ASX revises approach to naming of contract counterparties in announcements
Background
As you may be aware, for some years ASX’s policy (as set out in Guidance Note 8) has been to require listed entities who release announcements concerning material contracts to name the counterparties to those contracts (other than in limited cases where government agencies or entities in the defence or security industries are involved). In that regard, ASX has been clear that it expects disclosure of counterparty names to occur even if the listed entity has entered into confidentiality arrangements which might contractually restrict the disclosure of the counterparty’s identity.
The rationale for ASX’s position derives from the obligation under Listing Rule 3.1 that a listed entity must immediately tell ASX information of which it becomes aware and which a reasonable person would expect to have a material effect on the price or value of the entity’s securities. ASX considers that if a transaction is sufficiently material to warrant disclosure under Listing Rule 3.1, the identity of the other party will generally itself be material information that must also be disclosed under that rule.
However, this policy can in practice cause issues for listed entities dealing either with large companies (for whom disclosure of the entry into the relevant contract may not be material/announceable) or foreign entities who are not subject to similar disclosure requirements in their home jurisdiction.
Basis of ASX’s revised approach
As you may have seen, in its Compliance Update no.02/25 released yesterday (“Compliance Update”), ASX has announced additional circumstances in which listed entities may be entitled to make announcements concerning contracts without naming the counterparties involved.
The Compliance Update provides that ASX’s general expectation remains (as provided under Guidance Note 8) that the identity of counterparties in market-sensitive contracts should be disclosed, as this information helps the market assess matters such as the standing and creditworthiness of counterparties. However, ASX is now allowing a broader scope for entities to avoid naming counterparties in certain circumstances where the counterparty’s identity is not considered market sensitive, subject to strict guidelines.
When it may be possible not to disclose a counterparty’s identity
It will now be possible for listed entities not to disclose a counterparty’s name if the relevant announcement:
- confirms that the entity does not consider the identity of the counterparty to be information that a reasonable person would expect to have a material effect on the price or value of the entity’s securities;
- confirms that the announcement includes all material information relevant to assessing the impact of the contract on the price or value of the entity’s securities, and is not misleading by omission; and
- includes a description of the counterparty that is sufficient to describe any market sensitive information about the counterparty, including its standing and creditworthiness.
Market sensitivity and ASX enforcement powers
The Compliance Update provides that if an entity elects not to name the counterparty in an announcement, ASX may take action in relation to that announcement if:
- ASX is concerned that the announcement is a ‘ramping announcement’ or is otherwise concerned that the announcement is incomplete, inaccurate or misleading;
- there is a material movement in the entity’s security price following the release of the announcement and the announcement does not include the information in points 1 – 3 above;
- there is a material movement in the entity’s security price following a leak of, or speculation about, the identity of the counterparty; or
- there is a material movement in the entity’s security price after the entity makes an announcement that discloses the identity of the counterparty for the first time.
In the first three scenarios above, ASX may take steps to halt or suspend trading in the entity’s securities pending the release of further information about the contract. In those situations, ASX may issue a direction to the entity under the Listing Rules to name the counterparty in a further market announcement.
It is worth noting that the above is not an exhaustive list in respect of ASX’s enforcement powers, which also include:
- issuing aware letters;
- requiring an entity to review its compliance policies or to engage an independent expert to do so;
- referral to ASIC;
- censure; and
- in extreme cases, removal of an entity from the official list.
Should counterparty names generally be disclosed even if the contract is not material?
Interestingly, ASX takes the view (as stated in the Compliance Update) that “[e]ven if an announcement is not market sensitive, the identity of the counterparty/customer is information that is usually of interest to the market. Failure to disclose the identity of the counterparty/customer may attract speculation that could result in a false market”. It therefore strongly recommends that entities disclose the identity of counterparties in any announcement about a contract, whether material or not. This appears to be a curious position in that, if the underlying contract itself is not material, it is hard to see how the identity of the counterparty would of itself be information which meets the test of being “material” or “market sensitive”. Nonetheless, listed entities should be aware of ASX’s position on this issue.
If you have any questions in relation to ASX market announcements or any other commercial or legal issues, feel free to contact Mark Burchnall (mburchnall@mphlawyers.com.au), Jordan Hilligenn (jhilligenn@mphlawyers.com.au) or Taila Childs (tchilds@mphlawyers.com.au) or contact +61 (0) 8 9221 0033.