Skip to content.

Home

Allens Arthur Robinson

$2 billion net asset for 'foreign exempt' companies under ASX Listing Rules

ASX is proposing to amend the threshold for admission to the stock exchange for 'foreign exempt' companies. The proposed amendment will see the increase in the quantum for the net tangible assets and profit tests for a company seeking listing as a 'foreign exempt' company. Currently, foreign companies may be listed as 'foreign exempt' if they have net tangible assets of $50 million, or profit before tax in each of the 3 previous years of $10 million. The proposed changes will see the net tangible assets requirement increased to $2 billion and profit before tax requirement to $200 million in each of the previous 3 years. A moratorium has also been placed on the admission of "foreign exempt" companies. ASX anticipates that the changes will come into effect on 30 June 2002. This may have an impact on a number of New Zealand companies in particular.

(Source: ASX Media Release, 3/10/01.)

Return to top

New class order for continuously quoted securities

ASIC has released a new class order (CO 01/1455) which enables a disclosing entity with quoted securities to continue to issue a "transaction specific prospectus". This class order applies to entities that would otherwise be unable to issue a transaction specific prospectus following recent amendments to the definition of "continuously quoted securities" in the Corporations Act 2001 (Cth) as a result of the Financial Services Reform Act 2001 (Cth).

(Source: ASIC Information Release, IR 01/13, 27/11/01. For more, see the media release)

Return to top

ASIC calls for relief for investment funds

In an attempt to generate discussion on whether investment funds should be granted relief from the takeover threshold of 20% and the substantial holding disclosure requirements, ASIC has released a discussion paper on this topic. Although the discussion paper does not set out any firm ASIC proposals, ASIC has identified several options to address concerns raised by investment funds in relation to the 20% threshold and substantial holding disclosure requirement.  

Takeover threshold

It has been argued by some investment funds that the takeovers threshold prevents funds from acquiring securities where related but operationally independent funds have large holdings in aggregate. 

Substantial shareholding disclosure requirements

Some investment funds have argued that the requirement to disclose changes to the substantial holdings of a listed company within 2 business days signals the fund's investment moves to other traders. It is argued that this adds to the costs of investing.

ASIC has also suggested that one option to granting relief from the 20% threshold and substantial shareholding disclosure provisions may be to limit the relief to index funds ie, those funds that invest in a portfolio of securities that track a nominated market index. 

(Source: ASIC Media and Information Release, 01/411, 23/11/01. For more, see the media release)

Return to top

ASX and SGX cross border trading arrangement

ASIC and ASX have released a consultation paper seeking comments on the initiative between the Singapore Exchange Limited (SGX) and ASX to enter into a reciprocal market linkage portal service. This service will link both the stock exchanges of Australia and Singapore and facilitate trading of stocks on each of the exchanges by the residents of both countries from their respective home countries. 

Under the arrangement, an electronic co-trading and clearing arrangement will be established to provide brokers with a method to trade selected securities listed on the other stock exchange. The service will be available to all participating organisations (in the case of ASX) and trading member companies (in the case of SGX) that meet the conditions of service. Both ASX and SGX will each use their wholly owned subsidiary entity to facilitate cross border execution, clearing and settlement of transactions. In the case of ASX, its subsidiary ASXPD will act as executing broker on ASX and clearer, in relation to orders placed by the subsidiary of SGX, SGXPD on behalf of member firms in the Singapore stock exchange and ASXPD will also place orders on behalf of participating organisations on ASX wanting to purchase securities quoted on the Singapore stock exchange via SGXPD. An Australian investor will continue to receive CHESS statements for their holdings in Singapore. 

It is anticipated that there will initially be 100 securities that will be approved for trading over this link, consisting of 50 ASX securities and 50 SGX securities (Eds: see next item). ASXPD will be admitted as a limited purpose participating organisation of ASX and will be required to comply with most of the existing Business Rules. In addition, new rules have been formulated to address exchange linkages. Each exchange will still remain the competent authority to regulate their own members and to prosecute for rule breaches. 

AAR advised ASX on aspects of the service.

(Source: ASIC Media Release, 01/367, 15/10/01. For more, see the media release)

Return to top

Co-tradeable shares 

In a joint announcement, ASX and SGX has released the inaugural list of stocks that will be available for co-trading via the ASX-SGX link. The list of the securities is available in the media release. According to both parties, additional securities will be added to this list as market interest develops. Both ASX and SGX have also entered into a Memorandum of Understanding that addresses:

  • the role of their respective market surveillance units;
  • the sharing of market surveillance information; and 
  • the core trading principles in both the ASX Business Rules and SGX-ST Rules regulating trades made via the link.

(Source: ASX Media Release, 9/11/01.)

