Final ASX listing rules reforms – summary of key changes

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This article was written by David Friedlander and Amanda Isouard.


On 1 December 2019, the most comprehensive amendments and updates to the listing rules and guidance of the Australian Securities Exchange ("ASX") took effect.  A number of these amendments and updates have a significant impact on equity capital markets ("ECM").  While none of these changes amount to major changes in ECM practices or procedures, when taken together they do have an overall significant impact.

This alert summarises the most important differences from an ECM perspective between the previous version of the listing rules of ASX and the changes which came into effect on 1 December 2019.

ASX's final version of the reforms comes after the release of its public consultation paper titled "Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules" on 28 November 2018 ("Consultation Paper") and its response to the consultation process on 10 October 2019 ("Response Paper" or "RP").  As this alert notes, the majority of the amendments proposed by ASX in the Consultation Paper will be implemented, with some revisions and additions as highlighted in the Response Paper.

Key take-aways

We have issued 3 previous client alerts on this subject:

In the table below we have summarised all of the points which we feel are significant from an ECM perspective and these fall into the following categories:

  • updated transaction timetables;
  • revamp of escrow regime;
  • changes impacting placement capacity (including for convertible securities);
  • changes to issuance capacity requirements for small to mid caps;
  • when details regarding placees must be included in notices of meetings for conditional placements;
  • disclosure of underwriting arrangements;
  • working capital requirements for initial public offering ("IPO") assets test;
  • extension of IPO good fame and character tests to actual and proposed non-director CEOs and CFOs;
  • revised guidance on when spin-outs of major assets need securityholder participation; and
  • deferred settlement trading will require early engagement with ASX.

Further details regarding ASX's ECM-related reforms are set out below.

Summary of key changes

ASX's final position


Admission to ASX

ASX has revised Guidance Note ("GN") 1 to, among other things, make it clear what entities it considers suitable for listing and what types of arrangements and appointments it will be focused on when making this assessment.

ASX emphasises the importance of entities appointing "experienced" legal, accounting, broker and financial advisers to their respective IPOs.  ASX notes that it may reject a listing application where it is not satisfied with the calibre of the promoters or advisers or where it has had previous unacceptable dealings with them.  This decision cannot be appealed.[1]

ASX may also refuse to list an entity where it has entered into transactions with persons in a position of influence pre-listing which would have required securityholder approval post-listing and ASX believes the transaction lacks commerciality.[2]

ASX states that in most cases the most recent set of accounts provided in the listing application must be tier 1 general purpose financial statements and not special purpose financial statements.  This is the case whether the entity is applying under the profits test or the assets test.[3]

ASX has been particularly focused on introducing more integrity measures and so we expect these requirements will be applied quite strictly.  Affected entities to note and incorporate into their IPO planning.  

Assets test

Entities seeking admission under the assets test must disclose the objectives they are hoping to achieve from their IPO so that they can confirm that they have adequate working capital to achieve those objectives. 

Under the assets test, ASX requires that an entity have at least A$1.5 million in working capital in its reviewed pro forma statement of financial position.  ASX gives guidance on what can be included as working capital.[4]

Entities intending on applying for ASX listing under the assets test and their advisers to note.

Good fame and character tests

For IPOs, good fame and character tests now apply to non-director CEOs and CFOs and proposed non-director CEOs and CFOs, as well as to directors.[5]

A listed entity must now also immediately tell ASX if there is a change in the CEO or CFO.[6]

These changes seem sensible to us given the important role that the CEO and CFO have in most entities.

Placement capacity

Clarificatory changes to calculations

The calculation of placement capacity under LR 7.1 and 7.1A.2 has been clarified and flaws in the formulas which had meant that entities could issue securities in circumstances without using up their placement capacity (even though no exception was available) have been addressed.[7]                

Clarificatory changes to calculations

Entities which have or are planning to issue convertible securities should take note of certain changes to how these are counted for placement capacity purposes.[11]

Treatment of convertible securities

ASX has also clarified how convertible securities will be counted for placement capacity purposes. 

