More clarity on continuous disclosure

  • Date:01 Nov 2012
  • Type:Company Director Magazine
Following the Fortescue judgment and ASX’s release of proposed revisions to a listing rule and guidance, Belinda Gibson provides some tips on how directors should tackle their continuous disclosure obligations.

The continuous disclosure obligations of companies, and their directors, have for some years been a hot topic for discussion in boardrooms, the media and in the meetings the Australian Securities and Investments Commission (ASIC) holds with directors.

This interest has been heightened by the Fortescue court decision last month and the Australian Securities Exchange’s (ASX’s) release of its draft revisions to Listing Rule 3.1 and Guidance Note 8.

This article provides some commentary on how ASIC views the Fortescue decision and provides some messages on how to apply the continuous disclosure rules in a practical way.

The Fortescue decision

The High Court’s Fortescue decision provides important guidance to the market on misleading and deceptive statements. The judgment raises for discussion what the market would regard as a sufficient statement about the nature and content of an agreement, and what is necessary to ensure the market is properly informed to make investment decisions.

Because the High Court found Fortescue made no misleading or deceptive statements, the decision did not need to consider the Listing Rules’ continuous disclosure provisions or the Corporations Act 2001 in any detail. ASIC does not see the case as significantly altering the law applying to continuous disclosure.

ASIC is, of course, analysing the judgment’s implications for the manner in which we litigate our cases. We are very conscious of our obligations as model litigants. The decision points us in the direction of bringing clear and simple cases.

ASX Guidance

ASIC continues to see listed company continuous disclosure as the foundation of market integrity and a central tenet of fair and efficient financial markets. We recognise that listed entities need clear guidance about their continuous disclosure obligations, particularly in the age of instant communications and social media.

We welcome ASX’s consultation paper proposing a slight revision to Listing Rule 3.1 and substantially rewriting Guidance Note 8.

We have worked closely with ASX to develop the draft and we encourage listed entity directors to comment on the draft.

There are three very important areas where directors have sought guidance that are well addressed in the material:

  • What does "immediate" mean? Immediate doesn’t mean instantaneously, but we think it does mean promptly and without delay. If the information has reached some of the market, then delay is not acceptable.
  • When should a company call a trading halt – the best course when the market is uninformed and time is required to make a meaningful updating statement?
  • What information is required? Companies should try to ensure any announcements are clear and complete. Each announcement must contain enough detail for investors to understand its ramifications and to assess its effect on the price or value of the company’s securities.

ASIC suggests boards should consider the following practical tips:

  • Be prepared to act quickly to respond to continuous disclosure issues by having established policies and practices in place.
  • Know what information about your company the market is trading on. This will require monitoring the major sources of news and information, which in some cases will include significant social media sites. You should also be aware of how your company’s shares are trading when the market is open (for instance, a rapid price movement might indicate particular information is no longer confidential).
  • Good practice when making an announcement is to not assume the reader is sophisticated or can read between the lines. Highlight key information. Tell it as it is – for instance, don’t describe a scheme of arrangement proposal using takeover-bid language.
  • Be careful with announcement headings. Try to encapsulate the tenor of the message there. Headings are often what informs media reporting and, however illogical it may be, can trigger trading by algorithms.
  • Apply the listing rule requirements consistently, whether it is good or bad news that is required to be disclosed.
  • If the announcement is made to prevent a false market, explain this context in the announcement to avoid misunderstandings about the materiality of the information.
  • If you think people should not trade on an announcement, then consider saying so, as boards do early on when there is a formal takeover bid.
  • If an announcement proves to have been wrong, it may be necessary to update the market to ensure it is fully informed of material information.

We at ASIC look forward to participating with you in ASX’s consultations on the proposals.

Belinda Gibson
Deputy chairman
Australian Securities and Investments Commission