The ASX released the final version of its guidance note on continuous disclosure (Guidance Note 8) on 13 March 2013. The revised Guidance Note 8 has been submitted to ASIC and is expected to come into operation 1 May 2013.
In summary, the main changes to the old Guidance Note 8 clarifies:
- that 'immediately' does not mean 'instantaneously' but rather 'promptly and without delay';
- the operation of the 'reasonable person' test;
- when an entity should ask for a trading halt to manage its continuous disclosure obligations; and
- earnings surprises.
THE REQUIREMENT TO DISCLOSE INFORMATION "IMMEDIATELY"
ASX confirms that the word 'immediately' does not mean 'instantaneously' but rather 'promptly and without delay'.
A period of time will necessarily pass between when an entity is first required to give information to ASX and when it is able to give that information to ASX in the form of a market announcement. This passing of time, of itself, does not mean that there has been a 'delay' in the provision of information. ASX recognises that how quickly an entity can give an announcement of particular information to ASX will be dictated by the circumstances confronting it at the time. Ultimately, the relevant question is 'whether the entity is going about this process as quickly as it can in the circumstances and not deferring, postponing or putting it off to a later time.'
REASONABLE PERSON
Once an entity becomes aware of information concerning it that a reasonable person would expect have a material effect on the price or value of the entity's securities, it must immediately (i.e. promptly and without delay) tell ASX that information. Clarity is given on the 'reasonable person' test in the carve outs from disclosure requirement.
ASX identifies two prime examples of circumstances where it considers that a 'reasonable person' would expect information to be disclosed:
- where an entity has 'cherry-picked' its disclosures, first disclosing 'good' information of a particular type that is likely to have a positive effect on the price or value of its securities but then declining to disclose 'bad' information of the same type that is likely to have a negative effect on the price or value of its securities; or
- where the information needs to be disclosed in order to prevent an announcement of other information from being misleading or deceptive.
TRADING HALTS AND VOLUNTARY SUSPENSIONS
There has been significant expansion to the guidance on the use of trading halts and voluntary suspensions in managing disclosure issues. An entity's primary obligation under Listing Rule 3.1 is to give market sensitive information to ASX for release to the market promptly and without delay.
ASX describes scenarios in which an entity is expected to act particularly quickly and, if it is not in a position to issue an announcement to the market straight away, request a trading halt. While recognising that a decision to request a trading halt is serious, ASX also notes the importance of the entity being able to request a trading halt promptly. Compliance with this requirement depends on the internal procedures of the entity to be activated and any necessary approvals obtained within a matter of minutes.
EARNINGS SURPRISES
If an entity becomes aware that its earnings for the current reporting period will differ materially from market expectations (either upwards or downwards), careful consideration must be given as to whether a legal obligation arises to notify the market of that fact. Revised Guidance Note 8 clarifies how an entity should determine what the market is expecting its earnings for the current reporting period to be.
ASX considers that most appropriate base guides to use for these purposes are (in order):
- any published earnings guidance by the entity itself;
- the earnings forecasts of sell-side analysts; and
- the entity's earnings for the prior corresponding period.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
