Submission to Ms Catherine Officer, Legal Counsel & Manager, Issuers & Quoted Products, Australian Stock Exchange Limited.
13 September 2002
Ms Catherine Officer, Legal Counsel & Manager, Issuers & Quoted Products, Australian Stock Exchange Limited
ASX EXPOSURE DRAFT - PROPOSED ASX LISTING RULE AMENDMENTS ENHANCED DISCLOSURE JULY 2002
The AICD considers that Listing Rule 3.1 is operating efficiently having regard to the manner in which the ASX administers the Listing Rule. We also consider that the proposed amendments to Listing Rule 3.1 are not necessary and are likely to be counter-productive.
The changes proposed in the Exposure Draft to the Listing Rule are expressed to clarify the ASX's existing approach in the case of reasonably specific media comment or when the market moves or may move in a way that appears to be referrable to media comment or speculation. There is no need to amend Listing Rule 3.1 in the manner proposed for the ASX to clarify its approach to the operation of Listing Rule 3.1 in this area. Further, the amendments themselves have the potential to be administered in a far more expansive manner than the present approach of the ASX. This is of concern, given the Listing Rules have statutory force and are the basis upon which the ASIC can take enforcement action.
A preferable alternative approach is to amend the Guidance Note to Listing Rule 3.1 to provide the clarification required, so listed entities can be left in no doubt as to the manner in which the ASX will administer the Listing Rule in the future and what is expected of listed entities in the relevant circumstances. Following the publication of the amendment to the Guidance Note, the continuous disclosure regime could be monitored in the light of this clarification. If it is considered that Listing Rule amendments are warranted following this monitoring, then amendments could be proposed, perhaps as part of CLERP 9.
In relation to the proposed amendments themselves, we have a number of specific concerns which are set out below.
a.Listing Rule 3.1A.2 - 'and the ASX is satisfied confidentiality has been maintained'
b.Proposed Listing Rule 3.1A.4 - 'ASX has not asked the entity to give it information to prevent a false market in the entity's securities'
As paragraph 2.13 of the Exposure Draft states, it is a question of fact whether confidentiality has been maintained. The AICD considers the preferred approach is to include a note similar to the proposed note associated with proposed amended Listing Rule 3.1A.2 into the Guidance Note. The AICD does not consider the ASX should be putting itself forward as a party to determine in certain circumstances whether, as a question of fact, confidentiality has been maintained. This should be a matter for the disclosing entity to determine, after taking advice where necessary, having regard to the potential legal consequences if the entity is not complying with its disclosure obligation.
c.Proposed Listing Rule 18.7A - 'ASX may publish information where it considers it is necessary in the interests of an informed market'
On a literal reading of this proposed Listing Rule amendment, once the ASX requests the entity to provide information to it, the exception to disclosure under Listing Rule 3.1 no longer applies and the information would need to be immediately disclosed to the market. It is not clear what information would need to be disclosed to the market; all the information provided to the ASX in response to its query, or only part of the information the entity considers should be disclosed?
The amendment has the likelihood to change the relationship between the ASX and the listed entity from the current one of cooperation where the entity's personnel can discuss disclosure issues openly with the relevant Companies Advisor, to one where the entity potentially losses control of its own disclosure processes. The AICD considers the current practice of the ASX is preferable where, in appropriate circumstances, the Company's Advisor issues a formal price query letter to which the entity is required to respond and its response is released to the market. The proposed Listing Rule amendment is not required to support the ASX's existing approach.
Further, the proposed Listing Rule amendment may be construed to place some positive obligations on the ASX for it to be requesting entities to provide information to prevent a false market developing. Otherwise, disclosure would not be required because without the formal request to provide the information, the proposed new Rule 3.1A.4 would be complied with. This is no doubt an unintended consequence, as the continuous disclosure obligations should of course be self-executing.
The AICD considers that this is an inappropriate approach for the ASX to take. It places potential significant new obligations on the ASX to be a relevant party to determine whether or not particular information is appropriate for disclosure in the circumstances of a listed entity. This Listing Rule amendment alone would significantly change the present cooperative relationship between the ASX and listed entities where disclosure issues can be openly discussed. If the proposed Listing Rule was introduced then any information that the listed entity may provide to the Company's Advisor, whether or not in the course of reviewing draft documents or preliminary discussions on application of Listing Rules, could unilaterally be used by the ASX to make a disclosure in relation to the listed entity. In these circumstances the listed entity is likely to be guarded in its disclosure with the ASX and inhibit full and frank discussion in relation to the application of the continuous disclosure obligations in areas of sensitivity where the listed entity would otherwise seek input from the ASX. As the ASX has said in the Exposure Draft, a successful disclosure system requires the creation of a 'culture of disclosure', as distinct from a 'culture of compliance'. This proposed Listing Rule amendment is likely to shift the emphasis back to a 'culture of compliance'.
The Exposure Draft indicates that the purpose of the proposed amendment is to 'formalise the ASX practice of releasing exchanges of correspondence with a listed entity in the interests of informing the market'. The proposed Listing Rule amendment is not required to support the ASX's current approach in this area. The Listing Rule amendment goes far beyond this, allowing the ASX to potentially publish any information it considers appropriate, no matter in what manner it receives that information.
The proposed Listing Rule amendment is also likely to place new obligations and raise conflict issues for the ASX. What would the position be, if the ASX was aware of price sensitive information and that the Company had not complied with its continuous disclosure obligations but the ASX had failed to publish the information where it knew that information should have been published to the market?
The disclosure obligation is the obligation of the listed entity. The current practice of requesting a listed entity to respond to specific queries on the understanding that the response will be released to the market is a workable approach. The listed entity is aware of what information is going to be disclosed and does not lose control of its own disclosure processes.
The AICD also suggests that it may be useful to discuss the suggestion made by various practitioners that an informal process of confidential notification to the ASX, in association with ASIC to ensure that appropriate lines of communication are maintained, of sensitive confidential information which cannot be released to the market be adopted to overcome some of the concerns raised by the ASX in its Exposure Draft. As the ASX is aware, such notification does occur in relation to potential takeovers involving competition law issues. It is both sensible and desirable in many circumstances to advise the Australian Competition and Consumer Competition of the proposal, as it is likely the ACCC will receive information about takeovers involving foreign corporations from FIRB. The experience of practitioners is that such notification to the ACCC (and FIRB), in a confidential and contained fashion, does ensure that the regulators are informed of the particular issues and obviates the need for the regulators to make enquiries of either a confidential or public nature.
Whilst the AICD recognises the issues surrounding the operation of the stockmarket are different from those that may apply to mergers involving competition law, the mechanism used in relation to this area has worked very successfully, and has ensured that sensitive issues can be appropriately contained. The AICD would be pleased to explore with the ASX, and where appropriate with ASIC, how this proposal may be developed further.
The AICD considers that the ASX should amend its Guidance Note on continuous disclosure to clarify the ASX's approach to market disclosure regarding media speculation and market movements which appear to be referrable to media comment or speculation. The continuous disclosure process should then be monitored in the light of this guidance. If it can be demonstrated that Listing Rule amendments are still required, then amendments could be considered as part of CLERP 9.
Should you have any questions regarding our submission, please contact me.