ASIC and ASX are undertaking a joint campaign to increase awareness among listed public company directors of their obligations under the Listing Rules and the Act, and to ensure a high level of compliance.
This campaign follows a review of ASX referrals to ASIC over the past 18 months and the recent work done by the BT Governance Advisory Service that indicate compliance with these obligations is not adequate at present.
“The obligation to notify directors’ interests is a central aspect of corporations law, and together with the insider trading prohibition and the continuous disclosure requirements, helps to maintain an informed market”, ASIC’s Executive Director of Compliance, Ms Jennifer O’Donnell said. “Transparency of directors’ interests is all about sustaining confidence in our financial market and strengthening the integrity of Australian corporations”, Group Executive Market Supervision at the ASX, Mr Eric Mayne said.
The Act requires every director of a listed company to notify the relevant market operator (ASX, Bendigo Stock Exchange, Newcastle Stock Exchange or Australia Pacific Exchange) about holdings and changes to relevant interests, no matter how small, in securities of the company of which they are a director. This section of the Act is different from the substantial shareholding provisions and covers a wider variety of securities.
ASIC periodically conducts focused reviews of compliance with the Act, specifically Section 205G, and most recently in 2001 targeted over 80 directors for failing to lodge notifications. As a result of this work 99 per cent of these directors subsequently lodged notices with the ASX. As well as failure to lodge, ASIC has also seen many instances of late lodgement ranging from days to months.
ASIC will conduct this work in cooperation with the ASX who have responsibility for ensuring compliance with Listing Rules 3.19A and 3.19B. These listing rules require listed entities to notify the ASX within five days of certain interests in securities held by directors at the time of commencing and ceasing to be directors, as well as any changes to a director’s interests in securities while holding office. These listing rules complement the requirements of section 205G in promoting a transparent market.
“The notification requirements of the Listing Rules and the Act are simple and our expectations of compliance are clear”, Mr Mayne said.
“Where we detect late or non lodgement, we will take appropriate action. When a director does not comply with a simple requirement, it raises the perception of potential market misconduct, and we will ask why the notice was not lodged, and if there is evidence of misconduct then we will intervene accordingly”, Ms O’Donnell said.
The director is personally responsible for notifying their interest, within five business days under the Listing Rules and within 14 days under the Act, of appointment or listing of the company (whichever is relevant) and thereafter within five or 14 days of any change (as the case may be).
ASIC has produced guidance (ASIC Information Sheet: Notifying the ASX about directors’ interests in company securities), available via www.asic.gov.au, which helps company directors to comply with their disclosure obligations. The ASX has also produced guidance (Guidance Note 22 - Director Disclosure of Interests and transactions in Securities and Companies Update 11/05 - Action on non-disclosure of directors’ interests) which can be obtained via www.asx.com.au.
