Part 8 - Continuous disclosure

8.1 Introduction

Disclosure is fundamental to market integrity and investor protection. Continuous disclosure is an important component of the current Australian disclosure framework. It aims to ensure that investors have timely and equal access to materially price sensitive information in relation to securities traded on secondary markets.

Australia's current continuous disclosure regime is fundamentally sound. This review seeks to propose measures to further enhance its effectiveness.

8.2 Rationale for continuous disclosure

The primary rationale for continuous disclosure is to enhance confident and informed participation by investors in secondary securities markets. This can be expected to enhance the depth, liquidity and efficiency of these markets.

Continuous disclosure of materially price sensitive information should ensure that the price of securities reflects their underlying economic value. It should also reduce the volatility of securities prices, since investors will have access to more information about a disclosing entity's performance and prospects and this information can be more rapidly factored into the price of the entity's securities.

An effective continuous disclosure regime should also minimise the potential for insider trading and other forms of market abuse that may arise as a result of entities withholding or selectively disclosing materially price sensitive information.

The existence of a mandatory continuous disclosure regime recognises that entities will not always have incentives to voluntarily disclose price sensitive information to investors. This is most relevant in relation to information that may have adverse implications for the price of an entity's securities.

8.3 Principles of continuous disclosure

An effective continuous disclosure regime has seven characteristics.

8.3.1 A properly informed market

Entities should release sufficient information to enable investors to make accurate judgements about the price of their securities (although investors may arrive at different judgements on the basis of this information).

Entities should not release information that is false or misleading. They should also respond to externally generated rumours and speculation when required to do so by the relevant market operator in circumstances where it is apparent to the market operator that these are significantly influencing the market for an entity's securities. However, entities should not be subject to a general requirement to release information to investors in response to external rumours.

8.3.2 Timely release of information

Entities should generally disclose materially price sensitive information to the market as soon as it becomes known to them (except where disclosure can be legitimately withheld). Entities should also promptly disclose information when it becomes apparent that disclosure can no longer legitimately be withheld (for example because it is no longer confidential). Finally, entities should promptly respond to external rumours when required to do so by the relevant market operator.

8.3.3 Equal access to information

Price sensitive information should be made available to all investors on an equal basis so that certain investors are not disadvantaged in comparison with others. The absence of selective disclosure is fundamental to market integrity. Selective disclosure also creates the potential for insider trading, where investors trade on the basis of materially price sensitive information that is not generally available. Selective disclosure and insider trading have the potential to reduce confident participation in financial markets, with adverse implications for their depth and liquidity (and hence the efficient operation of the price mechanism).

8.3.4 Premature release

The continuous disclosure regime should strike an appropriate balance between encouraging the timely disclosure to investors of materially price sensitive information and preventing the premature disclosure of such information where this is likely to result in the emergence of a false market. Entities should be allowed to withhold materially price sensitive information where disclosure would be likely to create a false market for their securities. An entity should not create an environment of speculation and price volatility through frequent conflicting announcements about incomplete or indefinite matters.

8.3.5 Commercial interests

The continuous disclosure regime should also strike an appropriate balance between requiring the timely disclosure of materially price sensitive information and safeguarding the commercial interests of disclosing entities. The regime should not unduly prejudice an entity's commercial operations by requiring the release of trade secrets or the disclosure of sensitive negotiations. It should permit materially price sensitive information to be withheld from investors where this is clearly necessary to safeguard an entity's commercial interests. However, this should only apply where confidentiality has been maintained in relation to these matters.

8.3.6 Confidentiality of information withheld from disclosure

Materially price sensitive information that is withheld from investors must be kept confidential. While an entity may disseminate information to its advisers and commercial partners, these persons should not trade in the securities of the entity while in possession of information that is not generally available to investors. Where information becomes widely available as a result of a breach of confidence, it should be disclosed to investors on a timely and equal basis.

An entity should be required to disclose materially price sensitive information that could otherwise be legitimately withheld from investors if this information is the subject of externally generated rumours that are sufficiently specific that the information can no longer be regarded as confidential in relation to the market. This could apply even where the information relates to a matter that is indefinite or uncertain. In these circumstances, some form of disclosure is likely to reduce rather than increase the potential for a false market in an entity's securities.

8.3.7 Enforcement and remedies

The continuous disclosure regime should be supported by effective enforcement provisions and remedies. Entities should receive clear and consistent guidance in relation to their obligation to disclose materially price sensitive information. The regime should include a range of penalties that can be tailored to different circumstances. Penalty provisions should also strike an appropriate balance between the need for a credible deterrent against contraventions of the regime and the need to maintain appropriate procedural safeguards. There should be effective mechanisms for remedying inadequate disclosure. Finally, there should be adequate mechanisms through which persons who have suffered loss or damage as a result of inadequate disclosure can seek to recover the amount of these losses or damages.

8.4 The current regulatory framework

The current regulatory framework is contained in the listing rules of the three prescribed financial markets (ASX, BSX and NSX) and the Corporations Act.

The ASX is the most significant of the three prescribed financial markets, with responsibility for well over 99 per cent of listed disclosing entities. There are around 1,400 entities whose securities are listed on ASX (although a number of these are foreign exempt entities). By contrast four issuers have securities listed on NSX while BSX currently has one listing.

ASX Listing Rule 3.1 requires listed entities to immediately disclose materially price sensitive information to ASX so that it can be disseminated to investors. It also contains a 'carve-out' that allows information to be withheld from immediate disclosure if it satisfies
one or more of the following five criteria.

• It would be a breach of the law to disclose the information.
• The information concerns an incomplete proposal or negotiation.
• The information comprises matters of supposition or is insufficiently definite to warrant disclosure.
• The information is generated for internal management purposes of the entity.
• The information is a trade secret.

Information may only be withheld if it remains confidential and a reasonable person would not expect it to be disclosed.

In addition to complying with Listing Rule 3.1, ASX listed entities are also required to make ongoing disclosures in relation to a list of events set out in the remainder of Chapter 3 of the ASX Listing Rules.

The BSX and NSX listing rules contain continuous disclosure provisions that are based on the current ASX Listing Rule 3.1.

