ASX proposes sweeping regulatory changes to stop dodgy listings

ASX proposes sweeping regulatory changes to stop dodgy listings


“We’re proposing to tighten that three years to two years, with a rider that if the reason you’ve been suspended is because you have failed to file accounts [it] is actually going to be one year,” Kevin Lewis, ASX chief compliance officer, said.

“The presumption that underlies the differentiation between two years and one year is that if you haven’t filed accounts you’ve either got something to hide or you can’t afford to pay your auditors. It’s hard to find any other reason and in either case you really shouldn’t be on the market.”

It’s a harsher tone for the ASX, which before 2016 allowed companies to be suspended indefinitely. Mazu Alliance Limited remained continually suspended for 12½ before the implementation of the new rule.

Another proposal on the table is a censure power, which the exchange believes will be a big deterrent for company executives and directors.

“It’s a power that most other markets have that we currently don’t have,” Mr Lewis said. “I think it’s a very important piece of an exchange’s armoury to be able to formally censure because someone who is looking to make a career out of being a director of a listed company doesn’t want to have an exchange censure on their CV.”

Mr Lewis believes the censure would be a more powerful tool in preventing poor behaviour than fining companies.

“The problem we’re finding is you end up punishing the wrong people,” he said. “You punish the shareholders rather than the people of the company who have actually done the wrongdoing.”

The ASX is also looking at mandating more regular reporting and encouraging a strong line of communication between companies and shareholders.

“We’re proposing, subject to consultation feedback, to beef up our rules around quarterly reporting,” Mr Lewis said.

“We’ve got a framework that operates in the mining space where you do both a quarterly activity report and a quarterly cash flow report. In the start-up space we currently only required them to do a cash flow report. So what we want to do is replicate that mining structure so that people are also doing a quarterly activity report and updating the market more frequently, particularly if you’re an early start-up or an early-stage tech.”

The new regulations, which could be introduced by the middle of the year, are set to further empower the ASX.

“There’s a range of things that we’ve been doing particularly over the last 12 months and are looking to do over the next 12 months,” Mr Lewis said. “The rule changes are a part of it but just more generally we’ve been very proactive in calling some of our listed companies to account for some of their behaviour.”

He estimates the ASX has delisted more companies over the past 12 months than in the preceding five years combined.

“That of course is our ultimate sanction for wrongdoing, to remove you from the official list and to remove your access to the public market. There’s been a number of companies that have incurred that particular penalty, starting with Haoma [MIning] at the beginning of the year for some pretty egregious breaches of the code amongst other things.”

Mr Lewis also cited the action taken against companies like Hardey Resources, Manalto and Victory Minesover their relationships with Adam, Darrin and Alvin Blumenthal and the entities they control, including Everblu, Anglo, ASN, Horatio and Suburban.Manalto has been allowed to resume trading but Hardey Resources and Victory Mines remain suspended.

The ASX also delisted Perth-based exploration minnow Capital Mining afterinquiring about discrepancies in the company’s expenditure in July 2017.

“We’ve just removed it from the official list, having now addressed some pretty poor behaviour by some of their former directors and some questionable conduct that happened in their administration,” Mr Lewis said.

The exchange said increasing their scrutiny of companies much earlier in the listing process could mean fewer delistings would be needed in the future.

“There have to be at least at least 70 and possibly considerably more listing applicants that we’ve just rejected [since March 2016] on the basis that they’re too early stage, that they’re operating in jurisdictions that we don’t particularly like or that they’ve got poor governance relationships,” Mr Lewis said.

“For example, the founding shareholder is the CEO and the chairman, their spouse is on the board and their adviser is on the board. Those are the sorts of things we’ve kept off the market.”

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