New Zealand Yearbook of New Zealand Jurisprudence
Last Updated: 22 April 2015
One Law For All No More: The Demise of Common Law Contractual Obligations in Stock Exchange Regulation in Australia, New Zealand, the United Kingdom and Ireland
Since the eighteenth century, the relationship between a stock exchange and
its listed companies, and between the stock exchange and
its members, has been
regulated by the terms of a common law contract and its associated rights and
obligations. This paper is a
review of the approaches taken by four common law
jurisdictions to the general regulation of the market place, and more
to the regulation of ongoing corporate disclosure of material
information to the market. In all cases, the common law contractual
of disclosure have been supplemented to a certain extent by legislation and
codes of corporate governance. In two instances,
the common law is also
complemented by the directives of the European Union.
Does some market regulation by black letter law, the legislation and codes,
distance the obligations of the regulated party? Where
there is an ongoing
obligation of corporate disclosure that can influence the second by second
adjustments of share prices on the
market, is there a need for greater immediacy
on the part of the regulator? Does the privity of the common law contract and
between the company and the market regulator make the
obligations to fulfil the terms of the contract more immediate?
ii. UNITED KINGDOM
‘So the old Yellow Book is now and FSA Purple
The earliest evidence of organised trading in marketable securities dates
from 1698 when John Castaing began to issue a list of stock
and commodity prices
called ‘The Course of the Exchange and other things’ from the
‘Office in Jonathan’s
Coffee-house’. Regulation was not a
strong point in those early
* Dr Josephine Coffey, Business Law, School of Business, The University of Sydney.
1 Financial Services Authority, Maintaining Standards, Speech by Howard Davies, Chairman
FSA, IFAC Conference Edinburgh 25 May 2000.
days, with outbursts such as the ‘South Sea Bubble’, but by 1801
‘the first regulated exchange came into existence
in London and the modern
Stock Exchange is born.’2
Under the London Stock Exchange (LSE) guidelines to continuing obligations, a listed company was required to notify the exchange without delay of
‘all relevant information’ that was not public knowledge and
‘any major new developments in the company’s
activity’ that could be price sensitive.3 Any change in the
financial condition or expected performance of a listed company should be
The LSE’s Listing Rules were commonly know as the Yellow Book but from December 1999 the LSE and the Financial Services Authority (FSA) cooperated to provide an approach to listing that retains the standards of the Yellow Book but minimises the duplication of the listing process.4
Consequently, HM Treasury agreed that it would be appropriate for the FSA
to become the ‘UK Competent Authority for
Effective 1 May 2000,6 the role of Competent Authority and the enforcement of the listing rules are no longer the responsibility of the LSE, which followed the ASX model and become a company listed on its own exchange. Shares in London Stock Exchange plc were listed on the main market on 20 July 2001.7
The FSA, as the single statutory market regulator under the Financial
Services and Markets Act 2000 (UK), now has responsibility for
LSE. As a result, there is a ‘two-stage admission process’ for
companies wishing to list securities in
London: the company must apply to the UK
Listing Authority (UKLA), a division of the FSA, for admission to the Official
then must apply to the LSE for admission to trading on the stock
market.8 As the Chairman of the Financial Services Authority
2 London Stock Exchange, Our History: http://www.londonstockexchange.com/
3 London Stock Exchange, Continuing Obligations Guide (1999) Part 1 Disclosure of Price Sensitive Information Listing Rule 9.1, 9.2; UKLA, The Continuing Obligations Guide, Appendix 3, December 2003, Chapter 2 Disclosure of Price Sensitive Information.
4 Financial Services Authority, The Transfer of the UK Listing Authority to the FSA,
Consultation Paper 37, December 1999. www.fsa.gov.uk
5 London Stock Exchange, New Arrangements for UK Listing Authority, Press Release 4
6 UK Listing Authority, Listing Rules, Press Release 10 April 2000.
7 London Stock Exchange, Interim Report - Six Months ended 30 September 2001 London
6 November 2001 1-13, 3.
8 Financial Services Authority, Introduction to the Financial Services Authority, London,
1 December 2001 at 3, 14 and 15; London Stock Exchange Admission and Disclosure
Standards, May 2001 at 1.1.
