NZX Thematic Review 2017 Continuous Disclosure

Transcription

1 NZX Thematic Review 2017 Continuous Disclosure

2 Introduction The timely and accurate disclosure of material information is essential to maintaining the integrity of the market. It also: Ensures that the market is informed of relevant information in a timely manner Promotes equality of access to information so that investors can make informed investment decisions In this report, NZXR comments on the key findings and themes which arose during its review. This report should be read in conjunction with NZX s Continuous Disclosure Guidance Note (Guidance Note), the NZX Corporate Governance Code, the Practice Note 17/2017 Disclosure Practices and Practice Note 21/2017 Making Effective Announcements. Plays a critical role in promoting fair, orderly and transparent markets These continuous disclosure obligations are a fundamental obligation for issuers under NZX's Listing Rules and an enforcement priority. NZX Regulation (NZXR) continues to focus its engagement, monitoring and enforcement resources on the issue of disclosure. As described in Our Approach to Enforcement, we try to achieve our enforcement goals, in part, by assisting issuers to develop a compliance culture. This thematic review of continuous disclosure practices by issuers in New Zealand reflects our focus on conduct by issuers and engagement on expectations. The purpose of the thematic review is to: 1. gain an understanding of how issuers practically manage their continuous disclosure obligations; and 2. provide guidance on best practice to assist issuers to comply with those obligations. In order to gather information on current practices by issuers, NZX conducted a voluntary survey of issuers listed on the NZX Main Board and NZX Alternative Market. The issuers surveyed varied in size, industry and the length of time they had been listed. NZXR thanks those issuers who took part in the survey. Joost van Amelsfort NZX Head of Market Supervision 02

3 Contents 1. Summary Being Prepared to Disclose Identifying and Managing Information Knowledge and Responsibility Managing Information and Using Safe Harbours Effective Disclosure 27 Appendix - Discussion Prompts 29 03

4 1. Summary The continuous disclosure obligation is set out at Rule of the NZX Main Board/Debt Market Listing Rules and the NZAX Listing Rules. It is made up of a number of elements: There must be Material Information; The issuer must know the Material Information, which means it must have come into the possession of an executive officer or director of the issuer; The issuer must decide whether or not the Material Information is subject to an exception to disclosure; If not, then the Material Information must be disclosed immediately via a market announcement. Compliance with this Rule requires issuers to have a functional understanding of Material Information, and to be able to respond to both planned and unplanned events promptly and without delay. On the whole, NZXR is satisfied that issuers are well prepared to meet their continuous disclosure obligations. In particular, it appears that the issuers surveyed have good processes in place to escalate and manage information internally, and are undertaking appropriate monitoring of their external environments to ensure they can respond to information in a timely manner. Disclosure of developing or incomplete information can be particularly challenging. NZXR encourages issuers to continue focussing on this area, and improving their internal processes to ensure they are able to identify the point at which they are required to make a disclosure. This should include a focus on ongoing communication with their shareholders and other market participants, to contextualise information. NZXR notes that there appears to be a gap in the training provided to directors. Good quality induction training, and ongoing training for key personnel, contributes to effective processes and procedures. NZXR is considering ways it can continue to support issuers with access to training. The findings of the Thematic Review support NZXR s view that issuers are increasingly proactive in their engagement with NZXR to manage disclosure. NZXR has also observed continued improvement in practices around the timing of disclosure and the use of trading halts to manage disclosure obligations, and avoid information asymmetry. 04

5 2. Being Prepared to Disclose Section 6 of the Guidance Note relates to compliance procedures that support an issuer being prepared to disclose Material Information. NZX acknowledges that the systems and processes adopted by issuers to manage their disclosure obligations will likely vary depending on the size and available resources of the issuer. NZX expects, however, that all issuers have adequate arrangements in place to enable the release of Material Information as soon as they become aware of it. These arrangements also play a vital role in the potential liability of issuers and their directors and management: Evidence of appropriate processes, training and policies will be considered a mitigating factor in the event of any enforcement action by NZX; and Section 272 of the FMCA sets out a defence for a person who has taken reasonable steps to ensure the issuer s compliance with the obligation, and believed that the issuer was complying with the obligation. In addition, the NZX Corporate Governance Code includes recommendations relating to an issuer s continuous disclosure policy. Accordingly, the survey asked issuers about: Their continuous disclosure policies The measures they have implemented to manage disclosure, including for example the use of external advisers The training they provide to ensure there is a culture of compliance. 2.1 Continuous Disclosure Policies The NZX Corporate Governance Code recommends that an issuer s board has a written continuous disclosure policy which is available on its website. 1 Findings Most of the issuers surveyed (85%) have a written continuous disclosure policy. This result was consistent across both large and small issuers who responded. In all but one instance, the issuer s continuous disclosure policy was available on its website. Of the issuers who did not have a written continuous disclosure policy, two thirds said they are in the process of adopting one. One issuer commented that its board recently discussed establishing a continuous disclosure policy to comply with the NZX Corporate Governance Code but that this was yet to be implemented. 1. Recommendation 4.1 and 4.2 of the NZX Governance Code. 05

6 Comments A continuous disclosure policy can provide a clear framework to assist an issuer in managing its continuous disclosure obligations. The Appendix to this review sets out a series of questions to help issuers think about their continuous disclosure obligations and the arrangements they have made. NZX has opted not to prescribe what a policy should contain, so that issuers have the flexibility to create a continuous disclosure policy that is suited to the size and complexity of their organisations. An effective policy may also be augmented by internal procedures to support its implementation in real time. 2.2 Training It is essential that both directors and management understand the continuous disclosure rules and issuers obligations under them. This extends to a broader group of management, as they are likely to have an important role in the proper treatment of Material Information within the organisation. Continuous disclosure obligations are triggered when a director or executive officer has come into possession of Material Information. Directors and executive officers therefore need to know what Material Information is for the purposes of the Rules, and how to manage it effectively. Further, the compliance culture of an organisation comes from the top. It is important that directors and executive officers are aware of their obligations, and demonstrate appropriate compliance behaviour. Findings Most of the issuers surveyed did not provide specific training to their directors on the continuous disclosure obligations. This included many smaller issuers, but also a number of larger, well established companies. Of the issuers that had provided training to their directors, this was primarily given during their induction with no subsequent refresher training provided. One issuer stated Generally, the majority of Directors training on continuous disclosure will be on the job. This was echoed by other issuers, who identified discussions at board meetings as a source of informal ongoing training. Approximately half of the issuers surveyed provided training to their executive officers. One issuer commented that all restricted persons (executive management team and their direct reports and executive assistants; employees in the legal, finance, investor relations and communications teams; and other employees notified by the Company Secretary from time to time) are required to participate in an on-line e-learning module on trading in company securities, which includes a section on material information and continuous disclosure. This e-module includes a test that the individual must pass in order to gain certification. The e-learning module must be completed shortly after an individual becomes a restricted person and is repeated periodically. The course is administered by the issuer s organisational development team and is overseen by the General Counsel and Company Secretary. The Company Secretary also provides regular updates to restricted persons on what constitutes Material Information and on the extent of the continuous disclosure obligations. Another issuer commented that all senior management receive training from the CFO and General Counsel & Company Secretary as part of their induction. Training for senior management is held every 12 to 18 months. Courses are conducted by the CFO and all of the senior management team attend the training sessions. 06

