In May the Australian Takeovers Panel published a response statement to the proposed amendments.
On 28 May 2020, the Australian Takeovers Panel (Panel) published their response statement with regard to the proposed amendments to Guidance Note 20: Equity Derivatives (GN20). Please note that due to the COVID-19 Pandemic, the Panel has decided that the current edition of GN20 will continue to apply until further notice. Market participants will be given three months’ notice before the new guidance comes into force.
At present, the Panel expects all long positions of equity derivatives over 5% to be disclosed if there is a control transaction. A control transaction is defined as a transaction which affects or is likely to affect the control of a company. The current GN20 puts heavy emphasis on control transactions; it even states ‘The Panel is generally not concerned with transactions that have little to do with control’. However, the revised GN20 will, amongst other things, abolish the ‘control transaction’ requirement, meaning that all long positions over 5% should be disclosed irrespective of whether there is a control transaction. Although the Panel has received wide support for pushing for greater transparency, one opponent questioned the purpose of having another ongoing disclosure obligation running alongside the current Substantial Shareholder disclosure regime under Part 6C.1 of the Corporations Act 2001, regardless of whether any takeover offer period has been announced. The respondent (unsuccessfully) lobbied the Panel to consider adopting an enhanced Takeover disclosure regime, in line with other jurisdictions in APAC such as Singapore and Hong Kong.
It should be pointed out that the disclosure regime under GN20 is inherently vague. To stay compliant, market participants must not engage in activities that give rise to ‘unacceptable circumstances’ even though the term has not been precisely defined. It’s interesting to note that non-disclosure of a long position ‘may’ give rise to unacceptable circumstances. Furthermore, while the Panel is generally not concerned with transactions that have little to do with control, the Panel reserves the right to examine situations where there is no control transaction. This imprecise regulatory position on control transaction is highly unsatisfactory, and therefore, has led to some mixed market practice. Our view is that the revised GN20 will bring more clarity and likely help align disclosure practice by market participants.
From a monitoring perspective, the removal of the ‘control transaction’ condition will require market participants to monitor their positions at all times, instead of only during a takeover period. This expanded scope is more onerous and stringent than other takeover regimes in APAC. Some have argued that the administrative burden and substantial cost of building the required systems to monitor positions on a daily basis may be too large to bear. The Australian Financial Markets Association (AFMA) was particularly concerned about active investors not having ‘the systems to track and report their positions and may need additional information technology, operational and compliance resources to do so’.
At FundApps, we automate position tracking and disclosure requirements using our secure cloud-based platform. Based on the position data the platform receives, daily positions are analysed against our global rule library in a matter of minutes. Our cloud-based service eliminates the need to build custom systems to address this revised regulatory regime, thereby addressing some of the administrative/infrastructure concerns market participants may have.
We have an in-house team which interprets and translates legal information into algorithms, creating and maintaining 400+ regulatory rules. Our cloud solution keeps pace with regulatory changes based on updates from either aosphere (an affiliate of Allen & Overy) or the regulator directly. For example, we were able to create new rules ahead of the roll-out of the Singapore short selling regime in October 2018 and more recently, we quickly responded to the sudden drop in EU SSR limit from 0.2% to 0.1% as a result of the COVID-19 Pandemic. In an increasingly unpredictable regulatory landscape, our ability to quickly update our rules at short notice has become an indispensable asset to our clients.