Proposal to significantly revise ASX Listing Rules

The Australian Securities Exchange recently released a public consultation paper setting our a significant number of proposed amendments to the ASX Listing Rules: “Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules: 28 November 2018”

The proposed amendments are wide-ranging and, if implemented, will affect both listed entities and entities seeking admission.  The consultation process ends on 1 March 2019 and the reforms which result from the process are expected to take effect on 1 July 2019.

We welcome ASX’s decision to improve and streamline and clarify the application of its rules.

This paper sets out a summary of the proposed amendments in 8 key categories.

1. Improving market disclosures and other market integrity measures
Enhanced quarterly reporting A new rule 4.7C is proposed that will require start-up entities that currently lodge an Appendix 4C (quarterly cash flow report) to also lodge a quarterly activities report with ASX, similar to the one required by mining exploration entities and oil and gas exploration entities. This amendment will affect any entity that has listed under the ‘assets test’.  Currently, such entities are only required to provide quarterly updates on their cash flows.This amendment will provide a more robust disclosure framework to require the provision of regular updates on the business including:

  • if the quarter is included in a period covered by a “use of funds” statement in the entity’s listing prospectus or PDS, a comparison of its actual expenditure since the date of its admission to the official list against the expenditure estimated in that “use of funds” statement and an explanation of any material variances;
  • if the quarter is included in a period covered by an expenditure program provided to under rule 1.3.2(b), a comparison of its actual expenditure since the date of its admission to the official list against the expenditure estimated in that expenditure program and an explanation of any material variances;
  • if any category of expenditure in its quarterly cash flow report is materially different from the estimated cash outflows for the next quarter shown in its quarterly cash flow report for the preceding quarter, an explanation of why that is so; and
  • a description of, and an explanation for, any payments to a related party.
Disclosure by listed investment entities of their NTA backing For listed investment companies (LICs) and listed investment trusts (LITs):

  • certain technical amendments are proposed to rule 19.12 which relate to the application of the relevant Accounting Standards to clarify their intended operation;
  • proposed amendments to rule 4.10.20 to require a LIC or LIT to disclose in its annual report:
    • the values of its individual investments (including derivatives);
    • the level 1, level 2 and level 3 inputs used to value its investments in accordance with Australian Accounting Standard AASB 13 Fair Value Measurement; and
    • the NTA backing of its quoted securities at the beginning and end of the reporting period and an explanation of any change therein over that period; and
  • proposed amendments to rule 4.12 to require a LIC/LIT to disclose its monthly NTA backing as soon as that information is available and, in any event, not later than 14 days after the end of that month. Currently LIC/LITs are permitted to wait for 14 days after month end to disclose this information, even though it may be ready earlier.
Disclosure of closure dates for the receipt of director nominations. Rule 3.13.1 currently provides that if directors may be elected at a meeting of security holders, the entity must tell ASX the date of the meeting at least 5 business days before the closing date for the receipt of nominations. However, the rule currently only requires a listed entity to disclose the intended date of the meeting and does not require any specific reference to the closing date for the receipt of such nominations. ASX is proposing clarification amendments to the scope and operation of this rule.ASX is also proposing to amend the rule 3.13.1 to state that the failure to give such notice does not invalidate the meeting or the election of any director at the meeting.  This is because the rule currently does not specify the consequence if a listed entity fails to give notice of the date of a meeting required under that rule.  Security holders have previously argued that the meeting and the election of directors at the meeting should be regarded as invalid or that the meeting should be postponed until the requisite notice has been given. ASX does not consider either of these outcomes to be appropriate.
Disclosure of voting results at meetings of security holders Proposed amendments to rule 3.13.2 to standardise the disclosure of voting results at meetings of security holders.
Disclosure of underwriting agreements Proposed amendments to various rules to achieve consistent disclosure of the key features of underwriting agreements, including the name of the underwriter, the extent of the underwriting, the fee or commission payable, and a summary of the material circumstances where the underwriter has the right to avoid or change its obligations.
Good fame and character Proposed expansion of the current “good fame and character” requirement in the conditions for ASX admission in rule 1.1, condition 20 to cover an entity’s CEO or proposed CEO as well as its directors and proposed directors.
Persons responsible for communication with ASX on listing rule issues Amendments to require the persons appointed by listed entities to be responsible for communication with ASX on listing rule issues to have demonstrated an adequate level of knowledge of the ASX Listing Rules.  This will involve a person being appointed to communicate with ASX after 1 July 2019 being required to have completed an approved listing rule compliance course.ASX will make an approved education course and examination available online on the ASX website for these purposes free of charge. The course is expected to cover key obligations of listed entities under chapters 3, 4, 7, 10, 11, 12, 14 and 15 of the ASX Listing Rules.
2. Improving market disclosures and other market integrity measures
Announcing issues of securities and seeking their quotation Simplifying and rationalising the current process for announcing issues of securities and applying for their quotation via the lodgement of an Appendix 3B.Currently, announcing an issue and applying for quotation of securities are dealt with in the one form (i.e. an Appendix 3B). Currently, the Appendix 3B is a static form that attempts to extract data for all of the different types of issues an entity may undertake which makes the form much longer and more complicated than it needs to be in the majority of cases.