7 Comments Continuous disclosure obligations are a fundamental obligation under the Rules, a breach of which can result in significant sanctions. NZXR is surprised at the lack of training provided to directors and executive officers. NZXR encourages all directors and management to actively engage in training on continuous disclosure, including refresher training when there are relevant market and regulatory developments. NZXR recognises that smaller issuers may face resource constraints in training their staff. NZXR is exploring ways it can further support such issuers in this area. NZXR reminds issuers that it can provide training on the Rules on request. Issuers are encouraged to engage with NZXR if this is of interest. 2.3 Role of external advisers Issuers often obtain advice from their external legal advisers on the continuous disclosure rules. External advisers are may also be a good source of broader training and support. Findings All but one of the issuers surveyed had sought advice from an external legal adviser on a disclosure matter in the last 12 months. Issuer X sought advice from its external legal advisers in relation to the issue of debt securities and its obligations under the FMCA in respect of Excluded Information. That advice considered the disclosure implications of potential acquisitions or dispositions of investments being considered leading up to and during the offer period (including the disclosure implications of any developments). Issuer X also sought advice in respect of transactions, particularly where it was relying on the safe harbour to not disclose, to ensure it was confident those exceptions continued to apply and when they would cease to apply. Comments Issuers may seek advice from their external legal advisers. However, ultimately the decision on whether or not information must be released is one for the issuer to make. NZXR and the NZ Markets Disciplinary Tribunal (NZMDT) have previously considered external legal advice to be a mitigating factor when considering breaches of Rule Issuers should be aware that reliance on external legal advice is not a safeguard against a possible breach of Rule

8 3. Identifying and Managing Information Several sections of the Guidance Note address how issuers should approach identifying and managing information, including: 3.6: Dealing with incomplete information and upcoming events 3.7: Changes in an issuer s financial forecast or expectation 3.8: Correcting information published by analysts 3.9: Monitoring market expectations 3.11: Release of periodic financial reports and dividend information 9: False Markets Identifying and managing information is key to knowing what must be disclosed, and when. Accordingly, the survey asked issuers about: The processes they have in place to manage disclosure in the context of end of year financial results How they manage disclosure of forecasts or guidance they have provided to the market, and how they manage developing events Whether they consider market expectations about performance more broadly and, if so, how this is managed Detecting and responding to false or misleading information about them or their securities Their approach to monitoring media reports and trading in their securities How they track analyst or third party forecasts and estimates, and how they manage communications with analysts and financial advisers. 3.1 Processes to deal with urgent disclosure The obligation to immediately release Material Information means that issuers must have processes in place to ensure timely disclosure following a sudden or unexpected event. Findings All but one of the issuers surveyed had considered an urgent disclosure issue in the last 12 months. One issuer stated that almost all disclosures were considered and made on an urgent basis. Examples of matters which had to be considered urgently included the unexpected resignation of a director, a misleading media article and decisions released by regulatory bodies. 08

9 One issuer commented that an urgent disclosure was required following the awarding of a significant tender. The issue was identified and reported to the issuer s disclosure officer by the head of the business involved. The disclosure officer immediately considered and approved an announcement for release. Some issuers commented that their boards could be consulted by if an urgent matter arose and it was not possible to convene a meeting. However, most issuers noted that the board chair and/or chief executive officer had the authority to approve and release urgent market announcements if it was not practicable or possible to consult the full board and still meet its obligations to immediately disclose. One issuer commented that its board can convene relatively quickly by teleconference. If they cannot convene, then the directors correspond by . Failing that, the chair has ultimate authority to agree and sign off urgent announcements. Some issuers stated that they had engaged with NZXR when dealing with urgent matters, to ensure they were following the correct process and that NZXR was aware of the imminent announcement. A number of issuers identified that a key way to reduce the need to respond to sudden or unexpected events is to identify possible sources of this information and proactively manage this. This may include building useful relationships with regulators and analysts, credit rating agencies and index providers (among others). Comments Issuers must have processes in place to ensure timely disclosure if they become aware of unexpected Material Information. This may include having delegations in place so that an issuer s Chair and/or an executive officer can consider and approve market announcements if the issuer s board cannot be readily convened. Further information on the approach to escalating information and responsibility for disclosure is set out in Section 4: Knowledge and Responsibility. NZXR encourages issuers to engage with it when dealing with urgent or unexpected disclosure events, in particular if they may be required to announce Material Information during the trading day. This may avoid the need for NZXR to make subsequent enquiries of the circumstances relating to the announcement, and ensures that any potential issues are more likely to be identified before they crystallise. 3.2 On-going monitoring of potential Material Information Material Information may develop over time. These kinds of scenarios can be complex to manage, so it is important that issuers are able to: Identify information that has the potential to develop into Material Information Stress-test scenarios as they develop to ensure Material Information is being disclosed promptly and without delay NZXR recognises that it can be difficult for issuers to make a decision regarding materiality of information, particularly where a number of uncertain events or factors are involved. However, issuers should be guided by the principle that if in doubt they should disclose the information Footnote to Listing Rule