So the old Yellow Book is now and FSA Purple Book. The observant among
you will note that the contents are almost exactly the same.9
The continuing obligations, discussed above, remain unchanged but are now
contained in the listing rules of the UKLA.10 These obligations are
also reinforced by the similar LSE disclosure standards 3.1 and
The Listing Rules and further information is continually updated by
amendments to the UKLA Sourcebook Chapter 9 concerning Continuing
Paragraphs 9.1, 9.2 state that a company must notify a Regulatory Information
Service without delay of any major new
developments and all relevant information
which are not public knowledge but may lead to substantial movement in the price
listed securities. A company need not disclose confidential
‘impending developments or matter in the course of negotiation’
long as there is no breach of confidence that would be likely to lead to
substantial movement in the price of its listed securities.12
The UKLA declines to define the term ‘substantial movement’ as a
standard of the materiality of the disclosure.13 This decision is in
line with ASX policy. The LSE had previously stated that a ‘substantial
movement of price’ cannot
be measured by a formula such as a theoretical
percentage change of share value in a given time period. It is sufficient that
information is price sensitive and has the potential to have a significant
effect on the share price.14 The result was LSE reluctance to impose
formal sanctions on a company for a failure to disclose. One penalty for
a suspension of trading in the company’s
The enforcement16 powers of the UKLA are potentially stronger than
those of the LSE. If a company has breached any provision of the listing rules,
the Authority can impose a financial penalty or publish a statement
9 Financial Services Authority, Maintaining Standards, Speech by Howard Davies, Chairman
FSA, IFAC Conference Edinburgh 25 May 2000.
10 UK Listing Authority, Listing Rules, 1 December 2001 Chapter 9 pars 9.1, 9.2.
11 London Stock Exchange, Admission and Disclosure Standards, May 2001 Part 2 at 3.1,
12 UK Listing Authority, Sourcebook, December 2003 amendment Listing Rules, Chapter 9.
13 UK Listing Authority, Guidance Manual, 1 December 2001, Appendix 3 Continuing
Obligations Guide, 2.3.
14 Frost CA ‘Disclosure Policy Choices of UK Firms Receiving Modified Audit Reports’
(1997) 23 Journal of Accounting and Economics 163-187, 166.
15 London Stock Exchange, Admission and Disclosure Standards, May 2001 Part 2, 4.4 to
16 Financial Services Authority, FSA Handbook of Rules and Guidance Enforcement - Chapter
14, Sanctions for Market Abuse, 14.3, 14.7.
the company ‘subject to the provisions of the Act.’17
Similar penalties apply to a director who is knowingly concerned in the
breach. This UK example was the impetus behind ASIC’s
successful call for
the right to impose fines on companies for market offences.18
As in Australia, any impending strategic developments or ‘matters in
the course of negotiation’ must be disclosed where
there is reason to
believe that a breach of confidentiality has or is likely to occur. There is
emphasis in the UK on a warning announcement,
even if the company is unsure
whether there has been or is likely to be such a breach, it should at least
issue a warning to the
UKLA stating the accuracy, or otherwise, of potential
leaked information. The company should issue the warning announcement if any
hint of the undisclosed price sensitive information appears in a press article
or in a share price movement.19
These guidelines remind the recipients of confidential information that they
may not deal in the company’s securities until
the information is made
public. There is a warning of the insider dealing provisions, contained in the
Criminal Justice Act 1993
(UK), which can apply to those who trade while in
possession of undisclosed price sensitive information. The LSE model code still
remains as an appendix to Chapter 16 of the UKLA listing rules. The purpose of
the code is to ensure that directors and officers
of a listed company do not
trade in securities of that company while they are in possession of undisclosed
price sensitive information.
The code encompasses advisers and others who are
closely connected with a company. If there is any matter that constitutes
price sensitive information, then directors and officers must obtain
the permission of the chairman, or other designated director
of the company,
before selling or purchasing shares in the company. The designated director must
maintain a written record of any
trading permission or refusal that is given.
These are the minimum requirements of the model
17 UK Listing Authority, Listing Rules, 1 December 2001 Chapter 1 paras 1.8, 1.9; Financial
Services and Markets Act 2000 (UK) ss123(1)(a), 123(1)(b).
18 ASIC, Media Release, 01/283 13 August 2001; Knott D ‘Launch of the Australasian Investor
Relations Association’ Speech by the Chairman, ASIC 13 August 2001, 3 & 4.
19 London Stock Exchange listing rule 9.4, replaced by UK Listing Authority Listing Rules listing rule 9.4; London Stock Exchange, Admission and Disclosure Standards, May 2001, Part 2, 3.4.