ASX is proposing to amend the ASX Listing Rules to deal with announcements of new issues and applications for quotation of securities in two separate forms:

  • an Appendix 3B for the notification of a proposed issue; and
  • an Appendix 2A to apply for the quotation of securities.

Both the Appendix 2A and Appendix 3B are proposed to be “smart” forms, tailored for the various types of issues an entity can make.

The additional 10% placement capacity in rule 7.1A Implementing the changes foreshadowed in a recent consultation paper relating to an issuer’s additional 10% placement capacity under rule 7.1A: Strengthening Australia’s equity capital markets: ASX Listing Rule 7.1A after three yearsand some other changes to simplify and rationalise aspects of rule 7.1A
Issues of equity securities without security holder approval Proposed amendments to rationalise the lists of equity issues that can be made without security holder approval under rules 7.2, 7.6, 7.9 and 10.12 and making them consistent.
Notices of meeting Proposed amendments to expand and rationalise the requirements for notices of meetings in rules 7.3, 7.3A, 7.5 and certain new rules.
Employee incentive schemes Proposed amendments to rationalise the rules dealing with the approval of issues to directors and their associates under employee incentive schemes by merging rules 10.15 and 10.15A into the one rule.
Voting exclusions Proposed amendments the list of voting exclusions in the table in rule 14.11.1 for greater consistency and to give greater certainty as to which parties must have their votes excluded.
3. Efficiency measures
Escrow Streamlining the escrow regime in chapter 9 and Appendices 9A and 9B that applies to entities seeking admission under the “assets test” to substantially reduce the administrative burden for applicants seeking to list on ASX.  ASX recognises the administrative burden of having to obtain (in some cases) hundreds of signed restriction agreements and issuers being exposed to “greenmail” from security holders who hold out from signing such agreements.ASX is proposing to introduce a two-tier escrow regime where ASX can (and will) require certain more significant holders of restricted securities and their controllers to execute a formal escrow agreement in the form of Appendix 9A, as is currently the case. It is anticipated that ASX it will impose this requirement on related parties, promoters, substantial holders, service providers and their associates.
Eliminating the need to apply for a number of standard waivers ASX proposes to amend a number of rules to remove the need for listed entities to apply for standard waivers of those rules.
4. Updating the timetables for corporate actions
Timetable revisions ASX is proposing to update a number of the timetables set out in the appendices for corporate actions including:

  • dividends and distributions;
  • interest payment dates;
  • option expiry notices;
  • conversion of convertible securities;
  • opening dates for pro rata issues;
  • equal access buy-backs; and
  • security purchase plans.
5. Monitoring and enforcing compliance with the ASX Listing Rules
Additional powers to monitor and enforce compliance ASX is proposing a number of rule changes to enhance its powers to operate the market and to monitor and enforce compliance with the ASX Listing Rules
6. Correcting gaps or errors in the listing rules
Corrections ASX is proposing a number of rule changes to correct gaps or errors in the listing rules including in relation to:

  • time limits for quotation of securities;
  • employee incentive scheme issues;
  • rule 7.1 and 7.1A placement capacities;
  • ratifying agreements to issue securities;
  • agreements to acquire or dispose of substantial assets;
  • substantial holder notifications.
7. General drafting improvements
Changes for clarity ASX is proposing ASX is proposing a number of minor drafting changes to the listing rules to improve their clarity.
8. New and amended guidance
New guidance notes ASX is proposing new or amended guidance notes in relation to:

  • GN 1 applying for admission;
  • GN 11 restricted securities and voluntary escrow;
  • GN 12 significant changes to activities;
  • GN 13 spin-outs of major assets;
  • GN 21 the restrictions on issuing equity securities in chapter 7 of the ASX Listing Rules;
  • GN 24 acquisitions and disposals of substantial assets involving persons in a position of influence;
  • GN 25 issues of equity securities to persons in a position of influence; and
  • GN 33 removal of entities from the ASX Official List.


For further information please contact Anand Sundaraj.