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Proposed changes to the way listed companies, media, financial services communicators and others meet continuous disclosure requirements should be on your radar. And that includes the requirement for social media monitoring.
The changes in question are those recently issued by the Australian Securities Exchange (ASX) in its proposed rewrite of Guidance Note 8 (GN 8); ‘Abridged Guide’; and draft Listing Rule changes. Last week, Allens Linklaters held a breakfast briefing outlining the proposed revisions and some likely effects. If adopted (very likely) the new guidelines take effect on 1 January 2012.
Why has the ASX revised the disclosure laws?
Continuous disclosure: the requirement that listed companies keep shareholders and the ASX informed should they come into knowledge of events that might materially change their published earnings forecasts (or for smaller companies, materially change from earnings of the previous year) has been an ongoing news issue in recent years.
Many will be familiar with the recent High Court decision overturning an ASIC ruling claiming Fortescue had breached continuous disclosure requirements by not correcting false and misleading information. Another high-profile High Court ruling occurred earlier in the year this time in favour of ASIC, which had appealed to have seven former Non-Executive Directors of James Hardie held accountable for approving a misleading ASX announcement.
As Allens noted, the last time the ASX reviewed the Guidance Note 8, it was 2005 – years before these issues came to light and, significantly, two years before the GFC, which saw many companies face extreme discrepancies between their forecasted and actual earnings.
For those of us in financial services communication or media, the revision of the continuous disclosure rules are required reading.
The impact of online and social media on ASX guidance
One contentious area in the past has been the requirement that companies disclose information / make an announcement ‘immediately’ upon becoming aware of market sensitive information that might change earnings guidance. The big question has always been is: what does immediately mean? The revised GN 8 answers this (sort of …) acknowledging that time is needed to check the bona fides of information and formulate an announcement. As such, it declares that immediately means ‘promptly and without delay’ rather than instantaneously.
In a world where communication is increasingly moving to online, the time pressures put on companies and the impact that shared information can have in a much shorter time frame must not be overlooked. Once upon a time, if the ASX had closed, you could be reasonably sure that traditional print media would likely be out of the picture until the next morning too. But online publications, and social media, have changed the rules of engagement.
Accordingly, the ASX explicitly mentions social media in its guidance regarding traditional media monitoring to include social media. This means social media monitoring that allows you to ‘listen’ in to investor chat rooms, blogs, bulletin boards etc. The faster you are aware of information that might affect your continuous disclosure requirements, the more quickly you can act on it.
Other key changes:
- Under the previous GN 8, if there was a rumour or speculation that might affect a company’s earnings occur, a blanket media statement along the lines that the company didn't comment on market speculation and rumour would suffice. No more, says the ASX – in some cases, where a rumour appears specific and credible (and accuracy is not a test) a specific response will be necessary. In addition, if a material change in price or volume of trading is likely to occur based on the rumour, a response will be necessary.
- This highlights the importance of updating prepared announcements to address leaks and rumours throughout a deal or project – as soon as more details come to light, the leak response should be updated and signed-off.
- Obtaining Board sign off for all announcements is not always necessary – this is especially pertinent in relation to meeting the ‘immediate’ test. More significant announcements, especially those arising from Board decisions, will need approval.
- The key here is for companies to have processes to ensure whatever announcements need to be made, are made: by the right people, in the right time frame. This requires planning and the operation of an effective and empowered guidance committee.
- As Allens points out “Information is market sensitive if it ‘would, or would be likely to influence persons who commonly invest in securities in deciding whether to acquire or dispose of’ relevant securities.” … BUT this is not the test that is applied! The question comes down to the word ‘influence’ – and companies should answer the following far more subjective questions before making a decision – would this information influence my decision to buy or sell? Would I feel exposed to an insider trading action if I traded now, after receiving this information?
- There are now three different categories relating to what constitutes an ‘earnings surprise’. Previously, the measure was a 10-15% difference from the previous earnings guidance.
