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Guidelines for release of Price-Sensitive Decisions by Australian Government Departments and Agencies Exposure Draft

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Guidelines for release of
Price-Sensitive Decisions
by
Australian Government
Departments and Agencies

Exposure Draft

 

April 2004

© Commonwealth of Australia 2004

ISBN 0 642 74234 0

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth available from the Department of Communications, Information Technology and the Arts. Requests and inquiries concerning reproduction and rights should be addressed to:

The Commonwealth Copyright Administration
Intellectual Property Branch
Department of Communications, Information Technology and the Arts
GPO Box 2154
CANBERRA ACT 2601

Or posted at:

http://www.dcita.gov.au/cca

Comments
The Government is seeking comments from interested parties on the proposed guidelines. Comments should be sent to:

Ms Ruth Smith
Manager
Market Integrity Unit
Corporations and Financial Services Division
Department of The Treasury
Parkes Place
PARKES ACT 2600

Or by fax: 02 6263 2882 or email: rsmith@treasury.gov.au

The closing date for submissions is 17 May 2004.

Copies of this document are available on the Treasury website http://www.treasury.gov.au

Confidentiality
It will be assumed that submissions are not confidential and may be made publicly available. If you want your submission, or any part of it, to be treated as 'confidential', please indicate this clearly. A request made under the Freedom of Information Act 1982 (Cth) for a submission marked confidential to be made available will be determined in accordance with that Act.

Contents

Introduction

Guidelines for release of decisions by Australian Government departments and agencies regarding listed entities

The issue

Releasing price-sensitive decisions

To which decisions the guidelines apply

To whom the guidelines apply

To what securities the guidelines apply

What should be done

Consultation

Attachment A

The continuous disclosure requirements

In general

The obligations on listed entities

Enforcement of the obligations

Proposed reforms

Attachment B

Sample paragraphs reminding an entity of its continuous disclosure obligations

Introduction

The Hon Ross Cameron MP

Disclosure is fundamental to market integrity and investor protection. Continuous disclosure is an important component of this framework. It puts investors in a position to make accurate judgements about the price of particular securities. It should ensure that the price of securities reflects their underlying economic value.

Listed entities have a legal obligation to disclose price sensitive information as soon as they become aware of it. Failure to comply with this obligation can lead to a partially informed market and the possibility of insider trading. This outcome is not in the interests of investors or the economy as a whole.

In the light of this, it has been decided to explore the desirability of introducing a back up mechanism, under which departments and agencies would seek to advise market operators of impending price sensitive decisions.

If adopted, these draft guidelines would not supersede the obligation already imposed on listed entities to inform the market operator, typically the Australian Stock Exchange, of the price-sensitive information required by the Listing Rules. The obligation on the relevant agencies and departments would be on a ‘best endeavours’ basis.

I would welcome any comments which investors, listed entities and the wider community may have on the draft guidelines. Your comments will be carefully considered before any further steps are taken to adopt the guidelines.

Ross Cameron signature

The Hon Ross Cameron MP
Parliamentary Secretary to the Treasurer

Guidelines for release of decisions by Australian Government departments and agencies regarding listed entities

The issue

In April 2003, the securities of Pan Pharmaceuticals Ltd (Pan) were traded on the Australian Stock Exchange (ASX) for a short time while only some market participants were aware of the action of the Therapeutic Goods Administration (TGA) against Pan.

Some were not aware of the TGA action because, according to the ASX, neither Pan nor the TGA contacted the ASX directly to advise them of it.

The obligation under the Corporations Act 2001 and the ASX Listing Rules is on the listed entity to advise the ASX of price-sensitive information that is not generally available. Listed entities are required to provide information, which might have an impact on the price at which their shares are traded immediately after this information becomes known and before it becomes generally available.

The market operator, for example the ASX, also has an obligation to ensure a fair, orderly and transparent market.

A decision by a government agency to take action that might have a significant impact on the business of a listed company is likely to be price sensitive.

It is therefore important that information about such decisions be disseminated efficiently through the usual mechanisms of the markets, such as ASX, so that all people who trade in shares have an equal opportunity to have access to that information. (Once the information becomes generally available, the concern is dissipated.) The Listing Rules require that the listed entity provide information to the market operator first, so that this can be achieved.

