects of the Guidance Note that directors and officers of listed entities should be aware of include:
- Information: ASX has revised the examples set out in ASX Listing Rule 3.1 of what may constitute market sensitive information requiring disclosure (for example, material acquisitions and disposals, litigation, the appointment of a liquidator, administrator or receiver, the commission of an event of default under a financing facility). For the purposes of disclosure, "information" extends beyond pure matters of fact and will include matters of opinion and intention.
- When is information market sensitive: The test for determining whether information is market sensitive is an objective one. It is therefore possible for an entity's officers to be in breach of their continuous disclosure obligations even where they honestly believe information is not market sensitive. ASX recommends that officers ask themselves two questions when determining whether information needs to be disclosed: (1) "Would this information influence my decision to buy or sell securities in the entity at their current market price?"; and (2) "Would I feel exposed to action for insider trading if I were to buy or sell securities in the entity at their current market price, knowing this information has not been disclosed to the Market?". If the answer to either of these questions is "yes", then this should be taken as a cautionary indication that the information is sensitive and may need to be disclosed.
- When an entity becomes "aware" of information: A listed entity becomes "aware" of information as soon as an officer of the entity comes, or ought reasonably to have come, into possession of that information. ASX considers that an entity will be aware of information if it 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.
- Immediate disclosure: ASX has clarified the requirement for "immediate" disclosure – this is not a requirement for "instantaneous" disclosure but a requirement that disclosure is made "promptly and without delay". ASX considers that doing something "promptly and without delay" means doing it as quickly as possible and not deferring, postponing or putting it off to a later time.
- Trading halts: Trading halts should be requested where an entity anticipates any delay in issuing an announcement (for example, because time is needed to confirm information, where a situation is uncertain or where board approval is necessary and a board meeting is not able to be held promptly).
- Specific disclosures: ASX is proposing to amend the disclosure requirements under the ASX Listing Rules to specify certain information that must be disclosed. This includes matters such as the material terms of any employment or services agreement with its CEO, directors or their related parties and decisions on whether dividends will be paid.
Finally, the Disclosure Note sets out a number of ways a listed entity and its officers can manage their continuous disclosure obligations and response mechanisms to leaks of potentially market sensitive information. Listed entities should consider putting strategies in place to identify and respond to any leaks of potentially market sensitive information including:
- reporting and escalation policies to ensure that market sensitive information is brought to the attention of officers;
- appropriate compliance systems to ensure that potentially market sensitive information is assessed and, if necessary, disclosed promptly;
- having a template letter in place requesting ASX to grant a trading halt or to update the market following a leak of confidential information about a transaction;
- internal monitoring of relevant newspapers and social media for signs that information relating to a market sensitive transaction may have leaked; and
- having a disclosure committee that can meet on short notice to consider announcements.
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.