Generally, convertible securities will be classified as equity securities and therefore count for placement capacity purposes.  The one exception to this is convertible securities issued by APRA-regulated entities which convert solely on the occurrence of a non-viability or capital trigger event and that would otherwise be a debt security.  These will not be counted for placement capacity purposes (previously a waiver had to be obtained to confirm this).[8]  

If convertible securities that are classified as equity securities are issued in the 12-month period before the date that placement capacity is calculated, they will deplete placement capacity.  However, if they are issued before that 12-month calculation period they will not count for placement capacity purposes, even if they have converted to ordinary shares during the 12-month period.[9] This is the same as ASX's previous position.

The impact of convertible securities on placement capacity is determined by calculating the maximum number of ordinary fully paid shares that they can convert into.  This is determined at both the time the convertible securities are issued and at the time placement capacity needs to be tested for any future issues.  This is different from ASX's previous position that this number would be determined on the date the convertible securities were issued.  The impact of this is that if the convertible securities have a conversion formula which has a variable in it (e.g. tied to trading price), placement capacity could be increased or reduced depending on where calculations land on the relevant calculation day.[10]

Treatment of convertible securities

ASX has made it clear that Tier 1 securities will be equity and Tier 2 will generally be debt.

Placement capacity exceptions

More guidance has been given on the placement capacity exceptions in LR 7.2, including in relation to an issue of securities to make up a shortfall on a pro rata issue (exception 3).  The directors must have stated as part of the offer (e.g. in the investor presentation released on the launch date) that they reserve the right to issue the shortfall and what their allocation policy will be in relation to the shortfall (including the factors they will take into account when exercising their discretion – this must be "reasonably specific" and not just a reservation of discretion).[12] The issue must occur no later than 3 months after the close of the offer and the issue price must not be less than the pro rata offer price.[13]

A new placement capacity exception has been added to facilitate the granting of options or other rights to acquire securities on-market for the purposes of employee incentive schemes.[14]

Placement capacity exceptions

The additional requirements in LR 7.2 exception 3 will be relevant to entitlement offers where deferred settlement of the shortfall to the underwriter takes place.  Deferred settlement may occur because the underwriter would be in breach of law if it took up a large shortfall on the settlement date for the relevant tranche of the entitlement offer – so that the underwriter will not be in breach, the shortfall will be issued in stages.

Placement capacity worksheets

Entities will be required to complete a worksheet provided in GN 21 and submit to ASX when launching a placement within its existing LR 7.1 placement capacity (previously only LR 7.1A entities had to).  ASX notes that the placement capacity worksheets are to facilitate entities undertaking appropriate due diligence in respect of those calculations.  ASX has confirmed that the completed worksheets are for its internal use only, will be reviewed at a later point in time and will not be released to the market.[15]

Placement capacity worksheets

The implementation of the worksheet more broadly will assist with calculating placement capacity, which some entities have struggled with in the past.

Supersize waivers

ASX has amended GN 17 to reflect that a "supersize waiver" is considered "standard" and will in most cases be granted.  A "supersize waiver" permits the number of underwritten securities under an entitlement offer to be counted for the purposes of capacity calculations for a concurrent placement (subject to customary conditions being met).[16]

Supersize waivers

In our experience, ASX has always classified the "supersize waiver" as standard and ASX has simply made it known formally in GN 17.  Nonetheless, it means that there will be less work involved in applying for the waiver.

Securityholder approved placements

Entities must now disclose in a notice of meeting or disclosure materials (e.g. prospectus) the names of known allottees in a securities issue where it is material to the choice to be made by securityholders or investors (as applicable).  ASX notes that this information is likely to be material where the relevant allottee is a related or otherwise connected party and the securities agreed to be issued to them would be more than 1% of the current issued capital of the entity.[17]

Affected entities to note.  We expect that ASX will broadly interpret this to capture related or otherwise connected parties even where their holding is 1% or below, particularly if there are other factors that give those parties influence. 

In addition, ASX has noted that they will be particularly focused on looking at LR 7.1, 7.1A and 7.4 notices of meeting to ensure they comply with the new disclosure requirements.

Securityholder distribution information

Entities must immediately disclose the total percentage (in addition to the number) of securities held by each top 20 holder of new classes of quoted equity securities.  This will usually be disclosed in the Appendix 2A.[18]

Distribution schedules and annual reports must set out more detail regarding securityholders and their percentage holdings.[19]

Entities to note when preparing top 20 securityholder disclosures, distribution schedules and annual reports.