On 19 July 2002, ASX released draft amendments to Listing Rule 3.1 (which include moving the 'carve-out' into a new Listing Rule 3.1A). The proposed amendments are intended to enable ASX to determine that materially price sensitive information being withheld from disclosure by a listed entity is no longer confidential and must immediately be disclosed to ASX (as it no longer falls within the 'carve-out'). They would also narrow the scope of the 'carve-out' by requiring listed entities to release sufficient information to remedy a false market for their securities when required to do so by ASX. Under ASX's proposal, materially price sensitive information would only be able to be withheld from disclosure if this did not cause a listed entity to breach its duty to avoid a false market for its securities (in addition to the need to satisfy the three other limbs of the 'carve-out').

The Corporations Act provides statutory backing to the continuous disclosure requirements of the listing rules of the three prescribed financial markets. A contravention of the relevant listing rule is also a contravention of subsection 674(2) of the Corporations Act (provided the contravention relates to information that is not generally available and, if it were generally available, a reasonable person would expect the information to have a material effect on the price or value of an entity's securities). A contravention of subsection 674(2) of the Corporations Act may give rise to criminal liability if the mental elements attributed to the subsection by the Criminal Code (intent and, in some cases, recklessness) are proved. subsection 674(2) is also a financial services civil penalty provision. This means that a breach may give rise to a declaration of contravention and, if it causes loss or is serious, a financial penalty of up to $200,000. The Corporations Act also enables the courts to grant a wide range of other orders in relation to contraventions of subsection 674(2), including injunctive orders and orders for compensation.

These provisions were introduced by the Corporate Law Reform Act 1994 (the Corporate Law Reform Act). They were based on the conclusions of a 1991 report by CASAC, which recommended the establishment of an enhanced statutory disclosure system. Prior to the commencement of these legislative amendments, Australia's continuous disclosure regime was contained exclusively in the ASX Listing Rules. These operate as a contract between a listed entity and the ASX, but may be enforced by the courts under the Corporations Act.

In addition to providing statutory backing to the continuous disclosure requirements of the ASX Listing Rules (and subsequently those of BSX and NSX), the Corporate Law Reform Act also imposed continuous disclosure requirements on unlisted disclosing entities.

Subsection 675(2) of the Corporations Act requires unlisted disclosing entities to disclose materially price sensitive information to ASIC as soon as reasonably practicable (unless this information would be required to be incorporated into a supplementary or replacement disclosure document). The statutory framework of enforcement provisions and remedies that applies in relation to contraventions of subsection 674(2) of the Corporations Act also applies in relation to contraventions of subsection 675(2).

Finally, the Corporate Law Reform Act imposed more frequent periodic disclosure obligations on both listed and unlisted disclosing entities in the form of a requirement to prepare and lodge audited financial reports and directors' reports on a six-monthly basis rather than a yearly basis.

The legislative framework that was introduced in 1994 underwent significant amendments with the commencement of the FSR Act on 11 March 2002.

• The provisions were re-drafted and relocated from Part 7.11 to a new Chapter 6CA of the Corporations Act.
• A 'carve-out' based on ASX Listing Rule 3.1 was introduced into the continuous disclosure requirements governing unlisted disclosing entities. This is contained in Regulation 6CA.1.01.
• Contraventions of subsections 674(2) and 675(2) were made civil penalty provisions.

A number of the amendments introduced by the FSR Act were based on the recommendations of CASAC's 1996 report on continuous disclosure, which examined the first 18 months of operation of the enhanced statutory disclosure provisions introduced by the Corporate Law Reform Act.

8.5 Issues and proposals

8.5.1 Relationship between periodic and continuous disclosure

Disclosing entities are currently subject to both periodic and continuous disclosure requirements. Under the Corporations Act (section 302), disclosing entities must lodge annual and half-yearly audited financial reports with ASIC. The US has a system of quarterly financial reporting, leading to suggestions that Australia should also consider mandating (unaudited) quarterly reports.

In the US, public issuers are generally subject to more onerous periodic reporting requirements. They are required to lodge quarterly rather than six-monthly financial reports. This raises the issue of whether Australian disclosing entities should be subjected to more frequent periodic reporting. In particular, it has been suggested that the Australian framework should allow disclosing entities to choose to lodge quarterly rather than six-monthly financial reports. Under this proposal, entities that elected to lodge quarterly financial reports would not be required to continuously disclose materially price sensitive information.

Some have pointed to quarterly reporting in the US as encouraging a short-term focus by companies and the market on meeting quarterly earnings forecasts, rather than on longer-term business fundamentals. Others would see quarterly reporting as facilitating analysis of business turning points and seasonal patterns, providing more up to date accounts than currently available and information about trends and prospects that may not be picked up under continuous disclosure.

Mandatory quarterly reporting in Australia would add somewhat to compliance costs for companies. However, this would be mitigated by the fact that quarterly accounts would not be audited and would be drawn largely from existing internal monthly reporting.

Half-yearly reporting in Australia, combined with an effective continuous disclosure regime, appears to provide appropriate disclosure to the market while minimising compliance burdens for business. While companies can and do choose to report quarterly, it is not clear that a statutory requirement for them to do so would add significantly to meaningful information available to the market.

In this regard, it is important to recognise that US issuers that are subject to quarterly periodic reporting obligations are also required to make ongoing disclosure in relation to a number of specific matters mandated by the US SEC. These requirements for ongoing disclosure in relation to specified matters are more onerous than those contained in Chapter 3 of the A
SX Listing Rules, and the SEC has recently enlarged the list of matters in relation to which ongoing disclosures must be made. Finally, the listing rules of major US financial markets such as NYSE require listed entities to continuously disclose price sensitive information to investors (although, in contrast to Australia, these rules do not have statutory backing).

The introduction of more frequent periodic reporting at the expense of continuous disclosure would therefore be inconsistent with the trend of recent reform in the US, which is to increase the ongoing disclosure obligations of public issuers.

It is not clear that the benefits of mandatory quarterly reporting would warrant the additional compliance costs involved, nor that there is significant demand from users of financial statements for this change.

It is therefore proposed to retain the present half-yearly reporting requirement and to keep the question of mandatory quarterly reporting under review in light of the further operation of the continuous disclosure regime and the effectiveness of other measures proposed in this paper to enhance the corporate disclosure framework.

While it is not currently proposed to mandate more frequent periodic financial reporting in the Corporations Act, it is recognised that it may be appropriate for market operators to impose more frequent financial reporting requirements in relation to particular classes of listed disclosing entities.

Continuous disclosure is a vital component of Australia's corporate disclosure framework. Any future increase in the frequency of periodic reporting by disclosing entities should not be at the expense of the current requirement to continuously disclose materially price sensitive information to investors.