20 London Stock Exchange, Model Code to Chapter 16 of the Listing Rules
(1999), replaced by Appendix to Chapter 16 of the UK Listing Authority
Listing Rules 1 December 2001.
iii. eUrOpean UniOn
The European Union (EU) does not directly impose a regulatory system on the
European stock exchanges. Instead, the relevant organisation,
Commission (EC) will address directives to member states, including the United
Kingdom. It is the Commission that proposes
a new regulatory measure. The
Council of Ministers, representing the Member States, can then approve the
proposal and enact it as
The 1979 EEC Admissions Directive stated that:
The company must inform the public as soon as possible of any major new
development in its sphere of activity which are not public
knowledge and which
may, by virtue of their effect on its assets and liabilities or financial
position or on the general course of
its business, lead to substantial movements
in the prices of its shares.21
The UKLA Sourcebook Chapter 9 Continuing Obligations under the Listing Rules,
discussed previously, has the notation CARD Article
68 and 81 written alongside
paragraph 9.1, which replicates the directive quoted above. This notation is a
reference to the Consolidated
Admissions and Reporting Directive (CARD)
2001/34/EC of the European Parliament and of the Council on the admission of
to official stock exchange listing and the information to be
published on those securities.22
It is anticipated that most of CARD will shortly be replaced by new EU
directives, 23 the Prospectus Directive (PD)24 and the
Market Abuse Directive (MAD).25 The Commission adopted the two
technical regulations required to implement PD and MAD in April 2004 and the PD
Regulation will apply
from 1 July 2005, which is also the deadline for Member
States to implement the framework for the
21 Directive 79/279/EEC: The Admissions Directive of 5 March 1979: coordinating the conditions for the admission of securities to official stock exchange listing. Annex Schedule C, 5(a) Additional Information.
22 UK Listing Authority, Sourcebook, February 2004 amendment Listing Rules Definitions
23 Financial Services Authority, Review of the Listing Regime, Discussion Paper 14, 30 July
2002 at 15.
24 Directive 2003/71/EC.
25 Directive 2004/39/EC.
26 European Commission Securities, Commission Adopts Two Technical
Measures to Implement the Prospectuses and Market Abuse Directives, Press
Release IP/04/563, 29 April 2004:
FSA has undertaken a major review of the listing regime to ‘accommodate the impact of the changes being proposed to UK Company Law and to the European regulatory framework’27 and it anticipates that the main body of the Listing Review rule changes will be made in line with this timetable. The FSA has published its ‘near final’ and intends to make ‘final Listing Rules and Prospectus Rules at the June board meeting...to come into effect on 1 July
2005.’28 The Market Abuse Directive legislates for the
disclosure of ‘inside information’ which is currently also dealt
Chapter 9 of the Listing Rules under Continuing Obligations. The FSA
‘Purple Book’ has been ‘restructured into
the Listing Rules,
Disclosure Rules – reflecting the requirements of the Market Abuse
directive – and the Prospectus
A further consideration is the role of the UKLA Listing Rules in the event of
a merger between the LSE and a European exchange. The
FSA says that it is
indifferent to the nationality of ownership of an entity that it regulates but
it considers the possibility that
a new owner may decide to operate the LSE from
another EU Member State. All formal regulatory control would then be transferred
the FSA to the ‘home’ regulator and could change the regulation
of LSE’s markets and the ability of FSA to enforce
the UK listing regime
and to pursue market abuse.30 Continuous disclosure may suffer as a
result, in spite of the ‘over-arching requirement for listed companies to
likely to affect their share price as soon as it is
Whilst the basic requirements within Europe are based on the EU Admissions
Directive, there is perceived to be a degree of divergence
in practice across
Europe. The UK is viewed by investors as having more comprehensive and regular
disclosure than Continental Europe...The
comparatively high incidence of
disclosure in the UK market may also be attributable to the relative size and
maturity of that market
compared with those elsewhere in Continental
Europe...the number of companies meriting analysts’ research and the
of the investor community drives greater demand for increased
27 Financial Services Authority, Review of the Listing Regime, Update 21 March 2005.
28 Financial Services Authority, FSA Publishes Final Rules for New Listing Regime, Press
Release FSA/PN/043/2005, 28 April 2005.
30 Financial Services Authority, London Stock Exchange Mergers Enquiry, FSA Submission to the Competition Commission 12 May 2005 at 9-10.
31 Ibid, Annex A: Primary Market Comparative Regulation Study – Key Themes Report by
PriceWaterhouseCoopers, April 2002 at 22.
