The Australian Securities Exchange (ASX) is proposing major reforms to the ASX Listing Rules. The proposed reforms aim to simplify, clarify, and enhance the integrity and efficiency of the ASX Listing Rules and the proposals go a significant way in achieving those objectives. Notably, certain proposed amendments seek to introduce more onerous obligations on listed entities or those seeking to list on the ASX.
The ASX released a public consultation paper titled ‘Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules’ (Consultation Paper) on 28 November 2018, seeking submissions on its proposed reforms. The consultation period is set to end on 1 March 2019 and the ASX anticipates that the final rule amendments (and the new and amended guidance notes), will be released in May 2019, to take effect from 1 July 2019.
Below is a high-level overview of the key proposed amendments by the ASX. A copy of the Consultation Paper can be found here.
Key amendments affecting listed entities:
- Enhanced ASX powers: enhanced operating and monitoring powers for the ASX, including the power to require information from entities with respect to their compliance with the Listing Rules and enhanced ability to disclose such information to the market
- Related party disclosure: requirement for entities to include a description of, and explanation for, any payments to a related party in the entity’s quarterly cash flow reports
- Investment entity disclosure: enhanced disclosure and standardised reporting requirements for listed investment companies and listed investment trusts
- Disclosure of results: increased disclosure requirements for results of security holder meetings
- Ratification of agreements to issue shares: ability for security holders to ratify agreements to issue securities (where currently the Listing Rules only permit ratification of the issue of securities)
- Placement capacity: a more rigorous framework for the provision of information relating to the issue of securities by an entity under its placement capacity
- Non-cash consideration: removing the ability for entities to issue securities under Listing Rule 7.1A for ‘non-cash consideration’.
Key amendments affecting entities seeking listing:
- Enhanced powers: clarification that ASX may request disclosures over and above what may be required by ASIC in a disclosure document;
- Assets test: where an entity is intending to list under the asset test, a requirement for the entity to disclose its objectives for the initial public offering (IPO) and confirm it has adequate working capital to achieve those objectives. Further, the ‘working capital test’ is also proposed to be varied such that entities may no longer rely on their budgeted revenue and administrations costs to satisfy the test, instead entities must rely on their reviewed pro-forma statement of financial position
- Extended good fame and character test: the ‘good fame and character tests’ extending to CEOs and proposed CEOs
- Reform of escrow regime: changes to the escrow provisions such that only significant security holders will be required to execute a formal escrow deed. The securities of less significant security holders will still be escrowed subject to appropriate provisions under the entity’s constitution (to be notified to each relevant security holder by the entity). All escrowed securities will need to be held on the entity’s issuer-sponsored sub-register and made subject to a holding lock (or if the relevant securities are not quoted, they are to be held on the entity’s certificated sub-register with the certificates to be held in escrow)
- Enhanced powers relating to escrow: additional powers for the ASX to impose mandatory escrow restrictions where the ASX is of the view that a pre-IPO capital raising (at a significant discount), was not to genuinely raise capital but rather to confer a benefit to the participating parties
- Compliance course: a requirement for persons appointed to be responsible for communication with ASX to complete and pass an approved Listing Rule compliance course.
Other key amendments proposed by the ASX:
- Activity reporting: more entities will be required to prepare quarterly activity reporting, in particular start-ups, mining, oil and gas exploration entities
- Enhanced disclosure – underwriting: enhanced disclosure requirements with respect to underwriting arrangements
- Related party waivers: more stringent requirements with respect to the granting of waivers for transactions involving a person in a position of influence
- Enhanced disclosure – incentive schemes: greater disclosure requirements with respect to securities to be issued to a director (or their associates) under an incentive scheme
- Enhanced disclosure – annual reports: additional disclosure requirements in annual reports.
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