Notifications regarding securities

Entities should generally use the following forms for certain notifications regarding securities:

  • Appendix 2A – applying for quotation of securities where the securities are to be immediately quoted;[20]
  • Appendix 3B – proposed issuances of securities;[21] and
  • Appendix 3G – the issue, conversion or payment up of equity securities that will not be immediately quoted.[22]

The split between App 2As and 3Bs is new and the App 3B has been built interactively. 

ASX has confirmed that entities may continue using the pre-1 December 2019 version of the App 3B until 31 January 2020.  Alternatively, listed entities may also use the new versions of each form available through ASX Online.[23]

It is important that entities proposing to issue securities are aware of the new and revised forms and the timing for filing of each.

Monthly CDI notifications

Entities that have Chess Depositary Interests ("CDIs") over quoted securities and are dual listed on ASX and an overseas exchange must notify ASX of the number of CDIs on issue on a monthly basis (with a new form App 4A to be used instead of an App 3B).[24]

Entities with CDIs to note this monthly reporting requirement.  The new form App 4A is available through ASX Online.
The split between App 2As and 3Bs is new and the App 3B has been built interactively. 

Disclosure of underwriting arrangements

Currently, an entity must immediately tell ASX details of the exercise by an underwriter of a right to avoid or change its obligations.  This has now been extended to an obligation to also immediately notify ASX of the exercise by an underwriter of a right to terminate an underwriting agreement.[25]

There is now also prescribed disclosure of underwriting arrangements for certain capital markets transactions (including placements, DRPs and the exercise of options).  For example:

  • the identity of the underwriter;
  • the extent of the underwriting (e.g. details as to the level of reinvestment of the dividend (DRP only) or proportion of issue that is underwritten);
  • any consideration payable to the underwriter (including any discount to the issue price for securities under the plan (DRP only) or to the option exercise price payable by holders of the options or the issue price payable by participants in the issue);
  • a summary of significant events that could lead to termination; and
  • any other provisions or relevant events if the information is market sensitive or it would be misleading not to disclose.[26] 

This disclosure must generally be made immediately after entering into the underwriting agreement.  This disclosure is generally not needed in respect of sub-underwriters and ASX has added in a new definition of "underwrite" to make this clear.[27]

Similar disclosure regarding underwriters and sub-underwriters of a pro rata issue who are related parties or substantial holders (or their associates) is also needed so that securityholder approval is not required under LR 10.11 to issue securities to them.[28]

The change from providing disclosure on where the underwriter has a right to avoid or change its obligations to providing a summary of significant events that could lead to termination reflects feedback given by KWM and other respondents.  We note that entities do not need to disclose the entire list of termination events, just the most important ones (including ones that are the greatest risk of being triggered in the particular transaction and ones which are less customary).

In our view, none of these further changes are controversial.  The additional disclosure of underwriting arrangements (apart from the disclosure of fees for placements, DRPs and the exercise of options) is generally found in most capital raising announcements that we have worked on. 

Entities and underwriters to note.

Quality of disclosure

Where ASX has concerns with the quality of disclosure in a disclosure document, it will not accept an argument that ASIC has not raised any concerns.[29]

This is important for both entities and their advisers to note (e.g. when lodging a prospectus with ASX).  Allowing time to attend to comments from ASX on disclosure documents may need to be factored into transaction planning. ASX's decision to reject a listing application is final and there is no right to appeal.

Revamp of escrow regime

ASX has significantly revamped the escrow regime. 

ASX is imposing mandatory escrow restrictions on securities held by certain seed capitalists, vendors of classified assets, professional advisers, persons under employee incentive schemes and others.  These are referred to as "restricted securities".[30] 

Certain securityholders may be subject to voluntary escrow arrangements between themselves and the listed entity.

ASX can (and will) require certain significant holders of restricted securities and their controllers to execute formal escrow deeds (App 9A).[31]  Significant holders includes related parties, promoters, 10% substantial holders, professional advisers and their associates.

Less significant holders of restricted securities will be subject to escrow restrictions under the entity's constitution, which will be notified to them by a restriction notice from the entity and will not require entry into an escrow deed (App 9C).[33] The constitution-related requirements apply to entities listed on or after 1 December 2019.[34]

Escrowed quoted securities must be held on the issuer sponsored subregister and be subject to a holding lock.[35]

Entities must now provide ASX with not less than 5 business days (rather than 10 business days) notice ahead of the end of escrow periods.[36] 

ASX has noted that if entities release securities from escrow earlier than permitted, ASX will suspend the entity until the situation has been fixed.

