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GRC Professional : GRC Winter 2012
19 compan ie s to shareholder cl a ss action. Further, the availability of litigation funding will increase the potential for these actions. So there is considerable pressure on companies to ensure the information they release is accurate. In the case of David Jones, the an nouncement of the t ake ove r caused the share price to soar 15 per cent before quickly ret reating. There may well be agg rieved shareholders who lost significant amou nt s a nd would seek recompense. While some cases may seem clear-cut, it is not always so easy to define what exactly is a significant event that should trigger disclosu re. unsea sonably wet weather may slow down construction projects. If the rain continues, it may eventually lead to missed deadlines and penalty payments. But knowing when the rain will stop is anyone’s guess. Similarly, a general softening of the economy may threaten previous profit guidance notices, but at what point does this become information that may materially affect the m arket, and when doe s the requi rement to “immediately” inform the market kick in? Mining companies may choose to hold back on releasi ng infor m ation about mineral samples until the company has had multiple te sts com pleted. This situation is further complicated by Guidance Note 8 issued by the ASX which seems to say the ‘spirit’ of the law is good enough. Listing Rule 19.2 states that an entity “must comply with the listing rules as interpreted in accordance with their spirit, intention and purpose; by looking beyond form to substance; and in a way that best promotes the principles on which the Listing Rules are based.” However, ASIC’s v iew is much more st r ingent: im mediate mean s i mmed iate. “Compliance w ith continuous disclosu re prov isions goes to the hea r t of ASIC’s prior ity of promoting fair and efficient markets,” chairman Greg Medcraft said. “All listed companies should have procedures in place to ensure that they comply with their continuous disclo sure requirements.” With the regulatory framework insisting that relevant information is immediately passed up the tree to ensure that the appropr iate people are awa re of a nd ca n comply with their disclosure obligations, this begs the question: Who needs to under st and a company’s continuous disclosure complia nce obligations? A more comprehensive under st anding of continuous disclosure r ules is certainly requi red by sen ior m anag ement and directors. But any staff member with access to information that could have a material effect on the market should also have access to the company’s policy on cont inuous disclosure. They should al so receive training on how that policy applies to them and their role in the organisation; what they should do if they are in receipt of information which may be market sensitive; and most importantly, who they should contact for more i nfor m ation. In addition – particularly where there are employee share plans in place – consideration should be given to t raining on insider trading. ••• Julian Fenwick is CEO of Governance, Risk and Compliance Solutions. He develops and implements legal compliance training solutions for a range of clients in Australia and South East Asia. In a nutshell: when are companies required to disclose, and what did David Jones argue in its defense? Disclosure rules are covered by the Corporations Act 2001, which binds companies to disclose in accordance with the ASX Listing Rules. Listing Rule 3.1 states: “Once an entity is or becomes aware of any information concerning it that a reasonable person would expect would have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information.” David Jones claimed the carve-out provision in Rule 3.1A , which states that Rule 3.1 does not apply if a reasonable person would not expect the information to be disclosed, or if the information concerns an incomplete proposal or negotiation. ASIC’s investigation is continuing. Want to know more about continuous disclosure? Don’t miss the inaugural GRC 2012 Conference, where Kevin Lewis, Chief Compliance Officer, ASX will speak on ‘Proposed Changes to ASX’s Continuous Disclosure Listing Rules and Guidance’. Registration now open at www.grc2012.org any staff member with access to information that could have a material effect on the market should also have access to the company’s policy on continuous disclosure.
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