10 Findings All of the issuers surveyed stated they undertake on-going monitoring and assessment when a Material Information event is developing, including through discussions and meetings among senior managers. Issuers variously commented that: They regularly consider disclosure issues during a material event and constantly consult to ensure they are meeting their disclosure requirements They actively keep under review potential material contracts to assess when a reasonable person would expect them to be announced to the market before signing. Legal advice is taken regularly to test whether disclosures are required. Progress is tracked by the CEO and CFO The CEO maintains contact with relevant managers to monitor developments, and keeps the Board informed Potentially material negotiations or projects or potentially price sensitive information and transactions are identified regularly and discussed at regular meetings Key members of the senior management team are closely involved with matters involving potentially Material Information and undertake ongoing assessment against disclosure obligations. Where appropriate, they seek advice from external legal advisers to assist with the assessment However, only a few issuers stated they had a formal process in place for monitoring developing events and determining when an announcement may be required. One issuer commented that an update paper is prepared by management in respect of each material item for consideration and discussion at each Board meeting. Another issuer commented that its Chief Financial Officer and General Counsel track progress of Material Information as it develops including through fortnightly meetings by its senior management team, monitoring monthly business reports and ongoing monitoring of commercial discussions or potential transactions as they progress. Comments Issuers should have processes in place to ensure the on-going monitoring of potential Material Information events to ensure that information is disclosed as soon as a disclosure obligation crystallises under the Rules. In particular, NZXR reiterates that where information is developing issuers are not able to wait until scheduled meetings of the board to address those matters. Issuers may have to call meetings early or hold special meetings in order to address such developing information. A good example of this is included below. There may be instances where developing information crystallises to the extent that an issuer will become aware that a future event will occur. Where that future event is Material Information, this must be disclosed at the time the issuer knows it is going to happen, rather than at the time it occurs. This is distinguishable from events that are contingent on future actions, for example, where they rely on board approval. In the latter instance, issuers are only required to make a disclosure once the action is completed and the contingency removed. 10

11 CASE STUDY: ISSUER A This case study relates to how an issuer managed its obligations in the context of an ongoing negotiation with a third party, including through the use of special Board meetings. BACKGROUND Issuer A manufactured products in partnership with another company (Company B). The management of Issuer A learned that a shareholder in Company B may be interested in selling down its holding, which Issuer A was interested in acquiring. Following enquiries, which confirmed the potential opportunity, Issuer A held a special Board meeting at which the Board confirmed that the CEO could take forward discussions. Confidentiality agreements were entered into, and negotiations and due diligence commenced. A second special Board meeting was called to authorise a one-time non-negotiable offer to acquire the shares. This offer was unsuccessful, and was withdrawn. The shareholder later approached Issuer A to resume negotiations. During this process, the sale and purchase agreement and a draft market announcement were drawn up. Issuer A then received an offer from the shareholder at a price that management was willing to recommend to the Board for approval. Issuer A s Company Secretary convened the third special meeting of the Board, which approved the offer in principle. The final form of the agreement was still to be settled and executed. A sub-committee of the Board was selected to review and approve the final form of the agreement and the announcement. The final stage of negotiations took place between the parties, culminating in a meeting of the Board sub-committee after market close. The Board members approved the agreement and announcement and management was authorised to sign. At the conclusion of the meeting, the agreement was signed and the announcement immediately lodged for released to the market. ANALYSIS Issuer A used special Board meetings and the delegation to a sub-committee effectively, in order to ensure it was responding quickly to a developing situation. While the transaction was within a safe harbour during the period in question, and did not require disclosure, Issuer A s approach evidences it was prepared to deal quickly with developing situations. 11

12 This issuer was also proactive and organised in managing disclosure: The issuer controlled the timing of its final sub-committee meeting, ensuring that the final approval was issued outside market hours. This aligns with NZX s guidance to the market about managing the timing of disclosure (where possible), to minimise intra-day disruption. Issuer A identified that if the transaction went ahead, it would need to release an announcement. It prepared for this outcome by drafting the announcement at an earlier stage in the negotiation phase. It is NZX s expectation that issuers will take this approach where they can. If announcements of Material Information are delayed because issuers were ill-prepared, the lack of preparation is likely to be considered an aggravating factor. 3.3 Financial Performance An issuer s financial position or performance can change over time. All issuers must regularly assess their financial performance against market expectations. Those expectations may be informed by various sources. NZXR considers that where issuers have published their own forecasts or guidance, this will be the information that investors and other stakeholders will rely on in forming their expectations. In the event that an issuer has not published its own guidance, expectations will be informed by, firstly, any information published by analysts, and, in the absence of either of these sources, prior performance or other information in the market. As noted above, the Guidance Note addresses this in three sections: 3.7: Changes in an issuer s financial forecast or expectation 3.8: Correcting information published by analysts 3.9: Monitoring market expectations If an issuer identifies that there is a material risk of a material deviation from market expectations, particularly expectations set by the issuer s own forecasts or guidance, the issuer will need to consider whether the risk of that deviation is itself Material Information. Findings relating to issuer's own financial forecasts Most of the issuers surveyed had announced financial projections, forecasts or expectations to the market in the last 12 months. Of those who did, all said that they monitored progress on an on-going basis and several had provided a market update on that guidance. NZXR considers the following response is an example of good practice in such circumstances: Issuer X provided a market update on the group s full year outlook when it released its first half results to the market. In the update, Issuer X advised that it was anticipating lower sales during the second half of the year relative to the first half, while still expecting sales to be materially higher than the second half of the previous year. Following the update, Issuer X experienced strong demand for its products and entered discussions with its manufacturing partner to increase production. The Head of Operations 12

13 kept the CEO and the CFO regularly updated throughout these discussions and the CFO was able to review expected volumes to be received from the manufacturer on an ongoing basis. The CFO maintained full visibility of sales performance and sales expectations and following his review of results for the month following the update and ongoing communications with the Head of Operations, it became apparent that there was a possibility Issuer X would receive and sell more product in the second half of the financial year than in the first half. This was immediately communicated to the other members of the senior management team, including the CEO and the Company Secretary. The CFO instructed the heads of Issuer X s regional businesses to prepare updated sales forecasts for the remainder of the year and the Head of Operations to obtain his best view possible of likely receipts during the second half of the financial year. At the same time, the Company Secretary was instructed to draft an announcement in consultation with the CEO and the CFO. A special board meeting was convened (on a non-trading day) to discuss management s view that it was appropriate to update the market in respect of expected sales volumes. The Board discussed and approved the announcement and it was released to the market before trading opened on the following day. NZXR considers issuers may come into possession of information about their actual results at the following key periods: Immediately prior to, and immediately following, the issuer s balance date In the period immediately prior to the release of the issuer s preliminary announcement for the relevant period The issuers surveyed indicated they had processes in place to manage the information about their financial results during these key periods. In particular, information was managed in order to ensure confidentiality was maintained. Issuers also identified that they monitored information as it emerged and compared this against information in the market. One issuer reported that if it becomes apparent during course of preparing financial reports that reported earnings may differ materially from market expectations to an extent which is expected to have a material effect on the price of the issuer s shares (or where there is a post-balance date event), the Company Secretary will be immediately notified and a special Board meeting immediately called to consider whether disclosure is required. Management will also prepare a draft announcement ahead of the Board meeting, so any matters likely to affect the results or other information contained in the report can be immediately provided to the market. Comments NZXR expects issuers to immediately disclose to the market if there is a material risk that its actual results will materially differ from those previously advised, whether positively or negatively. NZXR also expects issuers to assess whether their results will align with market expectations more broadly. Findings relating to the management of information published by analysts Information may be material to an issuer regardless of where it originates from. This includes information published by a credible source, which may impact the price of an issuer s securities. It is therefore important that issuers are aware of information being published about them, including by analysts and the financial media. NZXR also encourages issuers to be aware of any trading anomalies relating to their securities. 13