8.5.2 Allocation of responsibility between ASIC and market operators in relation to listed entities

Under the current regulatory framework, the continuous disclosure rules that apply to listed entities are contained in the listing rules of their respective listing markets. Market operators have front line responsibility for monitoring and enforcing compliance with these rules. They are responsible for the receipt and dissemination of materially price sensitive information to investors. As part of their responsibility for enforcing compliance with their listing rules, market operators are also responsible for providing guidance to listed entities on the interpretation of the continuous disclosure requirements as well as for dealing with inadequate disclosure by listed entities and remedying false markets that may have emerged as a consequence of externally generated rumours or speculation.

Monitoring and enforcing compliance by listed entities with the continuous disclosure requirements of their respective listing rules is fundamental to the obligation of each market licensee to maintain a fair orderly and transparent market.

ASIC has two major roles under the current regulatory framework. The first is to ensure that market operators comply with their obligation under the Corporations Act to maintain fair, orderly and transparent markets and to monitor and enforce compliance with their respective listing rules. The second is to deal with selected contraventions of the continuous disclosure provisions that are referred to it by market operators (the operation of the current framework of enforcement and remedies is discussed in greater detail below).

There has recently been discussion over whether ASIC should assume responsibility from market operators for the administration of their listing rules. This discussion has been motivated in part by the demutualisation of ASX and its transformation from a mutual body into a commercial entity (in common with BSX and NSX). This has raised the issue of the potential for conflicts of interest between the commercial and regulatory responsibilities of market operators. The issue is whether market operators will effectively monitor and supervise entities from which they directly derive a significant portion of their revenue in the form of listing fees (and which also contribute to trading revenue). Market operators are also potentially subject to greater competition for listings from overseas exchanges, with a significant proportion of ASX's largest listed entities having secondary listings on overseas markets.

In the UK, the Financial Services Authority (in its capacity as the UK Listing Authority) has been given responsibility for administering a single set of listing rules that apply to all UK listed entities. This model was adopted in part because of concerns about the potential for conflicts between the commercial interests and regulatory responsibilities of the LSE. However these concerns focused primarily on the implications of the LSE's demutualisation on its capacity to continue to act as the listing authority for all UK financial markets rather than for its capacity to adequately supervise its own market.

In considering these issues, it is necessary to recognise that the potential for conflicts between the commercial and supervisory responsibilities of market operators existed prior to the recent wave of financial market demutualisation. While mutuals could not return profits to members, listing revenue could be used to effectively subsidise the trading activities of member brokers. It is also necessary to recognise that demutualised market operators have commercial incentives to maintain appropriate levels of supervision in relation to their respective markets.

The current market licensing framework in Part 7.2 of the Corporations Act requires market licensees to have adequate arrangements for handling conflicts between their commercial interests and their obligation to maintain fair, orderly and transparent markets. ASIC is required to conduct regular assessments of how each licensee is complying with this obligation.

At present, there does not appear to be any evidence that ASX, BSX or NSX have been unsuccessful in managing potential conflicts of interest between their commercial and supervisory objectives. This conclusion was supported by the Senate Economics References Committee in the February 2002 report of its Inquiry into the Framework for Market Supervision of Australia's Stock Exchanges.

8.5.3 Information that must be continuously disclosed

The continuous disclosure provisions should strike an appropriate balance between encouraging the timely disclosure to investors of materially price sensitive information; preventing the emergence of a false market as a result of the premature disclosure of information in relation to uncertain matters; and safeguarding the commercial interests of disclosing entities.

The Government supports the current requirement for disclosing entities to disclose all materially price sensitive information. This requirement should not be relaxed so that information need only be disclosed when it has the potential to 'substantially' alter the price or value of an entity's securities (the approach contained in the UK Listing Rules).

It is necessary for there to be certain limited exceptions from the requirement for listed disclosing entities to immediately disclose materially price sensitive information to the market operator (or, in the case of unlisted disclosing entities, to lodge information with ASIC as soon as practicable). Disclosing entities should be permitted to withhold materially price sensitive information in the following circumstances.

• Where disclosure would amount to a breach of the law.
• Where the information relates to a matter that is sufficiently incomplete or uncertain that disclosure could not be made without misleading investors or creating a misinformed market for an entity's securities.
• Where disclosure of information would unduly prejudice the commercial interests of the disclosing entity as the information concerns either a trade secret or commercial negotiations that could be jeopardised if they were disc
  losed.

A disclosing entity should only be able to withhold materially price sensitive information where it is kept confidential from the market (so that investors are equally uninformed). While it may be necessary for this information to be disclosed to an entity's advisers or potential commercial partners, it should be clearly identified as information that is being withheld under an exception to the continuous disclosure provisions. The exceptions should cease to apply where the information is 'leaked' or where it becomes the subject of externally generated rumours that are sufficiently specific that the information can no longer be regarded as confidential. In these circumstances, the need to maintain a fair, orderly and transparent market would require the information to be disclosed to investors (even where it relates to an indefinite matter or a commercial negotiation).

Under the current regulatory framework, listed disclosing entities are also required under the listing rules of their respective listing markets to make ongoing disclosures in relation to certain specified matters. These ongoing disclosure requirements presently relate primarily to matters such as takeover bids, buy-backs and capital reconstructions (although they also include requirements relating to directors' share trading and ownership limits).

This approach differs from that adopted in the US, in which public issuers are subject to more onerous ongoing disclosure requirements in relation to their commercial activities. The recent enlargement of the list of matters in relation to which US issuers are required to make ongoing disclosures raises the issue of whether the Australian regulatory framework should specifically mandate ongoing disclosure of additional matters as a means of enhancing disclosure to investors. In particular, it raises the issue of whether the current continuous disclosure regime should be supplemented by additional mandatory requirements to make ongoing disclosures in relation to major developments with the potential to impact on an entity's commercial performance.

The Government has concluded that there is not currently any need to place greater reliance on the ongoing disclosure of specific matters to ensure an informed market for the securities of disclosing entities. However, it may be necessary in the future to consider whether more extensive use of specific ongoing disclosure requirements would assist in remedying any particular shortcomings that might emerge in the disclosure practices of listed entities.

Disclosing entities should continue to be required to disclose materially price sensitive information on a timely basis. While the emphasis should be on maximising the amount of price sensitive information that is disclosed to investors, the framework should allow entities to withhold information from immediate disclosure in certain limited circumstances. However, where confidentiality is breached in relation to this information, it must be promptly disclosed to investors.

