ASX issued a compliance update on 11 May 2018 confirming that it has updated its Guidance Note 8 Continuous Disclosure: Listing rules 3.1 and 3.1B (GN8) to address the use of commissioned broker and research reports by companies as a way around disclosing objectionable material on the ASX announcements platform.
Concerns with references to research reports in ASX announcements
ASX has expressed various concerns with listed entities referring to or publicising research reports which include objectionable material that an entity itself would not ordinarily be able to release on the ASX. For example:
- information about exploration results, mineral resources, ore reserves or a production target that doesn’t comply with the JORC Code or Chapter 5 of the ASX Listing Rules; and
- information with respect to earnings or other forward-looking financial statements that does not adhere to the guidance in ASIC Regulatory Guide 170 Prospective financial information.
The updated GN8 points out that any material market-sensitive information contained in such reports should already have been released by the entity as part of its continuous disclose obligations, and that in these circumstances ASX could otherwise infer that the entity issuing or referring to such broker reports is not doing so to meet continuous disclosure requirements, but is rather seeking to publish or draw attention to the report for its opinion-based material (such as the broker’s or analyst’s buy recommendation, price target or earnings estimates).
This raises an issue about whether the report is really being published for promotional rather than informational reasons and whether the entity is impliedly endorsing any price target, earnings estimates or other forward looking financial information in the report.
Update to GN8
The revised GN8 now clarifies that listed entities should not, as part of their continuous disclosure obligations, publish on the ASX platform:
- a broker or analyst research report about the entity; or
- an announcement about the issue of, containing extracts from, or referring or including hyperlinks to, such a report.
Any entity wishing to publish or refer to such a report in its ASX announcements should first consult ASX and provide a detailed explanation as to why the entity considers this information to be market sensitive.
Consequence of failing to comply
ASX has warned that an entity that releases an announcement without consulting the ASX may be required by the ASX to make a further announcement addressing ASX's concerns.
Further, if the report contains material that ASX considers objectionable, ASX may also require the entity to publish an announcement withdrawing or retracting the objectionable material and advising investors not to make any investment decision based on it.
ASX has recently followed up a number of entities in relation to research reports they released or referred to in their ASX announcements, forcing a number of subsequent retractions on the ASX platform by the entities, include retractions relating to revenue projections.
Take-home message
Entities should refrain from publishing, or making announcements on the ASX platform referring to broker or analyst reports.
Where an entity wishes to publish such an announcement it should always seek ASX's pre-clearance to avoid follow up action from the ASX.
This guidance update does not extend to a listed entity publishing researching reports on its website, however we recommend that listed entities proceed with caution as the same concerns raised by ASX with respect to reports published on the ASX platform apply to entities publishing or referring to potentially objectionable material on some other forum (eg. a website or other social media platform).