ASX listing rule changes for employee share plan on-market purchases

The ASX has released proposed amendments to the Listing Rules that are intended to complement and give effect to recent changes to the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations.

The major change is the introduction of new Listing Rule 3.19B. This will require companies to disclose details of on-market purchases of securities by or on behalf of directors or employees under the terms of a company equity scheme within 5 business days. This timing is consistent with the requirement to disclose changes in a director’s ‘notifiable interests’ via an Appendix 3Y.

Interestingly, the ASX has not acceded to calls from those who have advocated closing the what they see as a ‘loophole’ to Listing Rule 10.14, choosing not to require shareholder approval for equity grants to directors where shares are to be sourced from on-market purchases as well as from new issues. The ASX’s rationale for not extending the current approval requirement was that, unlike new issues of securities, on market purchases do not dilute the interests of existing security holders. The change will increase transparency of company on market share purchases. Depending on their extent, these purchases could have a material impact on share prices. Of course, the transparency of the purchases could have other consequences. We note that the German experience of company share purchases for employee share plans results in highly predictable price peaks at the same time each year, which some traders use to advantage. While it will not satisfy those who would like to see shareholders have the ultimate ‘say on pay’, the change does ensure that the market is informed.of certain market transactions.

That is not to say shareholders are left without a voice – succumbing to pressure from some governance stakeholders a large number of companies already voluntarily seek approval for executive director grants requiring on market share acquisition under LTI plans, and a number of the larger companies are putting executive director deferred STI shares to the vote.

There is no change to “dilute” the focus of ASX LR 10.14, which is designed to protect shareholders against potential dilution of their economic interests through new issues of securities to directors.

Other substantive proposed changes to the Listing Rules include:

  • A new requirement to lodge an Appendix 4G outlining how the company has complied with the ASX Principles (at the same time as the annual report). This is intended to address perceived issues with the current corporate governance reporting framework, with the ASX concerned that many companies use ‘boiler plate’ corporate governance statements that may not reflect actual company practice.
  • The flexibility for companies to disclose their corporate governance statement on the website or in the annual report (if the latter, the company must also lodge a copy with the ASX at the same time as the annual report).

A marked-up version of the Listing Rules can be found HERE

Guidance Note 9 has also been amended to assist companies to understand and comply with the amended corporate governance requirements in the Listing Rules (see HERE).

Listing Rule 3.19B is proposed to come into effect on 1 January 2014, with the other changes taking effect from 1 July 2014.

© Guerdon Associates 2024
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