29 Jul 2010
Securities Trading Policies
by David Landy, John Elliott
ASX had issued guidance on when amended securities trading policies will need to be released to the market and possible exclusions from trading restrictions in such policies.
ASX has confirmed that the amendments to the Listing Rules which require listed entities to adopt and disclose a securities trading policy will commence on 1 January 2011 and has released a guidance note (Guidance Note 27) which indicates:
- which amendments to a trading policy will constitute a material change and require that the amended policy be given to ASX for release to the market;
- some trading that ASX considers may commonly be excluded from the operation of the trading restrictions established under the trading policy; and
- some circumstances that ASX considers may commonly be deemed exceptional.
Listing Rule Amendments
The Listing Rule amendments will require listed entities to:
adopt and disclose a policy on trading in entity securities by directors and other key management personnel;
include certain content in a trading policy, including:
the periods when a trading restriction applies (prohibited period) and the restrictions that apply during that period;
any trading which is not subject to the trading policy; and
if trading is to be allowed during the prohibited period, the procedures for obtaining clearance to trade and the exceptional circumstances in which clearance can be granted.
Amendments requiring the trading policy to be released
The Guidance Note indicates that the following amendments to an entity’s trading policy would constitute a material change resulting in disclosure of the amended policy:
changes to the prohibited period;
changes with respect to the trading that is excluded from the operation of the trading policy; and
changes with respect to the exceptional circumstances in which trading may be permitted during a prohibited period.
Trading not subject to the trading policy
The Guidance Note indicates the following examples of trading that a listed entity may consider excluding from the operation of its trading policy:
transfers of securities already held into a superannuation fund in which the restricted person is a beneficiary;
an investment or trading in units of a diversified fund where the assets of the fund are invested at the discretion of a third party;
trading in the securities by a trust of which the restricted person is a trustee but not a beneficiary of the trust where any decision to trade during a prohibited period is taken independently of the restricted person;
undertakings to accept, or the acceptance of, a takeover offer;
trading under an offer or invitation made to all or most of the security holders, such as a rights issue, a security purchase plan, a dividend or distribution reinvestment plan and an equal access buy-back, where the plan that determines the timing and structure of the offer has been approved by the board;
a disposal of securities that is the result of a secured lender exercising their rights, for example, under a margin lending arrangement;
the exercise (but not the sale of securities following exercise) of an option or a right under an employee incentive scheme, or the conversion of a convertible security, where the final date for the exercise or the conversion falls during a prohibited period, the entity has been in an exceptionally long prohibited period or has had a number of consecutive prohibited periods, and the restricted person could not reasonably have been expected to exercise it at a time when free to do so;
trading under a non-discretionary trading plan for which prior written clearance has been given in accordance with procedures set out in the trading policy provided that the restricted person did not enter into the plan or amend participation in the plan during a prohibited period, the trading plan does not permit the restricted person to exercise any influence or discretion over trading and the trading policy does not allow for the cancellation of a trading plan during a prohibited period other than in exceptional circumstances.
The Guidance Note provides the following guidance in relation to exceptional circumstances:
a person may be in severe financial hardship if he or she has a pressing financial commitment that cannot be satisfied otherwise than by selling the relevant securities of the entity, but a tax liability would not normally constitute severe financial hardship unless the person has no other means of satisfying the liability;
a court order, court enforceable undertakings, or other legal or regulatory requirement requiring a sale of securities may be an exceptional circumstance - for example, a bona fide family settlement; and
a trading policy should include details of the duration of any prior written clearance to trade in exceptional circumstances during a prohibited period and the form of written clearance that is acceptable.
Trading in derivative products
The Guidance Note states that the trading policy should specify that key management personnel are prohibited from trading during prohibited periods in financial products issued or created over or in respect of the entity’s securities.