8.5.4 Dissemination of price sensitive information

A key characteristic of an effective continuous disclosure regime is that all investors should have access to materially price sensitive information on an equal basis, so that particular market participants are not disadvantaged in relation to others. This is important to ensure that the operation of a financial market is fair and transparent.

Under the current regulatory framework, listed disclosing entities disclose information to the operator of their respective listing market. The market operator has primary responsibility for disseminating information to investors (although section 792C of the Corporations Act requires market licensees to provide this information to ASIC).

In the case of ASX, the listing rules require listed entities to maintain the confidentiality of information until the market operator acknowledges that it has been released through the CAP. When an announcement is released by ASX, a header is displayed on trading terminals alerting ASX participants to the existence of an announcement. A full image of the text of an announcement is made available to commercial information vendors as well as to subscribers of ASX's Image Dissemination Server. Summaries of market sensitive announcements are 'voicelined' to ASX participating organisations. ASX Market Data summarises and edits the text of announcements, which is made available to information vendors and subscribers through Signal G, the ASX's company information dissemination system.

ASX aims to make Signal G information available free of charge to the general public on a twenty minute delayed basis through its website. However, it has acknowledged that there has sometimes been a substantial delay between the release of materially price sensitive information to ASX Participating Organisations and commercial information vendors and its subsequent release to the general public through the ASX website. As a result, these persons may have a substantial market advantage over investors who do not have immediate access to up-to-date information as it is disclosed to the market (and may not receive the information until after a trading halt imposed to enable market participants to become aware of announcements has been lifted).

In order for ASX to fulfil its responsibilities as the front line market supervisor, it is necessary that listed entities are required to disclose materially price sensitive information to ASX and to maintain confidentiality in relation to this information until it has been disseminated to market participants. In the absence of this requirement ASX would be unable to maintain an informed market for the securities of listed entities. As market operator, ASX must decide whether or not it is necessary to institute a trading halt in relation to a particular disclosure. This would not be possible if it did not have access to information prior to its release to the market.

It is less apparent that market operators such as ASX should be solely responsible for the dissemination of information once it has been released to market participants. The current procedures for the dissemination of price sensitive information released by listed entities would seem to disadvantage small investors in comparison with market participants (who often engage in significant trading activity as principals) and institutional investors.

This disparity could be addressed if market operators were prepared to make price sensitive information immediately available to all investors (without a 20 minute delay). As an alternative, listed entities could be required to establish websites and post materially price sensitive information at the same time that this information is first released by the relevant market operator (and, in the case of ASX listed entities, they receive notification that the information is no longer confidential). It would also be highly desirable for listed entities to provide facilities for investors to be electronically alerted through real time electronic messaging systems (such as e-mail or SMS) to the existence of new postings (along the lines of the notification that is currently provided to ASX participants through the SEATS system). This proposal would also ensure that all investors have equal and timely access to price sensitive information released by listed disclosing entities. It is consistent with the best practice disclosure guidelines that have been published by the Australasian Investor Relations Association.

8.5.5 Enforcement and remedies

An effective framework of enforcement and remedies consists of four components: education and guidance to ensure that entities understand their continuous disclosure obligations; penalties that provide a credible deterrent against non-compliance; mechanisms for remedying inadequate disclosure and for requiring disclosing entities to institute remedial measures to reduce the likelihood of future contraventions; and mechanisms that enable persons
who have suffered loss or damage as a consequence of contraventions to recover the amount of their loss or damage.

Education and guidance

The provision of education and guidance in relation to the interpretation of the continuous disclosure requirements plays a vital role in fostering a culture of compliance. The importance of this function derives from the subjective nature of these rules (especially in relation to the question of whether materially price sensitive information is required to be disclosed to the market or whether it may be legitimately withheld from investors). It is difficult to create a culture of compliance if disclosing entities do not have a clear understanding of their obligations. It is therefore important for market operators to provide listed disclosing entities with clear and consistent guidance in relation to the operation of the continuous disclosure provisions of their respective listing rules.

In this regard, the Government welcomes a recent proposal by ASX to devote additional resources to educating company directors and advisers in relation to the practical application of the continuous disclosure regime and promoting best practice in relation to continuous disclosure.

Penalties

The provision of education and guidance alone is not sufficient to ensure compliance by disclosing entities with the continuous disclosure regime. It must be supported by a framework of penalties that operates as a credible deterrent against contraventions of the regime.

There are four key issues in relation to penalties: the types of penalties that may be imposed in relation to contraventions of the continuous disclosure regime; the flexibility with which different types of penalties may be tailored to the circumstances of particular contraventions; the extent to which penalties may only be imposed against disclosing entities or are also able to be imposed against individuals involved in a contravention; and the processes through which penalties are imposed (including the extent to which different types of penalties should be able to be imposed through judicial or administrative processes).

Types of penalties

There are currently four types of penalties that may be imposed in relation to contraventions of the continuous disclosure regime: removal of an entity from the official list of its listing market by the relevant market operator; financial penalties; adverse publicity; and imprisonment (in relation to individuals convicted as accessories to a criminal contravention by a disclosing entity of the continuous disclosure provisions of the Corporations Act).

These four types of penalties may be imposed concurrently with one another. In particular, the imposition of a financial penalty on a disclosing entity is likely to be accompanied by adverse publicity and the potential for damage to both the entity's reputation and its future cost of equity capital (as investors may demand a higher risk premium before investing in the securities of an entity with a reputation for poor disclosure). While adverse publicity can be expected to accompany the imposition of a financial penalty, it may also be appropriate as a penalty in its own right, particularly in relation to less serious contraventions of the regime.

Flexibility of penalties

It is important that penalties should be able to be tailored to reflect the different circumstances of particular contraventions. The appropriate penalty in relation to an intentional contravention by a major corporate entity is likely to be substantially different from that which might be appropriately imposed in relation to a minor or inadvertent breach by a much smaller entity.

Of the four types of penalties under the current framework, de-listing and imprisonment are least able to be tailored to individual circumstances. As a consequence, they would only be appropriate in relation to the most serious contraventions of the regime. As a consequence of their inflexibility, these two types of penalties do not constitute credible and effective deterrents in relation to all but the most serious contraventions of the regime.

Financial penalties and adverse publicity are characterised by a higher degree of flexibility and may therefore be tailored to fit the circumstances of a much wider range of contraventions. They are therefore more likely to operate as a credible deterrent against a wide range of contraventions of the regime.