But experience indicates that listed entities cannot always be relied upon to comply with these information requirements.

For this reason, as a back-up mechanism, it is desirable that government agencies who are about to announce price-sensitive decisions also inform the market operator (the ASX usually). Doing so will provide a safeguard to enable market operators to take timely action in circumstances where companies may be unaware of certain decisions or have failed to meet their legal obligations.

A number of regulators already have such arrangements in place. These arrangements provide for the market operator to keep the decision confidential pending its release.

The purpose of this document is to encourage other agencies and departments to examine the types of decisions they are involved in making and, where appropriate, put in place procedures for handling decisions that may be price-sensitive. The arrangements suggested by these guidelines are informal and in the nature of ‘best endeavours’. They do not, in any way, alter the legal obligation on the disclosing entity.

The draft guidelines for disclosure appear below. We note that this issue has also been raised by the ASX with the States and Territories.

These guidelines do not:

A description of the current continuous disclosure requirements is at Attachment A.

Releasing price-sensitive decisions

To which decisions the guidelines apply

Any decision that:

But not any decision that the listed entity itself would not be obliged to disclose, if it were aware of it.

We acknowledge that it will be difficult for agencies and departments to form a view as to what decisions are price-sensitive. Consideration of the impact or potential impact on the business of a company may assist.

Decisions within the ambit of these guidelines are decisions by regulators and departmental officers, for example, to cancel a licence, or to prevent a particular takeover from proceeding.

The guidelines relate to regulatory decisions of a final nature, although they may be reviewable by a Tribunal or court. Thus they do not expect that the decision to issue a notice to show cause why a licence should not be revoked would be subject to these guidelines.

They assume that all significant government decisions with price implications will be announced.

While there are exceptions, the expectation that the market operator (for example, the ASX) will be informed is dependent on whether the decision relates to a listed entity and is price-sensitive (not whether the decision is expected to be announced publicly by other means).

If a department or regulator has concerns that release of a decision would breach a requirement for confidentiality, then it should seek legal advice.

To whom the guidelines apply

All agencies that make decisions that can be expected to affect the price or value of securities need to be aware of these guidelines and to consider how they will be put into practice in their particular situation.

All government departments that are responsible for the release of decisions of ministers that may have such an effect also need to be aware of the guidelines and consider their relevance.

To what securities the guidelines apply

These guidelines apply to listed entities and securities quoted on the ASX or another financial market in Australia, whether those securities be shares, debentures, interests in managed investment schemes or units of shares.

The websites of the market operators will assist in identifying whether the issuer is listed: www.asx.com.au; www.newsx.com.au; www.bsx.com.au.

The guidelines relate to decisions about a listed entity. There is no obligation to determine the holders of beneficial interests in an entity about which a decision is being made and whether those holders are listed.

The guidelines do not envisage that the department or agency will make inquiries about the ownership of an unlisted entity which is the subject of a decision. However, in cases where relevant officers are aware of the significant interest of a listed entity, then compliance with the guidelines would be appropriate.

What should be done

Consultation

Australian Securities and Investment Commission (ASIC), the ASX, Bendigo and Newcastle Exchanges and Commonwealth Secretaries were consulted in the preparation of these guidelines.

Attachment A

The continuous disclosure requirements

In general

The obligations on listed entities

Enforcement of the obligations

Proposed reforms

Sample paragraphs reminding an entity of its continuous disclosure obligations

Chapter 6CA of the Corporations Act 2001 requires disclosing entities to release information that is not generally available and that a reasonable person would expect, if it were generally available, would have a material effect on the price or value of enhanced disclosure securities.

The chapter addresses the obligations of listed disclosing entities which are subject to continuous disclosure obligations through market listing rules, and other disclosing entities. In the case of entities listed on the Australian Stock Exchange, the Listing Rules specify the information required to be disclosed.

These requirements are central to the integrity of the market and are designed to ensure efficient dissemination and equal access to information for all market participants.

If your company is subject to these requirements or similar requirements imposed by the Bendigo or Newcastle Stock Exchanges, you should consider what steps you may need to take to ensure compliance with them. Non-compliance renders the entity liable to a civil penalty or prosecution.

1 If the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the securities, then a reasonable person is taken to expect information to have a material effect on the price or value of the securities (see section 677).