‘The Listing Rules of the Irish Stock Exchange comprise the UK Listing
Authority Purple Book as modified...’32
The Irish Stock Exchange (ISE) acknowledges that its roots go back to 1793 when stock exchange trading first began in Dublin. The legislation currently regulating the ISE is the Stock Exchange Act 1995, ‘an Act to repeal The Stock Exchange (Dublin) Act, 1799.’33 ‘The Stock Exchange’ was established under a Deed of Settlement of 31 December 1875 and was amended on 29 February
1972 to facilitate the amalgamation in 1973 of the Irish Stock Exchange, the Stock Exchange, London, with other regional exchanges in Ireland and
11 in Britain to form a federation that was termed the International Stock
Exchange.34 At this time, the ISE’s official designation was
the ‘Irish Unit of the International Stock Exchange of the United Kingdom
and the Republic of Ireland.’35
The 1995 legislation, which was introduced to implement the 1993 EC
Investment Services Directive (ISD)36 designates the Central Bank
and Financial Services Authority of Ireland as the Competent Authority for
authorising stock exchanges
and member firms in Ireland.37 The
Minister has designated the ISE as the Competent Authority for the purpose of
implementing the EU Directives adopted by Ireland
under the European
Communities (Stock Exchange) Regulations 1984.38 In applying the
Directives, there is nothing to oppose the ISE from imposing obligations on
issuers of securities that are admitted
to the Official List, which are
‘more stringent than or additional to the requirements of the
directives’39 provided they are imposed consistently.
Under Part V of the Companies Act 1990, the ISE undertakes reviews of
relevant company announcements and unusual price movements as it is responsible
for the investigation
of possible cases of insider trading.40
32 Irish Stock Exchange, The Listing Rules: www.ise.ie
33 Stock Exchange Act 1995 – Long Title and s4.
34 European Communities (Stock Exchange) Regulations 1984, Reg 2, Interpretation; London Stock Exchange, Our History: the UK exchange adopted the ‘London Stock Exchange’ as its trading name in 1991. www.londonstockexchange.com
35 Stock Exchange Act 1995 – Interpretation s4.
36 Directive 93/22/EC.
37 Irish Stock Exchange, The Stock Exchange Act 1995.
38 European Communities (Stock Exchange) Regulations 1984, Reg 7, Establishment of
39 European Communities (Stock Exchange) Regulations 1984, Reg 3, Application of
40 Irish Stock Exchange, Insider Dealing.
there is a prohibition on the use of ‘inside information’, there
does not appear to be a positive duty of continuous disclosure
companies under this legislation. However, the 1979 EEC Admissions Directive,
quoted above,41 is implemented as part of the European Communities
(Stock Exchange) Regulations 1984.
The ISE Listing Rules comprise the UKLA Listing Rules as modified by the
‘Notes on the UKLA Listing Rules.’42 The Board of ISE,
as the designated Competent Authority in Ireland, has adopted the UKLA rules for
companies seeking admission to,
or listing of securities on the Official List of
the Exchange. As none of the ISE modifications to the ‘Purple Book’
amend UKLA listing rule 9.1 concerning the general obligation of disclosure, the
two sets of rules are in unison with each other
on this issue, and with the EC
Directive, as discussed previously. It would be anticipated, that the ISE would
adopt the Revised
UKLA Listing Rules effective 1 July 2005 to implement the new
EC Prospectus Directive.43
‘The Listing Rules are not just binding contractually...The
Listing Rules create obligations that are additional, and complementary, to
common law obligations and statutory
Although there were no listing rules, as we now know them, in existence in
the 1890s, the stock exchange’s application form,
to be completed by a
company requesting quotation of its securities, includes the condition that it
to give prompt notification of all calls, dividends, alteration of capital, or other
This last phrase appears to be the first example of an Australian listing
requirement demanding continuous disclosure of material
information by a
company. It established the principle that there is a contractual
41 Directive 79/279/EEC. Note 22.
42 Irish Stock Exchange, Notes on the UKLA Listing Rules, 29 November 2004, Introduction at 2.
43 Directive 2003/71/EC.
44 Australian Stock Exchange Limited, The Listing Rules, Introduction, 13 May 2005: www. asx.com.au
45 Salsbury S and K Sweeney, The Bull, the Bear and the Kangaroo: The History of the Sydney
Stock Exchange (1988) 203.
46 The contract is now found in ASX Listing Rules Part 3 of Appendix 1A, General Admission
Application and Agreement 1 January 2003.
a listed company to release relevant information to the market on an ongoing
basis. As such, it is an early forerunner of ASX listing
rule 3A(1) and the
present rule 3.1 and 3.1A.