Under the current regime, financial penalties of up to $200,000 may be imposed on a disclosing entity (the maximum civil penalty that may currently be imposed by a court in relation to a contravention of subsection 674(2) or 675(2)). The amount of adverse publicity that may be experienced by a disclosing entity that contravenes the continuous disclosure regime can also vary significantly under the current regime. Most adverse publicity is likely to be associated with a criminal conviction due to its connotations of immorality (despite the lower maximum financial penalty of $110,000 that a court may impose on a body corporate in relation to a criminal convention). By contrast, a public censure in the absence of a criminal conviction or a civil penalty is likely to be associated with less adverse publicity.

A key issue in relation to the current regulatory framework is the capacity of financial penalties to operate as a credible deterrent in relation to more serious contraventions of the continuous disclosure regime by large bodies corporate. While a maximum financial penalty of $200,000 may represent a substantial impost in relation to a smaller entity, it is unlikely to be regarded as such by a large body corporate (even taking into account the level of adverse publicity that is likely to accompany its imposition).

For this reason, it is considered that the maximum financial penalty that may be imposed in relation to a contravention of the continuous disclosure provisions by a body corporate should be increased from $200,000 to $1 million.

This could be achieved by inserting into the Corporations Act a provision similar to section 1312 to provide that the maximum civil penalty that may be imposed on a body corporate in relation to contravention of a financial services penalty provision is five times the maximum penalty that applies to an individual (which would remain at $200,000). This would bring financial services penalty provisions into line with the offence provisions of the Corporations Act, in which the maximum financial penalty that may be imposed in relation to a body corporate is five times the maximum financial penalty listed for the offence in Schedule 3 (which sets out the maximum financial penalty in relation to a criminal contravention by an individual).

An increase in the maximum financial penalty that may be imposed on bodies corporate in relation to contraventions of the financial services penalty provisions would reflect that fundamental importance of these provisions to market integrity and investor protection. It would also increase the level of adverse publicity that would be likely to accompany the imposition of such a financial penalty. However, this proposed increase in the maximum financial penalty that may be imposed on a body corporate does not mean that substantially smaller financial penalties would not still be appropriate in many circumstances.

Persons against whom penalties may be imposed

Under the current regulatory framework, penalties are generally imposed on disclosing entities rather than individuals. However an individual who is convicted as an accessory to a criminal contravention of the continuous disclosure provisions can be fined or imprisoned. A person involved in a contravention can also be subject to an adverse publicity order under section 1324B of the Corporations Act as well as an order for compensation under section 1325. However it is not currently possible for ASIC to seek a civil penalty order against an individual who was involved in a contraventi
on of the continuous disclosure provisions. Such a penalty may only be sought against the relevant entity.

While it is appropriate to impose financial penalties on entities in relation to contraventions of the continuous disclosure provisions, this practice may shield from responsibility individuals who should arguably themselves be held accountable for contravening conduct by the relevant disclosing entity. It can also be argued that the burden of financial penalties imposed on an entity is likely to fall disproportionately on persons such as shareholders (who may have already suffered loss or damage as a result of a contravention) rather than on the individuals whose conduct lead to the contravention.

This raises the issue of whether the current regime should be amended to allow civil penalty orders to be sought against persons involved in a contravention by a disclosing entity as well as against the entity itself. The prospect of financial penalties being imposed on individuals may operate as a more credible and effective deterrent than the prospect of financial penalties being imposed on a body corporate.

This proposal may not represent a substantial departure from the principles established under the current regulatory framework to the extent that individuals are already exposed to the potential for financial penalties and imprisonment (in relation to accessorial liability for criminal contraventions by an entity) and a person involved in a contravention may also be subject to an adverse publicity order under section 1324B of the Corporations Act, as well as actions for compensation under section 1325.

Processes through which penalties may be imposed

Under the current regulatory framework, there are a number of processes through which penalties may be imposed on entities and individuals. A key distinction in this regard is between formal court proceedings and administrative processes.

In relation to court proceedings, it is possible to distinguish between criminal and civil proceedings. While these are similar in some respects, there are significant differences between them. Firstly in a civil proceeding, it is only necessary for ASIC to prove the physical element of a contravention. This is different from a criminal proceeding, in which the DPP must prove both the physical and mental elements of an offence. In addition, civil proceedings may be characterised by reduced evidential standards (balance of probabilities rather than beyond reasonable doubt) and the absence of certain safeguards that would apply in criminal proceedings. However, the degree of satisfaction called for by the civil standard of proof may vary according to the severity of the relevant penalty. There is also some potential for the courts to modify civil procedures to reflect the gravity of penalty to which a respondent may be liable. These factors may narrow the distinction between criminal and civil proceedings.

Under the current framework, imprisonment and financial penalties may only be imposed through court proceedings. Imprisonment is an exclusively criminal penalty. However, as a result of the commencement of amendments contained in the FSR Act, financial penalties may now be imposed through either criminal or civil proceedings.

The maximum fine that may be imposed as a result of a criminal proceeding is currently $22,000 in relation to an individual and $110,000 in relation to a body corporate. The maximum financial penalty that may be imposed following a civil penalty proceeding is currently $200,000. It is proposed that this should be increased to $1 million in relation to bodies corporate (but remain at $200,000 in relation to individuals), and that other persons involved in a contravention of the continuous disclosure provisions should be potentially liable to financial penalties as a result of both civil and criminal proceedings.

Adverse publicity is likely to result from the imposition of financial penalties by a court (especially in relation to a criminal conviction, where the imposition of a smaller financial penalty is offset by greater adverse publicity as well as other consequences for an entity that may flow from a criminal conviction). The courts may also impose an adverse publicity order under section 1324B of the Corporations Act in the absence of a financial penalty. Adverse publicity orders are a type of civil penalty as they may be imposed as a result of civil rather than criminal proceedings.

Under the current regulatory framework, only a limited range of penalties may be imposed through administrative processes by market operators or ASIC.

A market operator may de-list an entity for failing to comply with its continuous disclosure obligations (arguably the most severe penalty that may be imposed against a listed entity). However, market operators have not given themselves the capacity under their respective listing rules to impose other types of penalties on listed entities. This situation can be contrasted with the range of penalties that is potentially available to market operators in relation to contraventions of their respective business rules by market participants. For example, the ASX's National Adjudicatory Tribunal may impose a wide range of penalties on participating organisations in relation to contraventions of ASX's Business Rules, including censure, suspension, completion of education and compliance programs, disgorgement of profits and financial penalties of up to $250,000.

