AUSTRALIA: Calls for disclosure of Australia major shareholdings through equity derivatives

Wednesday April 4 2012

Following the recent scandals regarding disclosures in Australia of holdings in equity derivatives, in particular the recent surprise disclosure by Crown of a 10% interest in Echo Entertainment held through equity derivatives, there have been renewed calls for the rules on the disclosure of Australia major shareholdings to be reformed.

Currently, disclosure of Australia major shareholdings through equity derivatives is not required, despite a Treasury consultation being published on the matter in June 2009. The consultation highlighted several possible legislative amendments, including extension of the current substantial holding requirements to cover equity derivatives, application of the takeover provisions to equity derivatives, extension of the tracing notices regime to include equity derivatives, and requiring directors to disclose any equity derivatives the director holds over the shares of the company.

Despite receiving feedback from the industry, the Treasury has yet to take any further action on the matter. Current rules require disclosure of legal ownership rather than economic interest. However, in 2008 the Takeover Panel published Guidance Note 20, in which it states that it considers that non-disclosure of long positions may give rise to unacceptable circumstances. Where there is a control transaction, the Panel would expect that all long positions which already exist, or which are created, are disclosed unless they are under a notional 5%. This includes equity derivatives. Equity derivatives that do not affect the efficient, competitive and informed market for control of a specific security, or control or potential control of a company, or the acquisition or proposed acquisition of a substantial interest, are unlikely to give rise to unacceptable circumstances.

In an interview with The Australian published on 19 March 2012, Greg Medcraft, chairman of the ASIC, showed his support for more stringent disclosure rules when he stated: ‘I think we need a law based on economic interest, not legal, but Treasury has a discussion paper on the issue and it is not for me to comment on policy issues.’

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