We reiterate the importance for ASX listed entities to familiarise themselves with the following important amendments as well as procedural changes to Guidance Note 8. We recommend that entities adopt adequate processes to enable them to be responsive and notify ASX immediately following any key and material developments affecting their entity, particularly in response to the changes in Guidance Note 8.
With effect as of 5 June 2021 are updates by ASX to Guidance Note 8 in relation to the following key changes:
- Full disclosure of market sensitive information concerning market sensitive contracts, as detailed in section 4.15, Listing Rule 3.1
- Additional explanatory material to the reasonable person test in connection with Listing Rule 3.1A, as detailed in section 5.9
- A new section 7.9 dealing with cancelling, deferring, or reducing a dividend distribution or interest payment
- A new section 7.10 dealing with ramping announcements
Contents of announcements guideline (Section 4.15, Listing Rule 3.1)
ASX has confirmed its position on naming counterparts to market sensitive contracts following the decision in ASIC v Big Star Energy Limited (No 3)  FCA 1442.
ASX requires that “where there is little or no information regarding the counterparty in the public domain, an announcement is to include a description of the counterparty as well as a summary of the due diligence undertaken by the listed entity on the counterparty’s financial capacity to perform its obligations in relation to the transaction and other capacity to perform their obligations in relation to the transaction” (page 26, Guidance Note 8).
A new footnote 110 has been included in Guidance Note 8 to clarify a problematic area “for some listed entities” being a failure “to disclose when a previously announced material customer contract does not proceed or is terminated (i.e. only disclosing good news, not bad news). Generally speaking, if information about the entry of a customer contract is sufficiently material to justify its disclosure, ASX’s starting assumption will be that information about its failure to proceed or termination is also sufficiently material to justify its disclosure, unless the entity can make a clear and convincing argument to the contrary.”
Listed entities should be proactive in obtaining adequate information about their counterparties before entering into market sensitive contracts and publish corrective announcements where significant changes occur in relation to “material customer contracts”, as the ASX may suspend trading in the entity’s securities if insufficient levels of information are disclosed.
The reasonable person test (Section 5.9, Listing Rule 3.1A.3)
ASX provides further guidance on the “carve outs” relied on by listed entities to justify non-disclosure.
In summary, the ASX requires announcements made by listed entities be materially accurate, complete and not misleading in accordance with Listing Rule 3.1. Noting that the reasonable person test would be satisfied if information falls within the prescribed categories in Listing Rule 3.1A.1 and that meets the confidentiality requirements in Listing Rule 3.1A.2 whereby such information can be excluded from an announcement made by a listed entity.
Page 41 of Guidance Note 8 includes two examples, which would trigger disclosure by the listed entity and displace the above general principle as follows:
- if a listed entity “cherry picked” its disclosure by making announcements in respect of “good information” as it is likely to have a positive effect on the value of the securities but not bad information as it is likely to have a negative effect on the value of the securities; or
- if the excluded confidential information is likely to make another disclosure made by the listed entity under Listing Rule 3.1 misleading, incomplete and/or inaccurate.
Accordingly, ASX’s additional guidance to listed entities in relation to its two examples above is unsurprising in that ASX requires “that an announcement under Listing Rule 3.1” “be materially accurate, complete and not misleading. Listing Rule 3.1A.3 operates to ensure that a listed entity cannot rely on a particular piece of information falling within a carve-out to immediate disclosure under Listing Rule 3.1A.1 and satisfying the confidentiality requirements in Listing Rule 3.1A.2, to justify excluding that information from an announcement to the market under Listing Rule 3.1, if the failure to include that information would render the announcement materially inaccurate, incomplete or misleading. A reasonable person clearly would expect a listed entity, acting responsibly and in accordance with its statutory obligation not to mislead or deceive, to disclose the excluded information” in a particular situation.
Introduction of section 7.9 – Cancelling, deferring or reducing a dividend, distribution or interest payment
The new section 7.9 requires any announcement under Listing Rule 3.21(a)(ii) to include an explanation satisfactory to ASX of the entity’s reasons for cancelling, deferring or reducing a dividend, distribution or interest payment.
“ASX will expect this explanation to be reasonably detailed and to justify in reasonably clear terms why the entity considers it necessary to cancel, defer or reduce the dividend or distribution after it has been announced to the market and the market has traded on the expectation of receiving the dividend or distribution. A simple statement along the lines of “the board thought it prudent to [cancel/defer/reduce] the [dividend/distribution] in the current economic climate” will not be sufficient. In an appropriate case, ASX may ask the entity to include in the explanation a discussion of any alternatives the entity’s board considered to cancelling, deferring or reducing the dividend or distribution” (page 64, Guidance Note 8).
Introduction of section 7.10 Ramping announcements
ASX has also expressed concern that listed entities are making market announcements to “ramp up” the price of their securities particularly around contracts without providing proper disclosure to the market concerning the details of the contract. If such behaviour is suspected, listed entities are at risk of having their securities suspended from trading and be issued with a query letter asking numerous questions, including asking the entity to verify whether the announcement was marked as market sensitive when it was filed on MAP, as well as what information was considered by the entity as being market sensitive. The ASX may also ask the entity to explain its purpose if the announcement was not marked as market sensitive, as well as requiring an entity to identify the reasonable grounds on any material assumptions or qualifications if an entity’s announcement includes a revenue projection.
Listed entities may be required to provide a copy of the contract relating to their announcement about contracts to the ASX to verify compliance with Listing Rules disclosure obligations. If ASX forms the view that disclosure was a ramping announcement, the ASX may require the entity to publish a corrective announcement about the ramping announcement being incomplete and misleading and that investors should not make investment decisions based on the ramping announcement.