An order made under section 713(6) of the Corporations Act to deny an entity access to transaction specific prospectuses is the major administrative remedy currently available to ASIC in relation to breaches of the continuous disclosure provisions. ASIC may also accept enforceable undertakings from disclosing entities (a process discussed in greater detail below in the section of the Chapter dealing with remedial mechanisms). ASIC may publicise these administrative actions. ASIC has also recently publicised instances where it believes that an entity has contravened the continuous disclosure provisions but where it considers that it would be unable to successfully pursue the matter in the courts.

The key issue in relation to the procedures through which penalties may be imposed in relation to contraventions of the continuous disclosure provisions is the extent to which they strike an appropriate balance between the need to provide an effective and credible deterrent to contraventions and the need to maintain appropriate procedural safeguards that reflect the seriousness of the penalty involved.

Criminal proceedings are appropriate where there is the prospect of individual imprisonment. However the pre-FSR Act requirement to pursue financial penalties solely through criminal proceedings was a significant shortcoming in the enforcement framework. It meant that financial penalties could only be imposed in relation to the most serious and blatant contraventions of the continuous disclosure regime. This substantially reduced the deterrent effect of financial penalties. Indeed, in part as a consequence of the evidential burdens associated with criminal proceedings, no prosecutions have been launched in relation to contraventions of the continuous disclosure provisions of the Corporations Act. While ASIC is yet to utilise its capacity to seek financial penalties using civil as well as criminal proceedings, this can be expected to enhance the deterrent effect of financial penalties, particularly in relation to negligent contraventions of the regime, which cannot be dealt with through criminal processes.

By contrast, it is relatively straightforward for ASIC to impose a penalty of adverse publicity in the form of a public censure contained in a media release. However, an entity may consider that such a penalty is characterised by an absence of appropriate procedural safeguards.

Administrative penalties in relation to continuous disclosure

As noted, under the current regulatory framework, only the courts may impose fin
ancial penalties in relation to contraventions of the continuous disclosure regime.

It is proposed that ASIC should be able to impose financial penalties through a third process that could potentially involve both administrative and judicial proceedings (including an infringement notice mechanism that would enable an entity to bring the process to an end after its administrative phase by paying ASIC a financial penalty fixed by statute).

This process would operate in the following way:

• ASIC would hold a hearing to determine whether it should form an opinion that an entity had contravened the continuous disclosure provisions of the Corporations Act.
  • An entity would be informed of the nature of the case against it and would be permitted to make submissions to ASIC's hearing.
• If ASIC formed an opinion that a contravention had occurred, it would issue an infringement notice notifying the entity of its opinion and indicating that the breach may be addressed through payment of a fixed financial penalty set out by statute.
• The notice would specify a fixed amount as a penalty. This penalty would be substantially less than the financial services penalties proposed in this paper. The notice would also set out the period in which proceedings may be commenced if the penalty is not paid.
• This mechanism is not intended to amount to the imposition of a penalty by ASIC. Instead it is intended to provide a mechanism through which an entity that in ASIC's opinion has contravened the continuous disclosure provisions of the Corporations Act may forestall an application to the courts by ASIC for the imposition of a financial penalty in relation to the contravention.
• Payment of a financial penalty in response to an infringement notice would not be taken as an admission by the entity of liability or a contravention of the Corporations Act for any other purpose.
  • The entity would not be subject to further civil or criminal proceedings instituted by ASIC in relation to the contravention.
• If the financial penalty is not paid within the period of time specified in the infringement notice, ASIC may commence court proceedings.
• ASIC's application to the court would be supported by:
  • evidence that it had formed an opinion that the continuous disclosure provisions had been contravened and that the fixed penalty set out in the infringement notice had not been paid; and
  • a statement of the facts and matters that ASIC relied upon in forming its opinion in relation to the existence of a contravention.
• In these civil proceedings, the court would be able to consider all matters afresh and form its own view about whether a contravention had occurred.
• If a court determines that a contravention had occurred, it would be permitted to impose a financial penalty not less than the penalty set out in the ASIC infringement notice. However it would not be able to make a pecuniary penalty order against the entity. If ASIC is unable to satisfy the burden of proof in these proceedings, the court would quash the financial penalty set out in the infringement notice.
• A financial penalty imposed by the court would become a debt payable to ASIC and would be able to be enforced as such in the courts.

This process would supplement existing criminal and civil court procedures. It would remedy a significant gap in the current enforcement framework by facilitating the imposition of a financial penalty in relation to relatively minor contraventions of the regime that would not otherwise be pursued through the courts and in relation to which ASIC considers a relatively small financial penalty would be justified. The capacity to issue an infringement notice would also allow ASIC to signal its views concerning appropriate disclosure practices to listed entities more effectively than through court action alone.

The fundamental issue in relation to the proposed new process is whether it strikes an appropriate balance between enhancing ASIC's capacity to deal with relatively minor contraventions of the continuous disclosure provisions and ensuring that there are adequate procedural safeguards.

In particular, there may be concerns about a process under which ASIC would perform a dual role of investigating alleged contraventions and then holding a hearing to determine whether it should form an opinion that a contravention had occurred (and that an infringement notice should be issued).

In this regard, it is relevant to note that ASIC currently performs a similar dual role in relation to persons holding licenses granted under the Corporations Act and directors involved in multiple insolvent companies. ASIC decisions to suspend or cancel a licence (which may have far more adverse implications for an entity than the imposition of a financial penalty) are made as a result of an administrative process. Market operators also use administrative processes in determining whether to penalise participants in relation to contraventions of their business rules. As previously noted, ASX may impose financial penalties of up to $250,000 in relation to contraventions of its Business Rules.

The imposition of financial penalties through administrative procedures is also common in overseas jurisdictions. For example, the UK Listing Authority is able to impose unlimited financial penalties on listed entities (as well as their directors) in relation to contraventions of the UK listing rules.

In addition, a decision by ASIC to issue an infringement notice in relation to a contravention of the continuous disclosure provisions would be subject to judicial scrutiny. An entity that receives an infringement notice following an ASIC hearing would be able to decide for itself whether to pay the specified penalty and bring the matter to an end or whether it will require ASIC to prove it's case before the courts.

Finally, it is envisaged that the financial penalty that may be imposed using an infringement notice would be substantially lower than the maximum financial penalty that could be sought through criminal or civil court proceedings. If ASIC elected to pursue a contravention using this process, it would not be able to take any other court action in relation to the matter (aside from enforcing any penalty that was eventually imposed by the court). Furthermore, payment of a financial penalty at any stage of the process would not be taken as a contravention of the law by an entity for any other purpose.

