May 2002 Volume 83 Number 5 "serving the protectors"
Shares
By Ruth McCance, ASX Investor Education

Ensuring private investors get a “fair go” on ASX

Having quality information at the right time is critical to making informed investment decisions. So how does ASX ensure that you, the private investor, get that information and not just the big institutions and brokers?

ASX has one of the best systems in the world for ensuring a fair market. The responsibility for ensuring fairness is shared between ASX and the Australian Securities Investment Commission (ASIC).

ASX has ASIC’s delegated authority to supervise the market and ASIC investigates and enforces the law. Every company that lists on ASX enters a contractual relationship with ASX, which obliges them to comply with listing rules backed up by federal legislation.

The policy basis for the listing rules is fairness for individual investors while recognizing that companies often need to act quickly and discreetly to finalize deals or acquisitions, which ultimately benefit the shareholder.
The two main points for investors are that:
1. companies must get shareholder approval before making significant changes to the business or issuing large amounts of new shares, and,
2. companies must disclose information which might reasonably affect investment decisions made by market participants, including the private investor. This includes periodic releases, such as half-yearly and annual reports, but it also includes continuous and immediate disclosure of issues as they arise.

The current “continuous disclosure regime”, as it is called, came into being in 1994. When a company becomes aware of information that a “reasonable person” would expect to have a material effect on the share price, it must immediately tell ASX, which then electronically releases the information to interested parties, such as brokers and information providers, which you can then access. Of the 65,000 announcements made by companies in 2001, more than 16,500 included material information. The exception to this rule is when:
1. a reasonable person wouldn’t expect it to be disclosed (for example, if it is important to keep a potential deal secret from competitors) AND
2. the information is confidential AND
3. the company would be breaking the law if it released the information, or it relates to an incomplete negotiation, is too indefinite, is generated for internal use only or is a trade secret.

All three parts have to be valid for the exception to apply so that disclosure need not be made.

In its supervision of the regime, ASX often gets involved when a negotiation or deal is leaked to the press. Once this happens, the information is no longer confidential, so the exception no longer applies and the company must tell ASX (so it can tell everyone else) what is going on. Often companies have read the papers for themselves and are preparing an announcement when ASX calls. Between July and December 2001, 111 company announcements were made as a result of ASX activity following a media report.

ASX believes that, while it is important to have sanctions if rules are broken, more effective results can be achieved by fostering a commitment from listed companies to comply with the spirit of the listing rules from the outset. This works to everyone’s advantage, as ASX maintains its reputation for integrity and fairness, which attracts investors who will want to buy companies’ shares, making it cheaper and easier for them to raise capital to fund their business strategy and be successful, thereby providing investors with better returns.

ASX works very closely with companies to achieve this: each company is assigned a companies advisor as a single point of contact with ASX to answer all their questions. Building a good working relationship in this way has been shown to be crucial in ensuring good disclosure of information to the market.

If this process fails, then ASX will refer the company in question to ASIC, which will review potential breaches and prosecute if necessary.

Effective disclosure is an important part of the supervisory framework to make sure that Australia’s principal share market is fair for everyone. Company announcements are available to you free of charge at www.asx.com.au.

This article was prepared with the assistance of the ASX Investor Education unit. It is not intended as investment advice or as a recommendation of specific securities. For more information, phone ASX Customer service on 1300 300 279 or go to the ASX website: asx.com.au

This article contains general information only. It is not intended as and must not be relied upon as investment advice. You should consult a licensed professional advisor prior to making any investment decision.

The information contained in this article is provided in good faith and derived from sources believed to be accurate as at the date of publication. However, no warranty of accuracy or reliability as to such information is given. Australian Stock Exchange Limited and its associated and related companies will not be liable for any loss or damage arising in any way from or in connection with anything provided in or omitted from this article or from any action taken or inaction in reliance on the article. This article does not contain an invitation or offer to invest in securities or other financial products and nothing in this article is to be taken as ASX endorsing promoting or expressing any opinion on any securities or other financial products.

©Australian Stock Exchange Limited ABN 98 008 624 691. All rights reserved.

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