Australian Securities Exchange (ASX) Compliance Update and announcements of market sensitive contracts – does a listed entity need to disclose the identity of a counterparty?

In its most recent update, ASX has set out its revised approach to monitoring and enforcing compliance with Listing Rule 3.1 in relation to the naming of parties to market sensitive contracts in announcements. 

The general rule provided in Listing Rule 3.1 is that, once an entity becomes aware of information that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately disclose the information to ASX and the market. 

By way of a brief summary, this ASX compliance update sets out key areas for listed entities to consider, including: 

1. disclosing the identity of counterparties; 

2. circumstances where ASX may not require disclosure of the identity of a counterparty; 

3. ASX’s approach to monitoring and enforcing compliance with Listing Rule 3.1; and 

4. general guidelines for announcements concerning market sensitive contracts. 

This article expands on the above points to assist listed entities to comply with Listing Rule 3.1 when making announcements of this kind. 

1. Disclosing the identity of other parties to market sensitive contracts

ASX has clarified its general approach by noting that, where a contract is market sensitive and requires disclosure, then the identity of any counterparties also needs to be disclosed to the market. 

ASX’s rationale underlining this approach is that the identity of the other party allows the market to assess the standing and creditworthiness of that party and the quality of the revenue (if any) that will be generated under the contract. 

2. Circumstances where disclosure of the identity of a counterparty may not be required 

Where an entity has strong and legitimate reasons for not wanting to be named in an announcement to the market, ASX has noted that it may accept a description of the other party as opposed to the disclosure of their identity. However, this will only be accepted where the description allows the market to sufficiently assess the counterparty’s standing and creditworthiness without that counterparty being named. 

ASX has emphasised that it sets a high threshold in this regard, in an effort to minimise the occurrence of ‘ramping announcements’, which are described in Guidance Note 8 as announcements which are released for the purpose of “ramping up” the price of an entity’s securities. An example of such an announcement is a “business update” which is worded in an exuberant fashion but does not contain content which ASX considers should have been released to the market. 

While ASX’s approach has not materially changed within this compliance update, ASX has attempted to broaden the circumstances in which it might accept an announcement about a market sensitive contract which contains a description of the other party rather than their name. In this regard, ASX will not ordinarily require disclosure of the counterparty’s name if the announcement: 

1. confirms that the entity does not consider the identity of the counterparty to be material information that a reasonable person would expect to have a material effect on the price or value of the entity’s securities;

2. confirms that the announcement contains 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

3. includes a description of the counterparty/customer that is sufficient to describe any market sensitive information about the counterparty/customer, including its standing and creditworthiness. 
   

ASX does not expect that an entity will consult with ASX before lodging an announcement which does not provide the identity of a counterparty. However, ASX has emphasised that, as with any announcement to the market, care must be taken to ensure that it is accurate, inclusive of all information that an investor could be influenced by and is not misleading. 

On a final note, ASX has stated that, if an entity has marked an announcement about a contract as non-sensitive and there is a material change in the entity’s security price following release of the announcement, ASX may take further action if the announcement does not include the information set out at points a – c above, as considered further below.

3. ASX’s approach to monitoring and enforcing compliance with Listing Rule 3.1

ASX has emphasised that the general rule continues to be that an announcement of a transaction which is material and warrants disclosure under Listing Rule 3.1 will also require disclosure of the identity of any counterparties. This will be applicable to non-market sensitive announcements, as in any event, the identity of the other party will nonetheless be of interest to the market. 

If an entity elects to proceed without identifying a counterparty to a market sensitive contract, ASX may take action if: 

1. it is concerned that the announcement is a ‘ramping announcement’; 

2. the announcement is incomplete, inaccurate or misleading; or 

3. there is a material movement in the entity’s security price following:

4. the release of an announcement that does not include the points set out in a – c above; 

5. a leak of or speculation about the identity of the other party; or 

6. the entity making an announcement that discloses the identity of the other party for the first time. 
   

In the circumstances contemplated above at point 1, 2, 3(i) and 3(ii) above, ASX has indicated that it may take steps to halt or suspend trading in the entity’s securities pending release of further information about the contract. In such situations, ASX may issue a direction to the entity to name the other party. 

Further to the above, ASX has also reminded entities of the general supervisory and enforcement options available to it, including but not limited to issuing aware letters, requiring an entity to review its compliance policies, referral to ASIC, censure and removal, all of which may occur an extensive period of time after the entity has made the announcement. 

4. General guidelines for announcements concerning market sensitive contracts

ASX has reminded entities of the general guidelines a listed entity should comply with when announcing a market sensitive transaction.

The table below sets out a helpful summary of those guidelines, which a listed entity should be aware of when making market sensitive announcements. 

A Disclosure Guide to ASX Announcements

Market sensitive acquisitions and disposals

Market sensitive customer contracts

the counterparty to the contract; where there is little information regarding the counterparty in the public domain, a description of the counterparty, a summary of the due diligence undertaken and the capacity to perform obligations in relation to the transaction; a description of the assets or businesses proposed to be acquired or disposed of; the consideration for the acquisition or disposal; the expected due date for completion of the acquisition or disposal; in the case of an acquisition, the intended source of funds to pay for the acquisition, including any capital raising and the details of such;  in the case of a disposal, the intended use of funds (if any) received for the disposal; any material conditions that need to be satisfied; any security holder approvals that may be required; any proposed changes to the board or senior management; and any other material information relevant to assessing the impact of the transaction on the price or value of the entity’s securities.

the name of the customer; the term of the contract; the nature of the products or services to be supplied to the customer; the significance of the contract to the entity; any material conditions that need to be satisfied before the customer becomes legally bound to proceed with the contract; and any other material information relevant to assessing the impact of the contract on the price or value of the entity’s securities.

The team at Palisade Corporate have extensive experience in advising ASX listed entities on the content of their ASX announcements and general compliance with the ASX Listing Rules. If you have any queries or require further advice in relation to ASX announcements or the ASX Listing Rules generally, please do not hesitate to contact our office on (08) 6211 5000 or info@palisadecorporate.com.au and we would be happy to discuss. 

By Monique Moro, Solicitor