At the conclusion of his history of the Sydney Stock Exchange, Professor
Stephen Salsbury stated that the exchange had been surprisingly
stock exchange’s listing rules had ‘long run ahead of the demands of
the various colonial and state company
laws and so it helped instil confidence
in Australian securities.’47
Prior to the formation of ASX on 1 April 1987, a degree of unity between the
various State stock exchanges meant that they were able
to demand adherence to
the listing rules. On occasion, large companies would fail to comply, as they
were aware that any action by
the exchange to suspend securities or delist the
company could eventuate in lower market turnover. This rebellion risked the
of ‘on-change’ trading and even the viability of the stock
Adamson48 points out that News Limited received a ‘testy
letter’ from the chairman of the Melbourne Stock Exchange for announcing
new issue through the press prior to advising the exchange. It is understood
that this threat of non-compliance from large or popular
exists to some extent, in spite of legislative support for the listing rules
(Corporations Law/Corporations Act 2001 ss777/793C, 1114/1101B) and
particularly for the continuous disclosure rule 3.1 with separate statutory
backing from the continuous
The first Securities Industry Act 1970 (NSW) was effective 8 April
1970, just as the mining boom of the late 1960s was ending.49 The
legislation concentrated mainly on regulation of stockbrokers and their
relationships with clients and the stock exchange. This
was the first major
encroachment on the stock exchange’s self-regulation. Shortly afterwards,
in July 1970, the Rae Committee50 began its examination of the
securities industry.51 The
47 Salsbury and Sweeney, supra n 45 at 453.
48 Adamson, GA, Century of Change: the First Hundred Years of the Stock Exchange of Melbourne (1984) 60. (Listing rule 15.7 states that an entity must not release information that is for release to the market until it has given the information to ASX.)
49 Poseidon NL reached a peak of $280 per share on 12 February 1970 as cited in Salsbury and Sweeney, supra n 45 at 353.
50 Senate Select Committee on Securities and Exchange, chairman Senator Peter E Rae.
51 Salsbury and Sweeney, supra n 45 at 371.
Committee’s report was released on 18 July 197452 and was
scathing in its criticism of the industry. As a result, revised legislation was
introduced and the Securities Industry Act 1975 (NSW) added statutory
enforcement to the listing requirements from 1 March 1976.
The stock exchanges were still responsible for initiating and amending these
rules but the government had a period of time in which
it could disallow
implementation of the rules. Provisions to prohibit market manipulation53
and to extend the earlier insider trading provision54 were
introduced into the legislation. In 1980, this legislation was subsequently
incorporated into the Companies Code, and a decade later formed the basis
of Chapter 7 on Securities in the Corporations Law and then the
Corporations Act 2001.
Section 674 states that a listed disclosing entity must comply with the
listing rules of a securities exchange or a listing market on matters
disclosure. The securities exchange, ASX, is initially responsible for enforcing
compliance with the rules. At times, the extent
of the stock exchange’s
authority to enforce compliance has been uncertain.
The decision of Street J in the New South Wales Supreme Court in Equity, in
Kwikasair Industries Ltd v Sydney Stock Exchange Ltd,55 firmly
based the stock exchange’s right to suspend securities or remove a company
on the agreement between the two parties.
The rights of the parties emanate from
the context in which agreements are made for the listing of securities on the
Official List.56 In FAI Insurances Ltd v
Pioneer Concrete Services (No 2),57 in the Supreme Court of New
South Wales, Kirby P supported a wider interpretation of the authority of the
stock exchange than had
previously been recognised. Prior to the introduction of
the Companies Code, there was less appreciation of the power of the stock
exchange to enforce its listing rules.
Under the old Securities Industry Act 1975, Kirby P held:
52 Parliament of the Commonwealth of Australia Australian Securities Markets and their
Regulation Report from the Senate Select Committee on Securities and Exchange Part 1
Canberra AGPS 1974, Part 2 1974, Part 3 1975 (Rae Report); Salsbury and Sweeney, note
45 at 405; Baxt R, HAJ Ford and AJ Black Securities Industry Law 5th Ed (1996) 302; Redmond P Companies and Securities Law Sydney 2nd Ed (1992) 56.
53 Salsbury and Sweeney, supra n 45 at 422-424; Baxt et al, supra n 52 at 302.
54 Baxt et al, supra n 52 at 310; Insider trading was initially prohibited by s75A of Securities
Industry Act 1970 (NSW).
55 Kwikasair Industries Ltd v Sydney Stock Exchange Ltd (1968) ASLC 30,701 reprinted in Australian Corporations and Securities Law Reporter (1998) 303-721 to 303-753; Redmond P Companies and Securities Law Sydney 2nd Ed (1992) 898; Baxt et al, supra n
52 at 171.