Return to top

Ensuring an independent audit watchdog

Recently, Professor Ian Ramsay released his report on audit independence which had been commissioned by the Minister for Financial Services and Regulation. According to Professor Ramsay, the report is timely due to developments overseas including the growth of larger accounting firms and the increase in non-audit services provided by these firms and the much publicised failure of a number of listed Australian companies during the early part of this year. To better ensure the independence of auditors, the report identified certain types of relationships which prima facie indicate that an auditor is not independent. These include:

  • a current partner or professional employee of the audit firm is employed by the client or is a partner or employee of an employee of an officer of the client;
  • an immediate family member of the audit team is a director or employee of the client who is in a position to affect the audit engagement;
  • a former partner or professional employee of the audit firm is a director or employee of the client who is in a position to affect the audit engagement and can influence the audit firm's operations and policies, have capital balances in the audit firm or has some form of financial arrangement with the audit firm;
  • a retired partner of the audit firm, who has been directly involved in the audit of the client becomes a director of the client within 2 years of resigning as partner;
  • any member of the audit team has been during the period covered by the audit report, employed by the client
  • any employee of the client in a position to affect the audit engagement receives remuneration from the audit firm for acting as a consultant to the audit firm on accounting or audit matters;
  • the audit firm, any member of the audit team or their immediate family has a direct or material indirect financial investment in the client;
  • the audit firm has a material financial interest in an entity that has a controlling interest in the client;
  • a partner of the audit firm, an entity controlled by the partner or a body corporate where the partner has substantial holdings owes more than $10,000 to the client (unless it falls within an exception under s324(3) of the Corporations Act 2001 (Cth));
  • the audit firm, any member of the audit team or their immediate family accepts a loan from the client, makes a loan to the client, has a loan guaranteed by the client or guarantee's a client's loan unless the loan is made in the ordinary course of business under normal lending procedures, terms and conditions; and
  • the audit firm or a member of the audit team has a business relationship with the client or its officers that is not insignificant to both parties.

The report also recommends certain steps be taken to strengthen auditor independence. These include:

  • updating professional ethical rules to regulate for the provision of non-audit services by audit firms; 
  • mandatory disclosure of non-audit services and fees paid for these services; 
  • establishing an Auditor Independence Supervisory Board which has the task of:
  • monitoring the adequacy of disclosure of non-audit services;
  • advising the government on the international developments in this area;
  • advising professional accounting bodies on appropriate standards dealing with auditor independence; and
  • monitor compliance by companies and audit firms with the standards; 
  • amending the accounting standards (or alternatively amending Chapter 2M of the Corporations Act 2001 (Cth)) to provide for:
  • the inclusion into the financial report for the year the dollar amount of all non-audit services provided by the audit firm to the client; and 
  • a statement from the audit committee of the board of directors or in the absence of the committee, the board of directors stating whether the provision of non-audit services is compatible with maintaining the auditor's independence; and
  • amending the ASX Listing Rules to require all listed companies to have an audit committee

The former Minister for Financial Services and Regulation, Mr Joe Hockey had indicated that the government would be considering implementing the recommendations made in the report. 

(Source: Minister for Financial Services & Regulation Press Release, No. FSR/077, 4/10/01.)

Return to top

Transaction processing for unlisted managed funds ASX style

ASX is in the midst of developing a transaction processing service for unlisted managed funds. The aim of this project is to facilitate electronic transaction processing between fund managers, custodians, master funds and distributors. According to ASX, the use of such a service will deliver significant cost savings to the managed fund industry. At the date of publication of ITM, the ASX has yet to publish the details of its proposed service. 

(Source: ASX Media Release, 26/09/01.)

Return to top

Mullets and corporate collapses - are the 80s back?

Mr David Knott, the Chairman of ASIC, has in a recent Monash Law School Foundation Lecture, rejected calls by some commentators for the establishment of corporate governance board that is separate from the board of directors of a company. The corporate governance boards are modelled on the approach taken by some European jurisdictions to strengthen the corporate governance of companies. The European model consists of a Management Board (made up of management representatives) and a Supervisory Board (made up of external representatives). According to Mr Knott, benefits of such a model is overstated and that the reality is that the Management Board often controls the policy and governance framework and the Supervisory Board meets only infrequently to consider such issues. The current model used in Australia is more appropriate and can be enhanced further by increased attention to training and assessment with the aim of raising efficiency and as part of risk management frameworks. 

He also touched on another issue that has been subject of much debate of late - that of auditor independence. Mr Knott cautioned against taking the view that auditor independence is the single most important issue in an audit. Rather there should be a broader debate - on just how rigorous and investigative audits should be; how much companies are prepared to pay for audits; and to what extent should the accounting profession be responsible for failing to detect and report when financial statements do not reflect a true and fair view of the enterprise. There is some anecdotal evidence which suggest that businesses have been placing decreasing value on audits and are unwilling to invest more in audits. Companies should seek to create a better balance between ensuring a more effective audit against the risks of potential shareholder loss and directors' liability that may follow from under-resourcing the audit.    