The proposed limitation on the magnitude of the financial penalty that would be able to be imposed through this process and restrictions preventing ASIC from taking other action in relation to a matter dealt with using this process are intended to ensure that it does not come to be utilised for dealing with more serious contraventions as an alternative to existing court processes.

The process would therefore be subject to appropriate judicial oversight and the financial penalties that could be imposed would be commensurate with the types of contraventions that are intended to be dealt with in this way.

Proposals for peer review in relation to continuous disclosure

There have recently been suggestions that some form of peer review panel might play a role alongside market operators and ASIC in the administration of the continuous disclosure regime. In particular, it has been suggested that the Takeovers Panel might establish a separate disclosure division to perform this role.

Under the current framework, market operators and ASIC share responsibility for enforcing the continuous disclosure regime in relation to listed entities. The addition of a peer review panel may detract from the responsibility of market operators for maintaining an informed market. It may also limit their capacity to refer suspected contraventions of the continuous disclosure regime to ASIC as well as ASIC's capacity to respond to such contraventions. Fragmentation of r
esponsibility for enforcement of the continuous disclosure regime may also create the potential for inconsistency in the guidance provided to listed entities (particularly in relation to when materially price sensitive information may be withheld from disclosure and when it must be disclosed to the market) since the views of a peer review panel may differ from those of the relevant market operator and ASIC.

There are also significant differences between the current role of the Takeovers Panel and the role that might be performed by a peer review body in relation to continuous disclosure. Most importantly, the current role of the Takeovers Panel is overwhelmingly remedial rather than punitive. It is concerned with remedying unacceptable circumstances rather than imposing sanctions in relation to contraventions of the takeover provisions of the Corporations Act. In relation to continuous disclosure, it is considered that function should remain the primary responsibility of market operators (as market operators are best placed to take timely action to remedy inadequate disclosure by listed entities). It is unclear that a peer review panel would be able to react on a sufficiently timely basis to deal with these issues. This is not such a significant issue in relation to takeover bids, as a bid may last for several months and can be placed on hold for a short time pending a Panel decision.

For these reasons, the Government does not currently consider that there would be any benefit in utilising an external peer review panel to deal with contraventions of the continuous disclosure provisions.

Remedial mechanisms

Under the Australian regulatory framework, market operators have primary responsibility for instituting remedial action in relation to non-disclosure by listed disclosing entities. This function is important where leaks of price sensitive information result in selective disclosure to investors. It is also important where externally generated rumours in relation to an entity are sufficiently specific that information to which the rumours relate can no longer be characterised as confidential and must therefore be disclosed to the relevant market operator. Remedial mechanisms are also relevant in relation to situations where incorrect externally generated rumours concerning a listed entity result in the emergence of a false market in relation to the securities of that entity.

Market operators are best placed to perform this function because of their responsibility for monitoring securities trading. It is also closely related to their role providing guidance to disclosing entities in relation to the interpretation of the listing rules, including when materially price sensitive information must be disclosed and when it can be legitimately withheld from disclosure. This is one of the main ways in which market operators currently fulfil their responsibility for monitoring the conduct of listed entities and ensuring compliance with the listing rules.

Market operators may seek to remedy uninformed or false markets by seeking to exert informal pressure on listed entities or by issuing a formal price query. A market operator may suspend trading in a security where it considers there to be an inadequately informed market. Alternatively, a listed entity may request trade in its securities to be halted pending the release of materially price sensitive information.

In the light of the significance of this function, it is necessary to consider whether market operators have provided themselves with adequate remedial mechanisms to remedy uninformed or false markets.

As previously noted, ASX has recently proposed a number of amendments to its Listing Rules relating to continuous disclosure. The first is intended to enable ASX to determine that information is no longer confidential (either because it was leaked or is the subject of an externally generated rumour that is sufficiently accurate that the it can no longer be regarded as confidential) and must therefore be disclosed to the market operator. A failure of a listed entity to release information in these circumstances would amount to a contravention of ASX Listing Rule 3.1 and potentially subsection 674(2) of the Corporations Act. A mechanism that would enable ASX to determine that information is no longer confidential and must therefore be disclosed to the market should enhance its capacity to remedy instances of selective disclosure and to deal with certain types of externally generated rumours. However, it would not appear to enhance the capacity of ASX to remedy false markets that may emerge as a result of incorrect externally generated rumours.

A second amendment that has been proposed by ASX is to add a fourth limb to the current 'carve-out' that allows listed entities to withhold materially price sensitive information from disclosure in certain circumstances. This would provide that entities could only withhold this information if the ASX has not asked the entity to provide it with information to prevent a false market in its securities. This second amendment would supplement the first (in relation to information that is no longer confidential). However it is not clear that it would enhance the capacity of ASX to require disclosure to address false markets that may emerge as a consequence of incorrect externally generated rumours. This is because a listed entity is unlikely to be withholding information to which an incorrect rumour relates (and so is unlikely to be relying on the 'carve-out' in the current Listing Rule 3.1 in the first place). In addition, while the intent of ASX's proposal is to require listed entities to deny false rumours in certain circumstances, it does not appear to be intended to require such an entity to release additional information that may otherwise remain within the scope of the 'carve-out' in the current Listing Rule 3.1.

While the current proposal has the potential advantage that a failure to disclose information at the request of ASX could amount to a contravention of subsection 674(2) of the Corporations Act, a requirement for a listed entity to respond promptly where ASX considers that a false market exists for its securities may be better suited to addressing the third source of a false market.

Market operators should ensure that they have adequate powers under their respective listing rules to require listed entities to disclose information that ceases to be confidential because it is selectively disclosed or is the subject of a sufficiently specific externally generated rumour. Market operators should also ensure that they have explicit powers to require a listed entity to disclose sufficient information to remedy a false market that emerges as a consequence of an incorrect externally generated rumour. However these powers should only be used in limited circumstances. Listed entities should not be subject to a general requirement to respond to non-specific rumours that are not having a significant impact on the market for their securities.

Remedial mechanisms are not just used for dealing with inadequate disclosure or remedying false markets. Entities that have contravened the continuous disclosure provisions may also be required to institute remedial measures to reduce the likelihood of future contraventions.

ASIC has played a leading role in requiring disclosing entities that may have contravened the continuous disclosure provisions of the Corporations Act to institute specific internal compliance measures in an effort to minimise the likelihood of inadequate disclosure in the future.