56 Kwikasair, ibid, 30, 708.
57 FAI Insurances Ltd v Pioneer Concrete Services (No 2) (1986) 10
[I]t was necessary to establish outside the section [the former equivalent of
793C of the Corporations Act], a contractual or statutory obligation to
observe the listing requirements...but the Securities Industry Code
imposes its duties more clearly. By force of the section it gives statutory
recognition and significance to the listing requirements.58
Kirby P disagreed with the decision of Young J at first instance. Young J saw
the listing requirements as only:
...a flexible set of guidelines for commercial people to be policed by
commercial people...principles to be administered and applied
by an expert body
in accordance with the prevailing ethos of those chosen to administer
This approach undervalues the special statutory recognition that is now
accorded to the stock exchange rules, first by the Companies Code and
then by the Corporations Act under ss793C and 1101B. In a later case,
Hillhouse v Gold Copper Exploration NL,60 Macrossan J
acknowledges the shift in emphasis of s42 of the Companies Code,
equivalent to s793C of the Corporations Act, which was recognised by
Kirby P in FAI.61
A broad interpretation of the authority of the listing rules was again
recognised in TNT Australia Pty Ltd v Poseidon Limited (No 2).62
In the Supreme Court of South Australia, Jacobs J held that a notice of
meeting was invalid when it failed to give full and fair disclosure
proposed merger. He supported the right of ASX to enforce the
‘spirit’ of the listing rules by demanding greater
The Rules by which the defendant is bound, state in an introduction that the
Stock Exchange, in administering the Rules, ‘looks
to companies to comply
with the spirit as well as the letter of those Rules’ and I think that in
a commercial document such
as this it ought to be construed and interpreted by a
Court in such a way as to give effect to the spirit and the purpose of the
Courts have long acknowledged this contractual obligation to comply with the
listing rules. In Ampol Petroleum Ltd v RW Miller Holdings Ltd,64
Street CJ considered it:
58 Ibid, 810.
59 Ibid, 811.
60 Hillhouse v Gold Copper Exploration NL (1988) 14 ACLR 423, 433.
61 FAI Insurances Ltd v Pioneer Concrete Services (No 2) 10 ACLR 801 (1986).
62 TNT Australia Pty Ltd v Poseidon Limited (No 2)  SASC 1319; (1989) 15 ACLR 80.
63 Ibid, 85.
64 Ampol Petroleum Ltd v RW Miller Holdings Ltd  2 NSWLR
...common ground that Miller was bound by contract to the Stock Exchange to
observe the rule.65
Lord Wilberforce for the Privy Council affirmed this on appeal. He held that
an issue of shares to Howard Smith was in contravention
of the stock exchange
...which moreover have contractual force.66
In October 1992, ASX issued its Exposure Draft of Proposed Listing Rule
Amendments and Other Issues.67 One of the proposals was listing
rule 3J(37). The rule would require every director and secretary of a listed
company to enter into
a written undertaking with ASX. This agreement would
acknowledge that a company was contractually bound to comply with all aspects
the listing rules. However, the stock exchange would continue to have absolute
discretion to grant a waiver of a particular rule
at the request of a listed
Appendix 16A of the listing rules, effective 1 July 1996 and now replaced by
an expanded Appendix 1A,68 is evidence of this contractual
arrangement. The secretary and a director of the company should execute the
standard form agreement
under the company’s seal. The terms are more
comprehensive than those of the original draft contract. The agreement now
the absolute discretion of ASX to quote, suspend and remove
securities from trading on the stock exchange. The company also agrees
ASX’s discretion to grant a waiver of a particular rule. There is a
contractual obligation to comply with the ‘spirit’69 of
the listing rules and to indemnify the stock exchange for any claim, action or
expense arising from breach of the contract.70
Emphasising a broader interpretation of the ‘spirit’ of the ASX
listing rules is in keeping with the ‘purposive’
required by former s109H. Since the introduction of the Corporations Act
2001, s15AA of the Acts Interpretation Act replaces s109H of the
Corporations Law. This interpretation of the provisions of the
Corporations Act will prefer a construction that promotes the purpose or
object underlying the law, whether that purpose or object is expressly stated
65 Ibid, 881.
66 Howard Smith v Ampol Ltd (PC)  UKPC 3;  AC 821 at 838.
67 Australian Stock Exchange Limited Exposure Draft of Proposed Listing Rule Amendments and Other Issues October 1992, 61.
68 Appendix 16A was deleted 1 July 1997 and amended to form Part 3 of Appendix 1A, General
Admission Application and Agreement, ASX Listing Rules issued 1 July 2000.
69 Ibid, Appendix 1A, clause 6 (clause 4 when issued 1 July 1996).
70 Ibid, Appendix 1A, clause 3.
Some elements of the Appendix 1A agreement have led to argument that the
legal framework of the relationship between ASX and the listed
...indeterminate as to raise the question of whether it creates a binding
obligation upon either the ASX or the listed company.71
The traditional doctrine of contract demands certainty by both parties of the
terms of the contract. A degree of uncertainty is added
to an Appendix 1A
agreement by the absolute discretion that ASX reserves for itself to enable it
to administer the rules more effectively.
The exercise of this discretion, to
grant a waiver of a company’s obligation under a particular rule, could be
viewed as an
alteration by only one party of a term of the
Prior to the legislative amendments of the 1990s, ASX saw itself as having a
narrow but significant role in regulating listed companies.
