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NZX Regulation has released its latest Thematic Review; a useful commentary on recent issuer practices for identifying, and flagging market announcements containing “Material Information” as price sensitive – with the “(P)” flag.
Earlier changes given more heft with changes to NZX Listing Rules
The review follows on from operational changes to the Market Announcement Platform (MAP) made in May 2017 requiring listed issuers, rather than NZX, to identify when market announcements are considered material.
The administrative changes were given more heft under the updated NZX Listing Rules, which came into effect from 1 January 2019.
Listing Rule 3.26.2 requires an issuer to actively flag announcements released to the market containing Material Information. As with any breach of the Listing Rules, failure to correctly tag an announcement could result in disciplinary action.
In summary, NZX Regulation’s Thematic Review reaffirms that an issuer should only apply a “(P)” flag to an announcement if it considers that “a reasonable person would expect the information, if such information was generally available to the market, to have a material effect on the price of that particular issuer’s quoted financial products”.
Trends found in the Thematic Review
NZX Regulation identified the following trends in its review:
Issuers generally appear to be assessing and flagging material information appropriately. NZX Regulation found that there was a strong correlation between material price movements (i.e. plus or minus 10%), objective materiality of the information in such announcements and whether or not the “P” flag was applied.
Some issuers consistently applied the “(P)” flag to a large number of administrative announcements that objectively did not contain Material Information, indicating that these issuers are not critically assessing the information. Overuse of the “(P)” flag will likely dilute its effectiveness in the market more broadly.
Issuers generally seem to be making a consistent and effective effort to release announcements containing Material Information outside of market trading hours.
There is evidence of some inconsistent market practice on the flagging of announcements relating to issues of new debt securities. NZX Regulation considers that it should be rare for these announcements by an existing listed debt security issuer to be warrant a “(P)” flag as such information will be unlikely to have a material effect on the price of that issuer’s existing quoted debt securities.
The majority of the announcement headlines used by issuers were neutral or factual. Vanilla announcements, such as administrative announcements, were more likely to have highly factual, non-descriptive headlines. A small number of headlines were considered to be too oblique, using vague language or phrasing more suited to marketing material.
Rules of thumb for issuers
In light of NZX Regulation's review, we encourage issuers to:
- apply a critical lens when assessing whether an announcement contains Material Information, particularly when evaluating administrative announcements. Issuers should consistently apply the Material Information test from the Listing Rules to avoid over-use of the “(P)” flag
- adopt a consistent and clear approach to headlines used for announcements to ensure that the information released to the market is appropriately balanced, and
- release Material Information outside of trading hours where possible or consider the use of trading halts where this isn't possible.
We encourage issuers to read the review together with NZX’s Guidance Note on Continuous Disclosure and Practice Note on Making Effective Announcements.
Issuers concerned that they may need further guidance on disclosure of Material Information should contact us to discuss the best way forward.
Our thanks to Kate Lunn for writing this update.