It seems likely that listed companies in Australia will revisit their continuous disclosure policies, particularly in relation to the conduct of their analyst and investor briefings, as a result of ASIC's recent commencement of legal action against Newcrest Mining in the Federal Court.
In an 'Agreed Statement of Facts and Admissions' made jointly by ASIC and Newcrest and filed with the Court (and attached to a settlement deed lodged with the ASX), Newcrest has admitted to two "serious" contraventions of s674(2) of the Corporations Act, which in effect imposes a statutory obligation on such companies to comply with the continuous disclosure obligations under the ASX Listing Rules.
The contraventions relate to certain selective analyst briefings made by a Newcrest investor relations manager in 2013 on market sensitive information (pertaining to total gold production and capex information) before its disclosure to the market.
As is generally well known, ASX Listing Rule 3.1 requires that, once a listed entity is or becomes aware of any information concerning it 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 tell the ASX that information. The exceptions set out in Listing Rule 3.1A no longer apply when information ceases to be confidential.
Companies found to be in breach of their disclosure obligations may be subject to penalties of up to AUD$1 million (per contravention). In the case of Newcrest, the joint application submits to the Court that an aggregate penalty of $1.2 million is appropriate given the size of the company, the volume of trading for the relevant period and the potential impact of the integrity of the market.
The news relating to Newcrest comes after ASIC released a report in May this year reviewing the way in which listed entities and their advisers handle confidential and market sensitive information. ASIC's report was prepared after the regulator attended a number of group, select and 'one on one' briefings in the latter half of 2013 in addition to its ongoing surveillance and investigative work on continuous disclosure and insider trading issues.
In its report, ASIC made a number of recommendations for listed entities, advisers and analysts which it points out are largely in accordance with existing best practice guidance. For listed entities, ASIC recommends:
- Directors and officeholders should familiarise themselves with the Governance Institute/AIRA guidelines (in addition to the ASX Listing Rules and ASX Guidance Note 8 reissued in May 2013);
- written disclosure policies should be in place to ensure as broad as possible access to analyst and investor briefings (eg. providing advanced notice and dial-in details of briefings to the market, giving wide access to roadshow briefings, making available recordings or transcripts of group briefings and having appropriate compliance systems in place capable of handling confidential, market sensitive information);
- in the context of market sensitive information about corporate transactions, companies should: obtain some form of assurance from third parties that market sensitive information remains confidential (eg. keeping record of the advisers and investors approached, using a short confidentiality script before any approach and, if appropriate, using a pro forma confidentiality agreement); draft trading halts and announcements should be prepared in advance to address any leaks; ensure they understand the risks involved with soundings of investors (and how trading halts or voluntary suspensions should be used to manage such risk).
ASIC recommendations for analysts and advisers follow a similar theme of education and understanding of the relevant law as well as familiarity with the joint AIRA and Finsia guidelines (for analyst briefings) and the AFMA guidelines (in the case of advisers and the conduct and timing of soundings in relation to the launch of corporate transactions).
While ASIC seems comfortable with existing guidance available to listed entities, advisers and analysts, the regulator considers analyst and investor briefings to be "a significant risk area for selective disclosure of market sensitive information" and clearly wishes to ensure that the guidance is complied with.
To that end, it has flagged its continued focus on such briefings by undertaking enforcement action where necessary and reviewing analyst research reports (where material changes are made to their forecasts or recommendations).
Edward Nixey is a leading corporate and transactional partner at K&L Gates, Sydney.