Important information for ASX Listed Companies

Review of listing rules and policy for investment entities

ASX is currently reviewing the listing rules and policy relating to investment entities. This has been prompted by a concern to ensure that rules and policy keep pace with current market conditions, in the context of rapid growth of this sector in recent years. 

The review will look at a number of aspects and may lead to proposals for change to the listing rules. Any such proposals will be, as part of the normal rule amendment process, exposed for public comment.

Management Agreements

One area of proposed change relates to management agreements. Listing rule 15.16 currently restricts the term of a management agreement to 5 years, the policy basis for the rule reflecting the importance attributed to an unimpeded market for corporate control. Since 2002, ASX has granted a number of waivers from the rule. The policy rationale for these waivers has been that where investors have elected to invest in 'branded' products or funds, managed by large institutions or those managed by recognised individuals, the investor is doing so on the basis of the particular investment strategy associated with that manager. 

ASX considers it now appropriate to formalise that policy through rule amendment and will seek input from investors and other interested parties in the exposure process.

Application of Listing Rule 12.3

Listing rule 12.3 gives ASX the discretion to suspend an entity where half or more of the entity's total assets is in cash or a form readily convertible to cash, until the entity invests those assets or uses them for its business. ASX recognises that investment entities may require a longer time frame in which to invest their funds and this is reflected in the note to rule 12.3, which says that ASX will not generally apply this rule for the first 6 months after admission. As a matter of practice, and recognising that the particular investment strategy of some investment companies contemplates investment over a longer time frame, ASX may determine not to exercise its discretion under this rule for a period longer than 6 months where the investment entity has made clear disclosure to the market about its strategy and time frames for investment, and provides the market with regular and detailed updates about the progress of its investments. Each case will be assessed in the context of its particular circumstances, but ASX's primary concern is to ensure a fully informed market in the entity's securities.

Recent Developments

ASX also recognises the need to ensure transparency by clarifying policy, or changes of policy, as is done to a great extent through publication of the waiver register and/or guidance notes.

In that context, ASX wishes to clarify the approach taken in relation to the admission of a small number of investment companies applying for admission with a longer term investment strategy, an intention to actively manage or control the investments, and in one case, not necessarily to have diversified investments. While there is a range in profile of existing listed investment companies, more recent applicants have extended the existing profile.

In relation to these different types of investment entities, ASX has identified different risks, and accordingly different requirements that need to be addressed. While no waivers were required to enable these recently admitted companies to be admitted as investment entities, additional conditions for their admission in that category have included the following:

• Management: Recognised name and proven expertise and/or long history of management in the targeted class of investment.

• Capital: Substantial/significant level of capital raising (indicating investors' choice to back the strategy and ability of the managers)

• Disclosure: Adequate disclosure about the strategy to subscribers under the prospectus (supplemented by pre-quotation disclosure required by ASX if necessary) and disclosure of likely change of status to operating company, once management/control takes place. 

For any further information on any of the above, please contact your Companies Adviser.