Its authority was
based on the willingness of companies to undertake an obligation and enter into
a contract with ASX to ensure compliance
with the listing rules.73
The principal enforcement procedures available to the stock exchange, in
increasing degrees of severity, were to suspend trading in
securities, to seek a Court order under ss793C or 1101B of the Corporations
Act to enforce compliance with the rules, or to remove the company from the
Where there is an infringement of an ASX listing rule, the stock exchange has
the contractual right under the Appendix 1A agreement
to suspend a
company’s securities from trading or remove the company from the Official
List. However, ASX does not always wish
to take this action, as it would deny
market access to investors and shareholders of the company.
The Securities Industry Act 1975 (NSW) introduced a provision for the enforcement of the listing rules by an earlier version of s793C. Section
793C(1), (2), in Part 7.2 of the Corporations Act states that an
application may be made to the Court by ASIC, ASX or a person aggrieved to
obtain an order of compliance with, or enforcement
of, the relevant operating
rules, in this instance the ASX listing rules. The original provision was
amended with the introduction
of continuous disclosure in September 1994 to
clarify the definition of a ‘person aggrieved’.
71 Spender P ‘The Legal Relationship between the ASX and Listed Companies’ (1995) 13
Co&SecLJ 240-275, 240.
72 Ibid, 241.
73 Parliament of the Commonwealth of Australia Corporate Practices and
the Rights of Shareholders Report of the House of Representatives Standing
Committee on Legal and Constitutional Affairs Canberra AGPS November 1991
Report) 17 par 2.4.11.
A company, by agreeing to have its securities included on the Official List
of the stock exchange, is deemed to ‘be under an
obligation to comply
with... a licensed market’s operating rules’ (s793C(1)). This
obligation arises from the contractual obligation to comply with the listing
rules, as discussed in the previous section.
Section 1101B(1) is a miscellaneous provision in Part 7.12 of the
Corporations Act. A companion to s793C, it is also concerned with the
power of the Court to make certain orders (s1101B(4)) for a contravention on the
application of ASIC or ASX. Also effective 5 September 1994, s1101B was further
amended to complement s793C by extending to a ‘person aggrieved’ the
right of application to the Court (s1101B(1)(d)).
Both these provisions specify that the Court may direct a person, or the
directors of a body corporate, to comply with the listing
rules of the stock
exchange (ss793C(2)(b) and 1101B(4)(b)). An infringement of the listing rules is
not an offence under either provision. However, s1101B(10) states that a
contravention without reasonable excuse of an order of the Court can result in a
fine and imprisonment.74
These seldom used powers of the stock exchange under the statute existed
prior to the introduction of s674 penalties in 1994. They could still be
utilised to penalise a company in a case of persistent non-compliance with
listing rule 3.1.
vi. new zeaLand
‘The Listing Rules contain the terms of a
As with the forty odd Australian stock exchanges that existed at the time,
NZX, formerly the New Zealand Stock Exchange (NZSE), emerged
from the gold rush
of the 1870s with early stock markets in Auckland, Wellington, Dunedin and
Christchurch.76 The regional trading floor were closed after the
introduction of electronic trading in 1991 and following in the footsteps of
the New Zealand Stock Exchange was demutualised and incorporated as a
limited liability company from 31 December 2002. The transformation
completed on 30 May 2003, when the renamed New Zealand Exchange Limited, trading
as NZX, listed its securities on it own exchange.77
74 Schedule 3 Penalties: 100 penalty units or imprisonment for two years or both. Penalties for bodies corporate are five times the maximum pecuniary penalty for that offence (s1312). A penalty unit is $110 (s4AA of the Crimes Act 2001 (Cth)).
75 NZSX and NZDX Listing Rules – Forward (Amended 1/5/04).
76 NZX, History: www.nzx.com
For over a century the former NZSE had ‘facilitated and regulated New
Zealand’s share market’78 However, statutory amendments
were moving apace with the stock exchange and its regulatory role. In December
2002, the then acting
general counsel for NZSE, Elaine Campbell commented
[T]he enacting of the Securities Markets and Institutions Bill coupled with
the start of the revised NZSE listing rules this week
has created quite a stir
in the market. Media commentary has related mainly to a single aspect of the
renamed Securities Markets
Act 1988 and the revised listing rules introducing a
continuous disclosure regime for listed companies.79
The co-operative nature of this regulation is necessary as
‘NZSE’s proximity to the market is essential to flexible and
responsive monitoring and application of the continuous disclosure
framework’ and ‘this is strengthened by the Securities
Commission’s legislative investigation and enforcement
The Securities Markets Act 1988 (formerly the Securities Amendment Act
1988) regulates various activities on securities markets, including insider trading and continuous disclosure: sections 7 to 19 define insider trading and tipping with the possibility of civil liability for breach of the provisions; sections 19A to 19S provide a ‘statutory framework for continuous disclosure of information to securities markets by public issuers under the listing rules of registered exchanges, and provides remedies where this is not done.’81
Specifically, s19B states that public issuers must disclose in accordance
with any applicable listing rules, while the Commission
(s19G) and the Court
(s19K) may make orders requiring disclosure or corrective statements and the
Court may impose civil remedies
such as pecuniary penalties and compensatory
orders (ss19L, 19M).