14 Each issuer monitored analysts and third party reports and publications released about them, including senior management review. Analysts had published forecasts relating to all but one issuer in the preceding 12 months. Each issuer tracked their progress against those forecasts. Only one issuer determined that it was necessary to issue a market update referring to analyst consensus in the last 12 months. Some of the issuers noted that they have a policy to not comment on analyst reports or forecasts. In at least one instance, an issuer instead published its own guidance to the market and updated that guidance as necessary. All of the issuers conducted ongoing monitoring of trading in their securities, with trading primarily reviewed by the Chief Financial Officer. The frequency of, and approach to, this monitoring varied between issuers. Some issuers outsourced a review of the share register to an external party, while at least one issuer uses the trading platform, IRESS, and has set up alerts for large trades. NZXR has observed some issuers proactively contact NZX when unusual trading occurs in their securities. Findings relating to the management of media reportage All of the issuers surveyed said they monitored media reports on their organisation, most daily. Some issuers also monitor social media, and media reports in countries they have material operations in. Two of the issuers stated that they had dealt with potentially false or misleading information in the market over the last year. One issuer had issued a correction to that information. One issuer commented that, following speculation of a possible merger, the board and management considered the issue and agreed that the matter was one of media speculation only which did not require correction. Another issuer commented that there was media speculation that it was involved in a process to acquire a business division of another listed entity. Issuer X corrected this information in an announcement to NZX. Comments All issuers should monitor external sources of information about them. Issuers do not have a general obligation under the Rules to correct analyst reports or forecasts. However, a disclosure obligation can arise if there is a material deviation between market expectations and an issuer s actual performance. 3 This is particularly the case if the issuer does not itself publish financial forecasts. Issuers have obligations to release Material Information to prevent or correct a false market if: A person releases false or misleading information that is reasonably specific That person and the circumstances give that information substantial credibility The information materially influences the market for the issuer s securities. 4 Issuers are not required to respond to all false rumours that may be published about them. However, NZXR expects issuers to be aware of third party information published in respect of themselves, and to have appropriate measures in place to ensure they can respond quickly and effectively, if needed See section 3.8 of the NZX Guidance Note. 4. See Rule (c). 5. See section 9 of the Guidance Note. 14

15 CASE STUDY: ISSUER B NZX has observed a number of occasions where an issuer s executive officers or directors have inadvertently: Provided incorrect information to the media; or Released Material Information to the media before this was released to the market. NZX Regulation appreciates that media interviews can be difficult, as they require issuers to respond to questions relatively spontaneously. This case study relates to how an issuer managed media reports which contained incorrect information. BACKGROUND Issuer B was involved in confidential negotiations with another party regarding a possible material transaction. While information about the transaction was Material Information, it was subject to an exception from immediate disclosure under Rule because: The proposed transaction was an incomplete negotiation, that was confidential between the parties; and As such, a reasonable person would not have expected that information to be disclosed. Coincidentally, an executive officer of Issuer B was interviewed during the period the transaction was being negotiated. In the broader context of the interview, the officer was asked some questions which, if answered correctly, would have revealed the transaction and taken it out of the safe harbour. Instead, the information provided indicated that the transaction was not a likelihood. The interviewer included this information in the article, which was picked up by Issuer B premarket open, and identified as an incorrect characterisation of the progress of negotiations. Issuer B and its negotiation partner had pre-drafted a release to cover the possibility of a leak. Issuer B immediately took the following steps: Issuer B and its legal advisers contacted NZX Regulation, and it was agreed a trading halt would be required; The CFO advised the Board of the trading halt, which was placed pre-market open; The CEO, CFO, Chair and head of Issuer B s Due Diligence Committee met with representatives of its negotiating partner to agree the final form of an interim market announcement and the next steps; The announcement was released to market and provided a high level correction of the media article. The parties then completed negotiations, and executed the agreement to give effect to the transaction. Issuer B released an announcement confirming the transaction. The trading halt was subsequently lifted. 15

16 ANALYSIS This is not the first example where an executive officer of an issuer has made comments to the media that have subsequently required correction. However, Issuer B s response to this issue ensured that the market did not trade while it did not have full and accurate information, and as such is a useful example. First, Issuer B was appropriately prepared. The issuer and its legal counsel were conscious of potential disclosure issues that might arise as a result of the transaction, and had sought to manage these in several key ways: Engaging with NZX Regulation early, so that NZX Regulation was aware of the transaction and ready to respond in the event of any issues arising; Created and implemented a highly effective approach to monitoring the media; and Preparing a draft market announcement in conjunction with its negotiating partner in case of a leak. NZX Regulation recommends that issuers contemplating major transactions, especially those with a significant degree of public interest, take each of these steps. Secondly, the trading halt sought by Issuer B ensured that no investors were unfairly advantaged, or disadvantaged, by trading during a period of information asymmetry. Finally, and most importantly, Issuer B acted in accordance with Rule (c) and corrected a false market for its securities. The trading halt ensured the market was not trading during the period where the article was available. That trading would have been influenced by the false information set out in that article, which was attributed to a reputable source. In this scenario, Issuer B was obliged to release Material Information to the extent necessary to prevent the subsistence of this false market, which it did. In the event, as Issuer B had taken the right steps to comply with Rule (c), there was no breach of the Rules and no enforcement action was required. NZX encourages issuers to ensure that officers are prepared with an approved response if they are required to engage with media while in the process of negotiating major transactions or otherwise managing developing information. 3.4 Responding to information released by regulatory bodies / the courts Information relevant to an issuer is sometimes released by a regulatory body or the courts. This may trigger a disclosure obligation for that issuer. Once released, the information will no longer be considered Material Information, if it is generally available to the public. However, issuers may need to consider whether further Material Information may arise, for example, if a court decision may have material financial implications. 16

