With continuous disclosure issues - also known as ‘speeding fines’ – by ASX-listed companies on the rise, market operator the Australian Securities Exchange (ASX: ASX) has hinted at plans to crackdown on companies that carelessly or intentionally flout their compliance obligations to the Corporations Act 2001 and the ASX Listing Rules.
This is a wakeup call for executives of public companies who are not used to the ASX actively policing poor disclosure so rigorously.
With a growing number of listed stocks falling short of their obligations to keep investors and the market informed, the ASX recently told The Australian it is looking at expand its use of the censure powers afforded to it by the regulato,r the Australian Securities & Investments Commission (ASIC).
Based on powers bestowed on it five years ago, the ASX - as the licensed operator of markets and clearing and settlement facilitator – has the right to ‘ping’ listed companies for poor compliance.
Most of these relate to pricing enquiries around abnormal trading and whether a company has disclosed market sensitive information at the time it should have.
Court action
Worst case scenarios can result in the ASX referring serious breaches of listing rules to ASIC which can result in the regulator taking court action. Having faced a Senate inquiry over a perceived unwillingness to prosecute or even investigate serious conduct breaches, ASIC has become more active in taking companies to court.
As a case in point, ASIC is suing Magnis Energy Technologies (ASX: MNS) and its chairman Frank Poullas. ASIC accused Poullas of continuing to talk up business opportunities with companies that repeatedly failed to materialise.
ASIC also took aim at the ASX for the time it took to address these issues. For example, while the market operator had issued no fewer than nine letters in five years – asking Magnis Energy to explain its forecasts and disclosures - no action was taken.
Magnis Energy is by no means alone when it comes to breaching disclosure rules and, ironically, the market operator is also in the eye of ASIC. The regulator is suing the ASX for failing to reveal to shareholders problems in its attempts to replace its CHESS clearing and settlement platform.
Having faced numerous setbacks, the the ASX finally paused the project, resulting in a $250 million write-down in November 2022. ASIC alleges that the ASX made deceptive statements in February 2022 by claiming that the project was "on-track for go-live" in April 2023 despite serious delays.
We’re watching you more closely
With the ASIC taking closer scrutiny in the market operator’s policing of poor disclosure, the ASX’s chief compliance officer Daniel Moran wants to spend more time communicating market disclosure concerns with listed company boards.
Company directors will be left with no illusions, said Moran, that cautions and subsequent action will ensue if disclosures fail to pass muster. Moran believes one of the tell-tale signs of insufficient forward guidance is a 10%-plus share price movement during results season. This can result in the ASX placing a stock in suspension or a trading halt.
“We might also impose a requirement under the rules to engage a third party to do a review or issue a report or do an audit and put in place new disclosures policies,” Moran said.
“…these things, particularly in the case of a censure, shine a light on the market so that investors understand that a company and its management aren’t doing what they ought to be.”
Given that only 69 of the 2,350 companies listed on the ASX face long-term suspension (and possible delisting), the vast majority of companies have no problem complying with their obligations as listed stocks.
During the 30 September quarter 2024, the ASX issued 42 price queries, 41 aware letters around continuous disclosure and referred 8 companies to ASIC.