This legislation also provides for the registration of securities exchanges,
such as NZX, the review of the exchange’s conduct
rules and supervisory
responsibilities of the Securities Commission in respect of the
In support of this co-regulatory environment, the NZSE had released a
consultation paper in March 2002 concerning revisions of the
listing rules to
align them more closely with the continuous disclosure and directors trading
disclosure requirements of the Securities
Markets and Institutions Bill. One of
the stated aims of these changes was ‘to reflect the formulation of
78 NZX, About NZX: www.nzx.com
79 Campbell, Elaine (Acting General Counsel for NZSE) New Disclosure System a Plus Speech
6 December 2002, 1.
81 Securities Commission New Zealand, The legislation we work with: Securities Markets Act
continuous disclosure test in the [Bill] and Rule 3.1 of the
[ASXLR].’82 The continuous disclosure obligation for listed
issuers to comply with section 10 of the NZX Listing Rules and the Securities
Markets Amendment Act 2002 was introduced on 1 December 2002. This
‘aligning of ‘New Zealand with Australian practice is a major change
the previous “relevant information”
NZX listing rule 10.1.1 on Material Information parallels ASXLR 3.1 and
3.1A in outlining the basic obligation and the exceptions or
‘carve-outs’ to the obligation of corporate disclosure. Rule
(c) requires the release of Material Information necessary to prevent the
development or subsistence of a market which is
materially influenced by false
or misleading information.84 The intention of this section mirrors
that of ASXLR 3.1B, which was reintroduced from 1 January 2003 to correct or
prevent a false
The Forward of the NZX Listing Rules states in section 1 that the
‘“Rules” contain the terms of a contract under
issuers...undertake to abide by [the] rules imposed’ but, as in the other
jurisdictions, this contractual obligation
would have been described as
inadequate in promoting the introduction of increased statutory
The listing agreements for both ASX and NZX still emphasise the common law
contractual relationship between the company and the exchange,
the immediacy of
the market place is enhanced by this. A similar contract was outlined in the
Introduction to the Yellow Book but this did not survive the
transformation to the UKLA ‘Purple Book.’85 The LSE
Admission and Disclosure Standards require a signed declaration that the
company acknowledges it ‘obligations under the Standards’86
and is in compliance
82 NZX, NZSE Releases Consultation Paper on Proposed Listing Changes, Press Release 26
March 2002: www.nzx.com
83 NZX, Listed issuer rules – Continuous Disclosure: www.nzx.com
84 NZSX and NZDX Listing Rules – Section 10 Disclosure and Information (Amended 1/5/04);
New Zealand Stock Exchange Limited, Guidance Note – Continuous Disclosure – March
85 Introduction to the UKLA Listing Rules deleted December 2001.
86 London Stock Exchange Admission and Disclosure Standards April
2002 Form 1 Application for Admission of Securities to Trading, 2.11.
with the requirements of any securities regulator. A similar signed
declaration acknowledging the company’s ‘obligations
listing rules’ is required by either the UKLA or the ISE.87
These obligations are statutory.
ASX still maintains a direct contractual relationship with is listed
companies. This is an advantage that could be more directly utilised
market transparency by public queries of companies when unexplained price
variations occur in market trading. ASX seems
unlikely to become more aggressive
in this aspect of market supervision as it reviews the cost of its role as
overseer of the Listing
Rules. The cost of enforcing compliance of the rules
also deters the Australian Securities and Investments Commission from following
the UKLA model. The Federal Government has recently entered the debate with a
warning to ASX ‘against any attempts to offload
its regulatory functions
onto the...Commission.88 The regulatory status quo will be
maintained, at least for the time
87 UK Listing Authority Listing Rules Schedule 3A Application for Admission of Securities to the Official List April 2002; Irish Stock Exchange Notes on the UKLA Listing Rules Application for Admission of Securities to the Official List Schedule 3A 29 November
88 Patten, Sally ‘ASX Keeps Its Supervisory Options Open’ The Australian Financial Review
6 June 2005, 53; The Hon. Chris Pearce MP, Parliamentary Secretary to the Treasurer 2005
SDIA Conference Sydney 2-5 June 2005.