17 Findings Several issuers clearly understood the need to engage with third parties to enable the timely release of disclosures. One issuer commented that a number of disclosures made in the last 12 months related to information to be released by regulatory bodies, so the issuer needed to coordinate with these bodies to ensure it had an opportunity to promptly release the information to market, ideally before it opened. This was not always possible. Another issuer commented that it continuously seeks to encourage advance warning from regulatory bodies so that it can plan and be prepared for market disclosures. Generally this works well, although on occasion some reminders are needed that it is the issuer s responsibility, not the third party s, to take a view on potential continuous disclosure obligations. In other words, the issuer favours such external agencies taking a conservative approach to potentially material matters rather than risking taking views that such matters might not be material and not working with the issuer to enable timely and effective consideration of any market releases. Comments Issuers need to manage their obligations to release information in response to announcements or decisions made by regulatory bodies or the courts which constitute Material Information. Issuers can do this by engaging with these bodies on the timing of any release by them, and through the use of trading halts. 6 NZXR has generally found that New Zealand regulators are aware of, and sensitive to, the continuous disclosure obligations of issuers. NZXR has worked effectively with a number of regulators to develop practices on the timing of the information release by them to enable issuers to better manage their disclosure obligations, in recognition of the potential impact of disclosures by those regulators. In some instances, an issuer will be aware of work underway by a regulatory body, or will be engaged in court proceedings. NZXR recommends that issuers prepare for a range of possible outcomes so that they can respond quickly when such information is released. NZXR has previously been contacted by an issuer seeking guidance on disclosure obligations in such circumstances. NZXR considers this type of preemptive engagement to be very effective, and encourages issuers to adopt this practice. 6. See NZX Guidance Note Trading Halts and Suspensions 22 May

18 4. Knowledge and Responsibility Issuers are only required to disclose Material Information that they are aware of. Rule states that an issuer is aware of information if a director or executive officer of the issuer has come into possession of the information in the course of the performance of his or her duties. It is critical to the performance of an issuer s obligations that they know where Material Information might arise from within the organisation, how that information is escalated, who their executive officers are, and that the board has effective oversight. This is outlined in section 6 of the Guidance Note. The survey asked issuers about: Who they identified as executive officers The processes they had in place to identify and report potentially Material Information to executives and to the Board Who was responsible for disclosure and releasing announcements 4.1 Escalation of potential material infromation within an issuer's organisation Although many Material Information events are planned, such as major transactions or corporate actions, information that may be material can also arise unexpectedly at any level within an issuer s organisation, either due to: A new awareness of potentially Material Information crystallising; or Actions on the part of the issuer s employees that result in an outcome that is Material Information. Issuers need effective escalation procedures to ensure appropriate internal communication. This enables information to be assessed and any disclosure actioned quickly. Findings All respondents exhibited a good understanding that anyone in its business may become aware of potential Material Information. Most issuers stated they had processes to ensure that potential Material Information was escalated efficiently and effectively within the organisation. Issuers variously commented that: Anyone (including a contractor) who becomes aware of information which may be material must advise their manager or the Disclosure Officer as soon as possible. Each executive officer is responsible for ensuring they have appropriate reporting and escalation mechanisms within their teams to ensure any information which may be material is promptly brought to their attention and advised to the Disclosure Officer. The reporting lines are as follows - employees to department heads, department heads to executive officers, executive officers to CEO and CEO to Board. 18

19 They have a crisis management policy and conduct incident/crisis management training with all members of the senior management team and key personnel in the next layer of management. Under the policy, a potential incident or crisis is something that has an unexpected (positive or negative) impact on people, business or environment or which may prompt the involvement of the media/ authorities. There is a clearly defined alerting chain of command that confirms who employees should contact in the first instance with the relevant member(s) of the crisis management team advising the Company Secretary of any Material Information that may have arisen. Senior management of all respondents consider whether any disclosure matters have arisen in the organisation, including at weekly senior management meetings. One issuer commented that its CEO is in daily contact with managers and advises the board of any potential disclosure issues. Management meet weekly to specifically discuss developments that may be relevant to disclosure. All of the issuers surveyed had a process for ensuring compliance with disclosure obligations during the preparation of financial reports. One issuer commented that the same process is applied at any other stage of the reporting cycle. If it becomes apparent during the course of preparing the financial report that reported earnings may differ materially from market expectations to an extent which is market sensitive (or that there is a postbalance date event), the Company Secretary will be immediately notified and a special Board meeting immediately called to consider whether disclosure is required. Management will also prepare a draft announcement ahead of the Board meeting, so any matters likely to affect the results or other information contained in the report can be immediately provided to the market. Comments Issuers should have clearly defined reporting lines for communicating information which may be material. It should be clear that communication is to be made on an urgent basis to ensure potential Material Information is escalated to the issuer s executive as quickly as possible. Although Rule is triggered, in part, by possession of Material Information by executives or directors, where information is delayed in reaching those people due to issues with the compliance culture at the issuer, this is likely to be viewed as an aggravating factor in any investigation or enforcement action taken by NZXR. Executive officers and directors should regularly consider whether there are appropriate measures in place to encourage proper disclosure of information within an issuer. 4.2 Allocation of responsibility Clear allocation of responsibility within an issuer is important to ensure compliance with continuous disclosure obligations. This includes designating roles that focus on: Managing information that is provided externally, for example to analysts, to avoid inadvertent disclosure of Material Information that is subject to an exception Centralising the management of potentially Material Information within an issuer Identifying and reporting Material Information from within the various business units or areas of an organisation 19

20 Drafting and releasing disclosures when required Findings All but one issuer had a nominated officer that disclosures should be made to (disclosure officer). 7 Typically, this role was undertaken by the General Counsel and/or Company Secretary for large issuers and the CEO for small issuers. Generally, the disclosure officer is responsible for: being the point of escalation for notification of potential Material Information reporting disclosure issues to the board drafting market announcements releasing market announcements once approved determining whether a market announcement contains Material Information ensuring that announcements and any comments to media by the issuer are consistent with disclosure obligations liaising with NZXR on disclosure matters Most of the issuers surveyed had specified persons who are authorised to communicate with analysts. Some issuers required at least two issuer representatives to attend analyst briefings, and most required information to be reviewed by the general counsel or company secretary before it was used in any briefings. Issuers variously commented that: All communications with analysts are by select individuals and based on following principles: take care not to provide analysts or other select groups any non-public price-sensitive information at any time; individuals may clarify or correct errors concerning information already publicly available but only to the extent that the information is not itself non-public; any non-public price-sensitive information inadvertently disclosed should be immediately released to NZX/ASX; all information to be given to analysts should also be given to the Company Secretary for release to NZX/ASX before it is presented to analysts. The CEO and CFO are the only executives who meet with analysts and both are aware of disclosure obligations. Any presentations given around the release of results are also released to market and are available on company s website. The only authorised spokespersons are the Chair, CEO and CFO (or their nominees) and where possible there must be two company representatives at formal stakeholder briefings. Authorised spokespersons must liaise with the Disclosure Officer in advance to ensure proposed public comments satisfy the disclosure policy and minimise risk of inadvertent disclosure. Comments NZXR considers it best practice for issuers to have a specific officer to who disclosures should be made. Issuers should clearly designate roles within their organisation to ensure their continuous disclosure obligations are met. 7. The issuer surveyed without a nominated disclosure officer has only 3.5 FTE employees who report disclosure matters directly to the board chair. 20

