Apart from the anonymous information about the number
and price of shares bought, the rule will have only a limited
effect on disclosure about the circumstances of
Companies will have to disclose some details of share purchases
for their employees and directors, under a new ASX proposal.
This is ASX's response to concerns that some listed
companies were not disclosing enough details of such purchases to
their shareholders or the market.
The issue first emerged in a report by proxy adviser Ownership
Matters published earlier this year. Ownership Matters claimed that
the practice took two forms:
the on-market buying of shares for employees and directors
whose equity incentives were vesting;
the on-market buying of shares, through a trust, for employees
and directors whose incentives had still to vest.
The alleged vice of this practice was that it overstated cash
flow and, in the case of share purchases for unvested incentives,
allowed companies to pay dividends on those unvested shares.
The Listing Rules currently prevent listed entities from
allowing directors to acquire shares under an incentive scheme
without shareholder approval. They do not apply to on-market
purchases under an employee incentive scheme that provides for the
purchase of shares by or on behalf of employees or directors.
ASX has taken – and continues to take – the view
that these purchases should not necessarily require shareholder
Nevertheless, it has responded to Ownership Matters' report
(and the resultant media stories) by proposing that there should be
greater disclosure of the practice. A new draft Listing Rule 3.19B,
to come into effect from 1 January next year, will require the
disclosure, within five business days, of some on-market purchases
under schemes that provide for the purchase of securities by or on
behalf of employees. or directors or their related parties.
The precise terms of the new rule are:
"If an entity, a child entity, or anyone else to whom the
entity or a child entity has directly or indirectly provided funds
for that purpose, purchases securities on-market under the terms of
a scheme that provides for the purchase of securities by or on
behalf of employees or directors, the entity must give ASX the
following information no more than 5 business days after the
3.19B.1 The total number of securities purchased.
3.19B.2 The average price per security at which the securities
3.19B.3 If all or any of the securities were purchased on behalf
of a director or a related party of a director:
the name of the director;
if they were purchased on behalf of a related party of a
director, the name of the related party;
the number of securities purchased on behalf of the director or
related party; and
the average price per security at which the securities were
purchased on behalf of the director or related party."
It is noticeable that, apart from the anonymous information
about the number and price of shares bought, the rule will have
only a limited effect on disclosure about the circumstances of
individuals. The requirement to disclose information relating to
individuals need not apply to:
employees who are not directors or related parties of
directors whose incentives have not yet vested –
on-market purchases of shares to be held in a trust for future
vesting will not generally be made "on behalf of" a
It is unclear whether the second of these limitations is a
deliberate choice. ASX may believe that mandatory reporting of the
number and price of shares purchased on behalf of an identified
director addresses the major concern (about the lack of detailed
disclosure about the overall effect on the company), and that
relating the information to directors with unvested incentives is
simply too complex to be addressed through disclosure. Also in many
cases where shares are being purchased to be held in trust to meet
potential future entitlements, the shares may be purchased to meet
potential entitlements of executives in addition to those of a
director and the shares purchased will not necessarily be allocated
to any particular participant in the incentive plan.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
Persons listed may not be admitted in all states and
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).