There are two mechanisms by which ASIC may require an entity to take remedial action. If an entity has been found by a court to have contravened the continuous disclosure provisions of the Corporations Act, ASIC may seek remedial orders under section 1325. Alternatively, ASIC may seek to accept an enforceable undertaking under section 93A or 93AA of the ASIC Act.

This mechanism is generally used as an alternative to formal court action (but
where there exists the prospect of successful court action, so that action may be taken if the undertaking is breached). In this regard, the introduction of civil penalties in relation to contraventions of the continuous disclosure provisions should enhance the scope for ASIC to requiring entities to institute remedial measures through the use of enforceable undertakings where this is deemed appropriate.

Compensation mechanisms

The purpose of these mechanisms is to enable a person that has suffered loss or damage as a consequence of a contravention of the continuous disclosure provisions of the Corporations Act to recover the amount of the loss or damage.

The current regulatory framework (section 1317HA) allows a person to apply to the courts for a compensation order against a disclosing entity in relation to loss or damage that the person may have suffered as a result of a contravention of subsections 674(2) or 675(2). In addition, a person may be able apply to the Court for compensation under section 1325. In contrast to section 1317HA, section 1325 allows damages to be pursued against both the relevant entity and any other person involved in the contravention.

ASIC is empowered to launch representative action under section 50 of the ASIC Act to recover damages in relation to contraventions of the continuous disclosure provisions where it considers that it would be in the public interest to do so.

There currently appears to be some uncertainty about whether a person can apply to recover loss or damages as a result of a contravention of the continuous disclosure regime if ASIC has not sought a declaration of contravention under section 1317J. It is proposed to amend these provisions to clarify that a person may seek compensation regardless of whether ASIC has sought a declaration of contravention.

In addition, while the former section 1005 of the Corporations Act enabled a person to seek to recover loss or damages in relation to a contraventions from either the relevant entity or any other person involved in the contravention, the current provisions of section 1317HA only enable loss or damages to be recovered from the relevant entity. It is proposed to allow persons to recover loss or damages from either the relevant entity or any other person involved in a contravention.

8.5.6 Fundraising

Continuous disclosure is only one component of Australia's disclosure framework. The other two elements are corporate governance disclosure and fundraising disclosure. There are significant differences between continuous disclosure and fundraising disclosure.

Fundraising disclosure applies where a financial product is first issued to an investor. It only applies for anti-avoidance purposes in relation to a limited range of secondary sale situations. In addition, these requirements generally apply only in relation to the issue of financial products to certain categories of investors (known as non-sophisticated, non-professional or retail investors). The relevant provisions are found in Chapter 6D and Part 7.9 of the Corporations Act.

By contrast, the primary purpose of continuous disclosure is to ensure the existence of an informed secondary market for financial products. Disclosing entities are required to disclose materially price sensitive information on a continuous basis to all categories of investors.

Despite the different purposes of these two disclosure frameworks, there is significant overlap between them. Most importantly, the current framework of fundraising disclosure governing securities and debentures provides concessionary arrangements in relation to further issues of continuously quoted securities by listed disclosing entities. section 713 of the Corporations Act provides that these securities can be issued to retail investors through a transaction specific prospectus (rather than a full prospectus of the type that would ordinarily be required under section 710 of the Act). It allows this prospectus to refer to other information that has been disclosed by the entity under the continuous disclosure provisions. It also contains a provision that allows ASIC to deny a disclosing entity access to these arrangements if the entity has contravened the continuous disclosure provisions (or other relevant disclosure provisions) in the previous 12 month period. This is one of the few administrative powers available to ASIC under the current regulatory framework in relation to contraventions of the continuous disclosure provisions.

As a consequence of the commencement of the FSR Act, the provisions governing fundraising disclosure in relation to managed investment products have been transferred from Chapter 6D to Part 7.9 of the Corporations Act. The new provisions (section 1013F) simply provide that in determining what information needs to be contained in a PDS, an issuer's status as a disclosing entity is one of the factors that a responsible person may take into account. They do not provide any further guidance and there is no mechanism by which ASIC is able to exclude a disclosing entity that may have contravened relevant disclosure provisions in the previous 12 months from taking advantage of any concessions that might potentially be available under these provisions.

It is proposed to clarify that issuers of managed investment products that are continuously quoted products may issue shorter or transaction specific Product Disclosure Statements. It is also proposed that ASIC should be able to deny access to these arrangements to entities that have contravened relevant provisions of the Corporations Act along the lines of the current arrangements in subsection 713(6).

Proposal 19 - Maintain and enhance continuous disclosure The Government will maintain and enhance the framework of continuous disclosure. Proposal 20 - Enforcement responsibility Both ASIC and ASX will continue to have the capacity to enforce the continuous disclosure provisions that apply to listed entities. Proposal 21 - Higher maximum civil penalties The maximum civil penalty for a contravention of the continuous disclosure provisions by a body corporate will be increased from $200,000 to $1 million. The maximum penalty for bodies corporate in relation to contraventions of the other financial services civil penalty provisions (which relate to market manipulation and insider trading) will also be increased to $1 million. Proposal 22 - Administrative penalties ASIC will be given the power to impose financial penalties and issue infringement notices in relation to contraventions of the continuous disclosure regime. Proposal 23 - Civil penalties in relation to other persons involved in a contravention In addition to its power to seek civil penalties in relation to contraventions of the continuous disclosure regime by disclosing entities, ASIC will be empowered to seek such a penalty against any other person involved in a contravention. Proposal 24 - Compensation mechanisms The Government will amend the civil recovery provisions relating to contraventions of the continuous disclosure provisions of the law to clarify that a person may seek compensation regardless of whether ASIC has sought a declaration of contravention. It will also allow persons to recover loss or damages from either the relevant entity or any other person involved in a contravention. Proposal 25 - Dissemination of information All investors should have equal access to materially price sensitive information disclosed by listed entities. Proposal 26 - Guidance to listed entities Market operators will be encouraged to ensure that they provide listed entities with education and guidance to promote compliance with the continuous disclosure provisions of their respective listing rules. Proposal 27 - Externally generated speculation Market operators should require listed entities to respond to externally generated speculation in circumstances where the operator determines that this is having a significant impact on the market for their securities. Proposal 28 - Relationship with fundraising disclosure Issuers of managed investment products that are continuously quoted securities will be permitted to issue transaction specific Product Disclosure Statements. The Government will amend the law to ensure that ASIC is empowered to deny access to these arrangements in relation to issuers that have contravened relevant provisions of the law in the past 12 months.