21 Issuers should have contingency plans in place if a person(s) responsible for undertaking a disclosure role are absent or the issuer is experiencing a business continuity event. 4.3 Knowledge Generally, an executive officer is treated as any person who either (1) reports directly to the board; or (2) reports to a person who reports directly to the board. 8 NZXR expects all issuers to have identified the people in their organisation who are an executive officer. The knowledge these people hold is an important element of the continuous disclosure obligation. Findings Most of the issuers identified the chief executive officer and his or her executive direct reports as their executive officers for the purposes of the Rules. This typically included members of the issuer s senior management team (such as the chief financial officer and chief operating officer). However, the concept of identifying the executive officers did not seem to be well understood by all of the issuers surveyed. One issuer responded that they did not understand the question, while another responded that its board is responsible for compliance with the Rules. Conversely, one issuer identified over ten executive officer positions. Comments All issuers should identify who in their organisation is an executive officer for the purposes of determining when an issuer is aware of information for the purposes of Rule NZXR is concerned that there are a small number of issuers that do not appear to have made that assessment. An issuer should be mindful of only identifying executive officers in its organisation whose knowledge of Material Information would equate to being knowledge of the issuer. 4.4 Board oversight Boards play a crucial role in overseeing an issuer s compliance with its continuous disclosure obligations. Findings Most issuers advised that their boards regularly considered disclosure issues. One issuer commented that its board had considered several issues in the last 12 months. In each instance, the issue was either raised by the board itself or had been escalated to the board by an executive officer for consideration. Depending on the nature of the issue, external counsel were also consulted. In each case, the board and management together determined whether the information should be disclosed, including whether or not any of the safe harbour exceptions applied. All but one issuer surveyed had continuous disclosure as a standing item on each board meeting agenda. 9 Most issuers stated that their board minutes generally record the reasons for the board deciding to disclose or not disclose information. However, practices on this varied, with several issuers advising that the reasons for the board s decision are not recorded or that this is done on an ad hoc basis. One issuer commented no, not normally. 8. NZX Guidance Note Continuous Disclosure April 2017 page The sole issuer who did not have disclosure as a standing item noted that disclosure was considered at nine board meetings in the last 12 months. 21

22 Only the boards of four respondents had a standing disclosure committee. Each disclosure committee meets on an as required basis. None of the committees had a separate charter, but were instead constituted in accordance with the issuer s continuous disclosure policy. For one issuer, matters of continuous disclosure were only considered by its disclosure committee (which included executive members) and not by its full board. Some of the larger issuers surveyed noted that an assessment of whether information was material was made at management level and, depending on the nature of the information and the initial assessment made, matters were then escalated to the board for consideration. Several of the smaller issuers, and one recently listed issuer, noted that all potential Material Information was referred to the board for consideration. Comments NZXR expects the board to periodically stress test the management view of what information is considered material, and encourages all issuers to have disclosure as a standing item on each full board meeting agenda. This is an important check in ensuring that all issuers continuously review their disclosure obligations. Issuers should consider how they can make this agenda item as meaningful as possible. For example, where an issuer has issued forecasts or guidance, the standing agenda item may include trackers to demonstrate actual progress against the information disclosed. Issuers should record in their board meeting minutes the reasons for a decision to disclose or not disclose information when this issue is considered. Clear and transparent records can demonstrate that the board followed a good process in its decision making. Not recording the reasons for a decision can put the board in a difficult position if it needs to re-visit a past event and justify a decision made or action taken. From time to time, NZXR will request these documents (and management reports) as part of enquiries, and they are considered key evidence of the appropriate management of continuous disclosure by issuers. The board must also expect to be required to respond to information between scheduled board meetings. Whether the board of an issuer has a standing disclosure committee will depend on a number of factors, including the issuer s size, stage of development and the complexity of its business. Boards should determine whether a standing disclosure committee is appropriate for their organisation. 22

23 5. Managing Information and Using Safe Harbours Rule contains some exceptions to immediate disclosure. These safe harbours are described in Section 7 of the Guidance Note. Issuers can also utilise trading halts to assist them to manage their disclosure obligations. This is particularly important to prevent the market trading when there is an asymmetry of information. Accordingly, the survey asked issuers about: Whether they had relied on a safe harbour in the past year Their approach to maintaining confidentiality Their use of trading halts 5.1 Use of safe harbours It is important for issuers to understand how and when the exceptions to immediate disclosure may apply. They must also consider whether they need to make practical arrangements to support the effective use of these exceptions, for example: Making sure there are templates and guidance relating to the use of confidentiality arrangements Clearly delineating information intended only for internal management purposes Being clear about what step(s) need to be completed for a proposal to no longer be considered incomplete Findings Most issuers stated that they had relied on a safe harbour in the last 12 months primarily because the information involved an incomplete proposal or had been prepared for internal management purposes. One issuer commented that it relies on safe harbours for a range of things (e.g. information prepared for internal management purposes such as management accounts and in respect of incomplete proposals/negotiations). It takes care to ensure confidentiality is maintained when relying on a safe harbour. Another issuer commented that it had used the safe harbour provision in relation to a potential M&A acquisition. A confidentiality protocol was established and a restricted number of individuals within the issuer were informed on a need to know basis, with each individual asked to confirm their understanding of confidentiality obligations. External advisers were engaged with relevant obligations of confidentiality applying. It was assessed that rules (a)(i), (ii) and (iii)(b) and/or (C) applied. As the opportunity did not proceed beyond initial high level commercial discussions no disclosure occurred. None of the issuers surveyed reported having any difficulty in applying the safe harbour provisions. 23