ASX's changes generally streamline the escrow regime and clarify the circumstances when securityholders will be subject to mandatory escrow and for how long. 

The changes will be particularly helpful to entities with a large number of minority securityholders as signed escrow deeds for restricted securities will not need to be obtained from all of them.

In response to a submission made by KWM, ASX noted that it had no issue with voluntary escrowed securityholders jointly selling down their securities released from escrow but noted that collusion, insider trading, substantial shareholding and takeover issues would need to be front of mind.[32]

Mid to small caps issuance requirements changes

Entities with a market capitalisation of less than A$300 million and who are not in the S&P/ASX 300[37] will be affected by changes to the LR 7.1A issuance capacity requirements.  For example:

  • they may no longer make an issue under LR 7.1A for non-cash consideration (e.g. to satisfy a debt or as payment for services);[38] and
  • noting that the issue must be at not less than the prescribed minimum issue price (a formula is provided), the time period to issue securities at or above the prescribed minimum price is 10 trading days from when the price was agreed (rather than 5 previously).  If the securities are not issued within that timeframe, the prescribed minimum price needs to be recalibrated in accordance with the formula.[39]

Entities with a market capitalisation of less than A$300 million should note these changes. 

In our experience, it is fairly rare for an entity to issue securities under LR 7.1A for non-cash consideration so we do not expect this to have a big impact (although in our view it would have been better to preserve the flexibility to allow this).

Additional warranties to ASX

Additional warranties have been added to App 1A, 1B, 1C and 3B that the securities to be quoted by ASX have been validly issued and all of the relevant documents and information given to ASX are, or will be, accurate, complete and not misleading.[40]

This new requirement adds an additional confirmation on top of the Corporations Act 2001 (Cth) "not misleading or deceptive (including by omission)" requirement currently in due diligence processes.  Although this wording does not go further than "no omissions", due diligence participants should still turn their minds to this. 

Spin-outs of major assets

GN 13 has been substantially re-written to provide guidance on the application of (and prohibitions in) LR 11.4 on spin-outs of major assets and the exceptions to that rule.[41] There is now a more sophisticated regime for "non-standard" spin-offs, including a list of criteria (e.g. spin-offs on inconvenient exchanges).

The metrics that test a "major asset" for the purposes of the rule have been simplified so that all are measured by testing whether they constitute a 25% decrease of the listed entity's consolidated total equity interests, consolidated total assets etc (previously it was 20% on some, 15% on others).[42]

ASX has given guidance on how it will judge "awareness" for the purposes of LR 11.4(a) (relating to the awareness of the listed entity regarding the intentions of the counterparty)[43]

GN 13 also includes example disclosure for notices of meeting for LR 11.4.1(b) transactions (relating to disposal of securities in a child entity that holds a major asset with a view to it becoming listed).[44]

GN 13 has been drafted to capture all types of spin-outs (including a standard spin-out, with or without an IPO, a non-standard spin-out, a full spin-out and a partial spin-out) so it is important for entities considering a transaction of this nature to comply with it, particularly given the consequences of breach. 

This includes sales of assets to third parties who intend immediately to list the business.

Timetables for corporate actions

ASX has updated the timetables for corporate actions and disclosure of corporate actions (including issues of securities) in LR 3, App 6A and 7A.  The new timetables apply to corporate actions notified to ASX on or from 1 December 2019.[45]

ASX is also putting in place a new App 3G for the notification of issue, conversion or payment up of equity securities where the securities are not intended to be quoted at that point in time (rather than notification through an App 2A which applies for quotation).[46] 

This has broad applicability.  Entities considering a corporate action should carefully check the revised LR 3, App 6A and 7A to ensure that they comply with it.

In response to a submission from KWM and others, ASX said it would consider implementing smart form timetables for vanilla capital raisings that would give automatic approval or rejection responses (the New Zealand Exchange already has this software in place).  This will be particularly helpful for urgent capital raisings on fast timetables (e.g. where preparations occur over a long weekend).[47]

Deferred settlement trading and quotation

IPO deferred settlement trading will be limited to conditional markets. 

