New ASX listing rules require a Key Management Personnel trading policy

Key Management Personnel (KMP) of ASX listed companies will be impacted by new listing rules governing the adoption, content and disclosure of company trading policies.


KMP here has the same meaning as KMP used for remuneration reports, and includes directors and senior management.  We address several implications for remuneration policy and frameworks arising from the new rules in this article.


Introduction of the new listing rules comes after the release of the discussion paper “Listing Rule Amendments – Company Policies on Trading ‘Windows’ and ‘Blackout’ Periods” on 4 December 2009, with a 12-week public consultation period provided for comment.  Revised proposed rules were then included in the ASX Exposure Draft released on 22 April 2010 (along with the requirement for a board remuneration committee for ASX 300 companies described by us HERE).


New Listing Rule 12.9 requires a listed entity to have a trading policy that complies with the minimum content requirements set out in Listing Rule 12.12.  These include:


·          “Closed periods” (i.e. fixed periods specified in the trading policy when an entity’s KMP are prohibited from trading in the entity’s securities);

·          The restrictions on trading that apply to key management personnel (restricted persons);

·          Any trading not subject to the trading policy;

·          Exceptional circumstances in which key management personnel may be permitted to trade during a prohibited period without prior written clearance; and

·          Procedures for obtaining prior written clearance for trading.


The matters set out in Listing Rule 12.12 only apply to KMP, and are the minimum requirements expected by the ASX.  Subject to complying with listing rule 12.12, each entity must determine the terms of its trading policy and may, for example, adopt a more restrictive and more broad ranging policy that applies to a wider group or all of its employees.


The policy should explicitly recognise that trading while in the possession of inside information is prohibited at any time, irrespective of whether trading would otherwise be permitted under the policy.


ASX Guidance Note 27 ‘Trading Policies’, released with the new rules, suggests that the trading policy cover KMP entering into margin lending agreements that provide lenders with rights over the entity’s securities.  For example, the company may prohibit margin lending, or at the least require disclosure of margin lending agreements to enable the company to comply with any continuous disclosure obligations. 


As many directors are well aware, trading rules and continuous disclosure requirements can be subject to many instances of non-compliance where the causes were relatively benign, and consequences otherwise harmless.  The ASX guidance note recognises this, and has examples of trading which a company could exclude from the trading policy.  ASX examples include:


·          Trading under an offer or invitation made to all or most security holders, including dividend reinvestment plans, share purchase plans and rights issues, where the timing and structure of the plan has been approved by the board;

·          Disposing of securities under a margin lending arrangement;

·          Investing or trading where the investment decisions are made by a third party, provided that the fund or scheme does not invest exclusively in the listed entity’s securities;

·          Trading in securities by a restricted person as a trustee – who is not also a beneficiary of the trust – and the decision to trade is made by other trustees or investment managers independently of the restricted person;

·          Accepting a takeover offer;

·          Transferring securities already held into a superannuation fund or similar saving scheme in which the restricted person is a beneficiary;

·          Exercising options if the final exercise date falls within the entity’s “prohibited period” and the “prohibited period” has been exceptionally or unexpectedly long; and

·          Trading under a non-discretionary trading plan for which prior written clearance has been obtained, where the restricted person has no influence on trading decisions and the cancellation of the trading plan is not permitted by the entity’s trading policy (except in “exceptional circumstances”).


While currently a rare instance, we suggest that companies consider the last example as an exception in their company’s rules, given the possibility that sensible government comes the fore, and a CAMAC recommendation to allow KMP trading trusts to actively trade company stock under certain conditions is finally implemented (see HERE).


Exceptional circumstances are recognised in the ASX guidance notes.  While it is up to each company to determine what constitutes an exceptional circumstance, an example could be severe financial hardship.


The trading policy must be released to the market.  If an entity makes a “material change” to the trading policy, the amended policy must also be announced within 5 business days of the material change taking effect, including changes to any fixed periods, changes to the trading which is excluded from the operation of the policy, and changes to the list of exceptional circumstances.  In a tightening up of director share trading “exceptions” professed to have been made by many companies in the recent past, listed entities are also required to disclose (in new Appendix 3Ys) whether trading by directors occurred during a closed period where prior written clearance was required and, if so, whether that clearance was provided.


The new rules have implications for executive equity plans, and are consistent with suggestions Guerdon Associates have been putting to our clients for consideration during the past 12 months.  In particular, companies may want to incorporate genuine disposal restrictions on all equity that has vested from executive incentive plans.  While some of the disposal restrictions may be related to an assessment of risk management that resulted in vesting, other restrictions could reflect the trading policy requirements now needed under the new listing rules.  However, there are tax considerations that companies should also be aware of in framing the disposal restrictions (but we will save these for another article!).


The ASX released the final amendments on 19 July 2010 (see HERE).  ASX also published Guidance Note 27 Trading Policies to assist listed entities to comply with these new requirements.  They can be found HERE


These new requirements will apply to listed entities from 1 January 2011.

© Guerdon Associates 2024
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