24 One of the key requirements of the exception is that the information is confidential and that confidentiality is maintained. 10 Most of the issuers surveyed noted that it was the responsibility of the senior management involved to ensure appropriate confidentiality agreements are in place when using a safe harbour and that all employees were responsible for ensuring confidentiality is maintained. One issuer commented that each executive is responsible for ensuring that there are robust and documented confidentiality protocols (and where necessary agreements) in place to ensure that the information is limited to selected people on a need to know basis; the people who know the information understand that it is to be treated in confidence and only to be used for the purposes permitted; and those people abide by those protocols. The issuer s legal team supports and administers the confidentiality processes around potentially material transactions. Comments NZXR is generally satisfied that issuers are using safe harbours appropriately. NZXR expects issuers to be: Aware of the three limbs of the safe harbour they are relying on Carefully considering the application of each limb to ensure that the safe harbour is effective, and remains effective Prepared with appropriate market announcements, if the safe harbour ceases to apply (for example, if confidentiality is breached), to the extent possible NZXR acknowledges that there may be instances where information is leaked, despite an issuer s best efforts. In this type of scenario, NZXR encourages issuers to either release a pre-prepared market announcement or, where this is not possible, to immediately contact NZXR to discuss whether a trading halt should be placed. 5.2 Trading halts While trading halts cannot be used as a delaying tactic, there are legitimate circumstances where an issuer requires time to consider a response, particularly for sudden or unexpected events. The Guidance Note sets out various examples of when a trading halt might be required, at section 5.3. Findings A number of issuers referred to using trading halts to manage their disclosure obligations. An issuer was relying on a safe harbour while negotiating a major transaction. An issue arose when misleading information relating to the transaction was published in the media. The issuer sought a trading halt so that it could liaise with the counterparty to the transaction, and prepare and release an announcement. Another issuer came into receipt of a report that contained significant information relating to the issuer s operations. That report was subject to review and finalisation, and was therefore insufficiently definite to require disclosure. However, the issuer was concerned that it would be nearly impossible to assure confidentiality of the information which, while unconfirmed, was still likely to lead to a significant market impact. The issuer sought a trading halt while the report was finalised, in order to prevent trading on an asymmetry of information developing in the market. 10.The footnote to Rule indicates that "confidential" has the sense "secret". 24

25 Comments NZXR has not experienced many issuers making inappropriate trading halt applications. Instead, there have been instances where NZXR has engaged with issuers to understand why a trading halt was not sought. NZXR encourages issuers to carefully consider the timing of announcements more broadly, but in particular to be mindful of instances where they may be in possession of Material Information and require time to create and release an announcement. CASE STUDY: ISSUER C This case study relates to the release of updated guidance, the use of trading halts by an issuer, and NZXR s approach to engaging with issuers. BACKGROUND Issuer C had previously released forecast NPAT guidance to the market. NZXR identified a subsequent announcement which stated Issuer C now expected NPAT to be significantly lower than previously forecast. That announcement was released in the middle of the day. Following the release of the announcement, the price of Issuer C s securities reduced by more than 10%, on higher than usual volumes. NZXR engaged with Issuer C for two reasons: Updates to guidance are usually a response to developing financial information. NZX sought to identify whether the updated guidance had been released immediately, or whether the issuer was aware of a material risk of a material deviation at some earlier point in time; and NZXR sought to understand Issuer C s approach to managing disclosure, given Issuer C had released the announcement during trading hours. Issuer C was cooperative and provided NZXR with all of the information sought, including board papers. NZXR identified that Issuer C had held a board meeting on the morning of its announcement, outside of its usual cycle of scheduled board meetings, specifically to consider new information provided by management. It was only at this board meeting that the change in the NPAT forecast was confirmed by the Board. NZXR was satisfied that Issuer C was not required to make a disclosure prior to this board meeting. The meeting concluded at 10:30 am. NZXR noted that the board papers had included a draft announcement, and sought further information as to the events between the end of the board meeting, and the release of the announcement some hours later. Issuer C confirmed that following the board meeting, it had required some amendments to the draft announcement. It then had to seek approval of that announcement. Both of these steps were carried out as quickly as practicable, and Issuer C confirmed that in its view it had made its announcement promptly, and without delay. 25

26 ANALYSIS NZXR was satisfied, based on the information and explanations provided, that Issuer C had complied with Rule However, NZXR considered that Issuer C should have considered a trading halt in the circumstances. The Continuous Disclosure Guidance Note recognises that issuers will require time to prepare an announcement before its release, and states that immediately means promptly, and without delay. However, where an issuer is aware pre-market open that it will, or is likely to, need to release Material Information after the market has opened, NZXR expects the issuer will contact NZXR to discuss whether a trading halt may be appropriate to meet its continuous disclosure obligations. We encourage issuers in this type of scenario to engage with NZXR prior to the meeting (or other relevant event). That will assist NZXR to understand the scenario that the issuer is managing and to provide guidance on whether a trading halt may be appropriate in the circumstances. 26

27 6. Effective Disclosure The practical elements of disclosure are an important part of ensuring the market is fully informed. NZX has provided guidance on particular elements of practical disclosure, such as making announcements outside trading hours, the content of announcements and how to manage disclosure when you are listed on more than one exchange. In particular, Practice Notes 17/2017 and 21/2017 set out useful information for issuers. The survey asked issuers about: How they managed disclosure across multiple jurisdictions The processes in place to ensure that the person releasing announcements had received all the information they required How they managed information proactively to reduce intra-day disclosures, which can be disruptive 6.1 Making announcements intra-day While an intra-day announcement may be necessary to meet an issuer s obligation to disclose immediately, issuers should try to manage their activities to enable Material Information to be released outside trading hours. Findings One issuer noted enquiries it had received from NZXR in 2016 when it had released a trading update to the market in the early afternoon. Following the release, the issuer s share price fell intra-day by over 10%. A number of trades had taken place prior to the release of the information. The release of Material Information by an issuer intra-day does not necessarily mean they have breached the Rules. It can, however, have an impact on investors who may have traded just before the announcement and cause disruption to trading in the issuer s securities. Comments Intra-day announcements of Material Information can be disruptive to a fair, orderly and transparent market. Issuers should endeavour to manage their activities in a way that enables Material Information to be released outside trading hours, if possible. For example, issuers can actively manage the timing of board meetings at which potential Material Information will be considered. This allows issuers to manage the release of Material Information arising out of those meetings before the market opens (such as guidance on financial results). The release of periodic financial reports, and the signing of material contracts, are also good examples of matters that issuers can manage to reduce market disruption. NZXR will enquire if it observes Material Information being released intra-day, and it appears the timing of disclosure was within the control of the issuer. NZXR has observed some issuers being more proactive 27