In respect of quotation, if an IPO:

  • includes a general offer (e.g. retail offer), quotation will be on a T+2 basis 3 business days after ASX is satisfied that all admission conditions have been met and holding statements have been despatched to securityholders; or
  • does not include a general offer, quotation will be on a T+2 basis once ASX is satisfied that all admission conditions have been met and the securities have been issued.[48]

Deferred settlement trading remains for certain other corporate actions.[49]

Pre-IPO entities to work with their financial, legal and tax advisers to factor into IPO timetables.  If deferred settlement trading is important to your transaction, we would suggest early engagement with ASX on this to test whether a waiver may be available.

The differentiation in quotation timing based on when there is a general offer makes sense as it allows for holding statements to be despatched to retail investors (which is less important where there is no general offer).   

[1] LR 1.19 and 2.9; GN 1 s 2.9.

[2] GN 1 s 2.9.

[3] GN 1 ss 3.10, 3.11 and 4.2.

[4] LR 1.3.3 and 19.12 "working capital"; GN 1 s 3.12; RP 5.12.

[5] LR 1.1 condition 20 and LR 1.11 condition 11; RP s 5.6.

[6] LR 3.16.1 and 3.16.2.

[7] LR 7.1 and 7.1A.2; GN 21 s 2.1 and 2.2; RP 5.14.

[8] LR 19.12; GN 21 s 5.

[9] LR 7.1; GN 21 s 2.1.

[10] GN 21 s 5.3.

[11] LR 7.1 and 7.1A; GN 21 s 2.1 and 2.2; RP 5.14.

[12] LR 7.2 exc 3; GN 21 s 4.4; RP 5.14.

[13] LR 7.2 exc 3; GN 21 s 4.4.

[14] LR 7.2 exc 15; GN 21 s 4.15.

[15] GN 21 s 2.10; RP 5.14.

[16] LR 7.1; GN 17 Annexure bullet point 3 and footnote 18; RP 5.19 and 6.5.

[17] LR 7.1, 7.1A, 7.2 exc 9, 10 and 16 and 7.4; GN 21 ss 4.9, 4.10, 4.16, 7.2, 7.3 and 7.4; RP 5.14.

[18] LR 3.10.5(a); GN 30 s 2.12; RP 5.10.

[19] LR 3.10.5(a) and 4.10.7.

[20] LR 2.7, 2.8, 3.10.3A, 3.10.3B and 3.10.3C; RP 5.11.

[21] LR 3.10.3; RP 5.11.

[22] LR 3.10.3A, 3.10.3B and 3.10.3C; RP 5.11.

[23] ASX release dated 29 November 2019.

[24] LR 4.11; GN 4 s 2.10 and GN 5 s 8; App 4A; RP 5.13.

[25] LR 3.10.6; GN 30 s 2.11; RP 5.5.

[26] LR 3.10.6, 3.10.9, 3.11.3, 7.2 exc 2 and 10.12 exc 2; App 3B; GN 30 s 2.11; RP 5.5.

[27] LR 3.10.9 note, 3.11.3 note, 7.2 exc 2, 10.12 exc 2 (this does capture sub-underwriters as well) and 19.12 "underwrite"; RP 5.5.

[28] LR 10.11 and 10.12 exc 2.

[29] GN 1 s 3.4.

[30] App 9B.

[31] LR 9.1(b); GN 11 s 5.3 and 6.1 to 6.11; App 9A.

[32] RP 5.17.

[33] LR 9.1(c); GN 11 s 6; App 9C.

[34] LR 9.1, 9.3 and 15.12; RP 5.17.

[35] LR 9.1(e) to (g); GN 11 ss 1.2, 5.1 and 5.5.

[36] LR 3.10A.

[37] LR 7.1A and 19.12 "eligible entity"; GN 21 s 3.1.

[38] LR 7.1A.3; GN 21 s 3.6.

[39] LR 7.1A; GN 21 s 3.6; App 3B.

[40] App 1A para 2, 1B para 2, 1C para 2 and 3B para 2; RP 5.18.

[41] LR 11.4; GN 13.

[42] LR 11.4(a); GN 13 s 3.2.

[43] LR 11.4(a); GN 13 s 3.4.

[44] LR 11.4(b); GN 13 s 6.3.

[45] RP 5.21.

[46] LR 3.10; App 3G.

[47] RP 5.21.

[48] LR 2.10 notes; RP 5.22.

[49] RP 5.22.

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