(Source: ASIC Speeches, "Corporate governance: 1980s revisited?", 23/08/01. For more, see the speech)

Return to top

ASIC on what directors need to know about disclosure

In a speech to the Australian Institute of Company Directors conference in Sydney, Ms Jillian Segal, the deputy chairperson of ASIC reported on 2 disclosure issues that have been priority areas for ASIC over the past 12 months. They are corporate financial disclosure and continuous disclosure. 

Corporate financial disclosure

According to Ms Segal, notwithstanding the changes introduced by the Corporate Law Economic Reform Program Act 1999 (Cth) (CLERP) which removed the requirement that ASIC register prospectuses, there are many retail and professional investors who are still confused about the responsibility of ASIC in relation to prospectuses. Therefore, ASIC is undertaking a research project to ascertain whether investor understanding can be improved by including warnings in prospectuses about the risk of investment and the limited role of ASIC in this regard.

Continuous disclosure

ASIC is of the view that the extension of civil penalty remedies is insufficient by itself to respond to contraventions of the continuous disclosure obligations of public listed companies. Such contraventions often require a quick regulatory response. ASIC argues that civil proceedings are inappropriate tools to achieve the objective of ensuring price sensitive information is disseminated in a timely manner. ASIC also believes that greater emphasis should be placed on the training of directors on a continuing basis so that directors are up to date on legal and accounting requirements. The emphasis on the training of directors should lie with the relevant associations.  

(Source: ASIC Speeches, "Everything the Company Director must know about Corporate Financial Disclosure and Continuous Disclosure", 31/10/01. For more, see the speech)

Return to top

Protecting research integrity

The Securities & Derivatives Industry Association (SDIA) and the Securities Institute of Australia (SIA) have jointly released a Best Practice Guidelines for Research Integrity (the Guidelines) which sets out benchmarks for maintaining the integrity and quality of research reports and recommendations made by analysts. 

In the preface to the Guidelines, both the president of the SDIA and the chairman of the SIA noted that the Guidelines have been put in place on the "premise that all market participants have a duty to establish and maintain a corporate culture that protects and promotes the integrity of the market." The Guidelines do not have the force of law and do not set out any disciplinary mechanism for breaches of the Guidelines. The then Minister of Financial Services and Regulation, Mr Joe Hockey has also welcomed the introduction of the Guidelines. 

There are 10 best practices identified in the Guidelines:

  • analysts should put the interests of the investors ahead of their own or their employer's interests and the recommendations should be based on a reasonable basis and supported by proper research and analysis;
  • if the analyst's firm offers corporate or other trading services, there should be separate reporting structures in place to ensure that the integrity and independence of the recommendations made by the analyst is not compromised. In addition, analysts in such organisations should not submit their recommendations for the approval of the trading department nor should the reports be distributed to companies, the subject of research other than for verification of facts (with any recommendations removed);
  • there should be appropriate and well defined Chinese Walls in place for firms that offer other corporate or trading services;
  • analysts should disclose in their report or recommendation:
  • any economic interest that the analyst or their immediate family may have which may influence the report or recommendation;
  • whether the recommended corporate issuer had paid any fees in relation to publicly announced transactions in the last 12 months; 
  • definitions of the terms used in the report or recommendation; and
  • disclose applicable risk factors;
  • analysts should not trade in a security whilst they are researching it and that they not should not trade in a manner inconsistent with their recommendations;
  • the remuneration of analysts should not be directly linked to revenue received but should reflect the analyst's overall performance, including the performance of their recommendations;
  • recommendations should not be ambiguous and should be consistent and transparent;
  • the research and changes to it should  be disseminated timeously;
  • firms should set out in writing their policies and procedures for managing conflicts of interest and these policies should be regularly reviewed for relevance; and
  • firms should monitor compliance with their policies and procedures for managing conflicts of interests.   

Return to top

Prospectus advertisement clarification obtained  

Clarifying advertisements will be issued for the Gasnet Australia Trust (Trust) after ASIC expressed its concern that advertisements for the prospectus for the Trust may have been misleading. The advertisements stated that there would be an 11% yield and referred readers to the prospectus for the Trust. According to ASIC, the advertisements did not repeat statements in the prospectus that:

  • the yield was a combination of distributions of income and of amounts classified as capital for accounting purposes;
  • the yield was a forecast and were for the periods ending 31 December 2001 and 31 December 2002; and
  • no forecast of earnings and distribution could be provided for the period beyond 2002.

The responsible entity for the Trust has agreed to place the clarifying advertisements with equal prominence as the original advertisements and will offer investors the right to withdraw their application and receive a full refund of their investments prior to the listing of the Trust on ASX.

(Source: ASIC Media Release, 01/431, 5/12/01. For more, see the press release)

Return to top

Effect of recent amendments to the ASX Listing Rules

Some of the amendments to the ASX Listing Rules took effect on September 2001 and some of these changes require listed companies to provide ASX with information by the start of 2002. To understand how they might affect you, see Focus: Corporate Governance.