28 in managing the timing of disclosure, and encourages issuers to continue giving attention to this issue in their planning of disclosure. 6.2 Timing of announcements when listed on both the NZX and ASX A number of NZX Main Board issuers are also listed on the ASX. This arises in three ways: Issuers have NZX as their Home Exchange, and are Foreign Exempt listed on the ASX Issuers have ASX as their Home Exchange, and are Overseas Listed Issuers on the NZX Main Board Issuers are Dual Listed Issuers, and have both the ASX and NZX as their Home Exchange In each of these scenarios, the Rules require issuers to release information at the same time to both exchanges. There are some practical limitations to this. Information about managing this is set out in Practice Note 17/2017 Managing Disclosure. Findings All of the issuers surveyed who were also listed on the ASX were cognisant of the need to release Material Information to both exchanges at the same time. One issuer noted that it has a Foreign Exempt Listing on ASX. Accordingly, while it is not subject to disclosure obligations under the ASX Rules, it is required to immediately provide ASX with all information provided to NZX. The issuer complies by releasing announcements to both NZX and ASX at the same time. Another issuer commented that it has internal procedures in place to, wherever possible, release information before market open on NZX in an endeavour to ensure that no trading is occurring on either exchange at the time information is released. One issuer with a Foreign Exempt Listing on the ASX noted that it had sought guidance from NZXR on its obligation to release Material Information when the NZX Main Board was closed but the ASX market was open (given the time difference between New Zealand and Australia). Comments If an obligation to release Material Information arises outside NZX s operating hours, the issuer must provide that announcement to NZX via MAP at the same time it is publicly released (or as soon as practicable after that time provided it is released before the next NZX market open). This includes where announcements are released over the ASX. If the ASX is still trading, and the NZX market is closed, issuers cannot rely on the NZX market closure to delay disclosure to ASX. Refer to Practice Note 21/2017 Effective Announcements for additional information. The fact that an announcement may be made outside of NZX s operating hours but while the ASX is still trading is not of concern to NZXR, provided the New Zealand market is fully informed before trading occurs here. 28

29 Appendix - Discussion Prompts Section 6 of NZX s Continuous Disclosure Guidance Note sets out NZX s recommendations as to the compliance procedures that an issuer should put in place to enable release of Material Information as soon as it becomes aware of it. Appendix 4 of the Guidance Note sets out guidelines for disclosure of Material Information. Issuers must make their own determination as to which compliance tools they think are appropriate for the size and complexity of their business. The questions and scenarios set out in this Appendix are intended as a discussion prompt, to help issuers and their directors: Work through their obligations; and Identify the types of policies and procedures they would benefit from. Continuous disclosure policy The NZX Corporate Governance Code recommends that an issuer s board have a written continuous disclosure policy. The following questions are intended to assist an issuer to have a robust foundation for the development of the content of that policy. Why do you have this policy? Your response to this might include matters like the appropriate management of information that is within a safe harbour, the obligation to release Material Information immediately, and the obligation to correct a false market. What are the consequences for the issuer if there is non-compliance? Who does it apply to in the organisation (companies and/or individuals)? How will you communicate your policy and provide training within your organisation? What are the consequences for the individual if they do not observe the policy? Who is responsible for keeping this policy up to date? Are there any other policies or procedures that should be read in conjunction with this policy? Material Information Section 3 of the Guidance Note sets out some helpful information about the Material Information test, and how this applies to equity and debt securities. Information that is Material Information will differ between issuers, so it is important to be familiar with this test. What is Material Information? You might consider examples that are industry specific or relevant to your enterprise. Keep in mind that Material Information may arise from outside the issuer. 29

30 Make sure you are familiar with the following key elements: The overarching obligation to release Material Information immediately; The requirement that the issuer knows the Material Information, which is a result of the knowledge of the directors or executive officers; and The limitations on use of embargoes Make sure you can clearly explain how the exceptions from Rule apply, and identify the person(s) who: Knows how these work; Will be responsible for confirming they apply; and Will be responsible for ensuring/monitoring their ongoing application. What is a false market? How will you know a false market is developing/subsisting, and what are your obligations in that scenario? What do you do if you re not sure the information you have is Material Information? Define roles and responsibilities Issuers must disclose Material Information once they become aware of it. An issuer is aware of information when it comes into the possession of a director or executive officer. Section 4 of the Guidance Note sets out some commentary on this element of Rule Issuers can also consider NZX s recommendations in Section 6 and Appendix 4 of the Guidance Note regarding the various roles of employees and directors. What are the roles of: the Board, the executive officers, other management, the disclosure officer? For example: Who is the escalation point for any issues relating to Material Information or issues relating to continuous disclosure obligations? Who is permitted to make statements to the media, shareholders or the public? Who determines whether the issuer should seek a trading halt? Who is permitted to provide information to analysts or brokers? Who is responsible for engaging with NZX Regulation? Who needs to approve announcements of Material Information? Who is responsible for monitoring media reports? Who is responsible for liaising with analysts or brokers? Who is responsible for monitoring trading in the issuer s securities? Who is responsible for keeping records of decisions made, including legal advice sought? 30

31 Scenarios NZX Regulation encourages issuers to consider various activities that arise in the context of managing and announcing Material Information. Some issuers may wish to document these processes to support their continuous disclosure policy; for others, this will not be necessary. Appendix 4 of the Guidance Note provides some further examples of the types of activities and decisions an issuer should be familiar with. Appendix 3 of the Guidance Note provides some illustrative examples of the application of Rule NZX Regulation encourages issuers to review these examples and consider how they might apply to their own business environment. What is the process for reviewing and approving communications of significant interest that are at risk of containing Material Information, for example, investor briefings? What are the processes/conventions to support board meetings,for example, the inclusion of a standing item, the requirement to note whether the board paper may give rise to Material Information, who is responsible for minuting, who is responsible for managing and releasing announcements as a result of board decisions? Can you identify what type of rumour or speculative commentary the issuer would/would not respond to, and identify the person(s) responsible for managing the response in accordance with this policy? What is the purpose of trading halts, and when might you be likely to seek a trading halt? Do you have a clear process for creating and releasing announcements in the following scenarios (including the use of delegated authority or subcommittees where key personnel or the board are not available): BAU, Material Information is within your control? Urgent scenario, involving information emanating from within the issuer? Urgent scenario, involving the need to respond to information from a third party? What is the process when a person becomes aware of an inadvertent or non-compliant disclosure of Material Information? 31

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