Ramping Reprimand: ASX issues latest disclosure caution

Listed companies should be aware that “ramping” announcements are on the ASX’s radar. Companies risk suspension from trading if the ASX considers that they have released announcements that are designed to “ramp” up their share price rather than to inform the market.

ASX compliance update

In its recent Compliance Update (Compliance Update No. 07/19), ASX issued a strong caution to listed entities against making announcements it termed “ramping” announcements.

ASX has said that whenever it detects what it suspects to be a “ramping” announcement, it will not hesitate to suspend trading in the entity’s securities and issue a query letter asking the entity to:

• explain its basis for lodging the announcement – specifically whether it was lodged to meet the company’s continuous obligations under ASX listing rule 3.1 or for some other purpose; and
• identify what information in the announcement is market sensitive and why it is market sensitive.

In less serious cases, ASX may instead require an entity to publish a corrective announcement highlighting that the information in the “ramping” announcement is not material.

This most recent ASX compliance update comes off the back of ASX’s focus on improving disclosures relating to customer contracts. ASX issued updated Guidance Note 8 to introduce specific criteria for the disclosure of customer contracts and ASX also issued a compliance update in March 2018, following a number of high profile cases involving companies who issued misleading announcements relating to their customer contracts.

What is a “ramping” announcement?

A “ramping” announcement is an announcement that is designed to increase the price of an entity’s securities, rather than to inform the market.

It typically contains exuberant or superlative language and discloses information that has little substance and that is not material to the entity.

ASX noted its observations on the timing and nature of the “ramping” announcements it has detected, indicating that:

• some of the announcements seem to be made around the time of a capital raising with the purpose of either supporting the company’s share price ahead of a raising or facilitating a profitable exit for some investors after a raising; and
• the announcements often focused on customer developments or business updates which have minimal substance.

ASX’s focus on these kinds of announcements appears to be underpinned by a concern that they are misleading market participants, and may be creating a false market in an entity’s securities.

Takeaways

Listed entities may have a range of reasons for making an ASX announcement, even where the information is not necessarily price sensitive requiring disclosure under their continuous disclosure obligations.

In addition, the question of whether information is price sensitive is not always black and white, with entities often electing to over-disclose, in view of the consequences of breaching their continuous disclosure obligations.

Many of these announcements will have been made for perfectly legitimate reasons, and will continue to be appropriate.

We think the key takeaways are for listed entities to check the following three points before publishing an announcement:

• Language: is the language being used in the announcement appropriate in the context of the information being conveyed – e.g., if marketing style language is being used, is it unnecessarily exuberant?
• Timing: when is the announcement being made? Is there a risk that the ASX could view the timing of the announcement, along with any other planned action by the listed entity, as being deliberately designed to prop up the entity’s share price?
• Customer contracts: if the announcement is in relation to customer contracts, does the announcement comply with the specified criteria in section 4.15 of ASX’s Guidance Note 8?