On the back of the CAMAC Aspects of Market Integrity report released in June 2009, ASIC released a public consultation paper just before Christmas outlining proposed best practice guidelines for handling price sensitive confidential information.

During the 2009 financial year, ASIC identified a reasonably high number of abnormal stock market movements before announcements that concerned capital raisings or mergers and acquisitions. As a result, ASIC undertook a review of the practices used by listed entities in Australia, and compared these against practices adopted in several overseas jurisdictions. ASIC representatives met with companies involved in such transactions, as well as their advisors and other industry participants. ASIC concluded that practices used in Australia in many ways fell short of practices adopted overseas.

From this, ASIC has released its consultation paper, which includes draft proposed regulatory guidelines. While not enforceable by law, the guidelines are intended to improve current standards across all listed entities so that companies implement and enforce best practice, rather than just a minimum level of compliance. These guidelines should be seen as a vital tool in ensuring that price sensitive information is dealt with in a way that will help the company comply with its legal obligations for continuous disclosure, insider trading and licensing under both the Corporations Act and ASX listing rules.

In summary, the guidelines cover the three key areas of:

• internal policies and procedures;
• individual obligations; and
• sounding the market.

The key suggestions for each of these areas are outlined below.

Internal policies and procedures

• Maintain "insider lists" of all persons within the company who possess confidential information.
• Require advisors to maintain "insider lists" and to update these and provide them to the company on a regular basis.
• Assign a classification to documents according to the required level of protection.
• Set out and implement a clear process for leak investigations.
• Use an umbrella agreement with advisors outlining the company's expectations for dealing with confidential information, to be followed by a subsequent transaction specific confidentiality agreement.

Individual obligations

• Enter into transaction-specific confidentiality agreements with all employees who will have access to price sensitive confidential information (separate from the general obligations under existing employment arrangements).
• Adopt policies placing restrictions on people who possess price sensitive confidential information trading in securities in the company.

Sounding the market

• Only disclose price sensitive confidential information with the prior approval of the company.
• Only sound the market when the market is closed or the company is in a trading halt.
• Use a formal script for consistent disclosure of information to all potential shareholders.
• Require potential shareholders to provide a written confirmation of confidentiality.
• Notify ASIC of discussions with a potential shareholder within 48 hours.

Within these suggested guidelines, companies can implement policies and procedures tailored to their own requirements.

ASIC has invited feedback and comments on the proposed amendments, based on the experiences of listed entities locally, and having regard to the significant level of administration that would be required to implement the full range of proposed measures. The ASIC consultation paper contains a number of questions which ASIC is requesting feedback on during the consultation process.

Submissions and feedback need to be provided to ASIC by 21 February 2010, so that it can look to release a regulatory guideline during April 2010.

Otherwise, before and following formal release of the guidelines:

• listed entities that already have a policy for handling price sensitive confidential information should review and update their policy against these guidelines and their own requirements;
• listed entities that do not have a policy for handling price sensitive confidential information should look to adopt a policy that reflects, as suited to their requirements, the matters contained in the guidelines; and
• listed entities should recognise when price sensitive confidential information has come into being and look to implement their policy to avoid potential breaches of the Corporations Act and ASX Listing Rules.

If you have any questions about the proposed guidelines or would like to submit your comments to ASIC, please contact HopgoodGanim’s Corporate Advisory and Governance practice.

Michael Hansel, Partner
Richard Hanel, Associate