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The main aim of Continuous Disclosure Framework

Question:

Discuss About The Disclosure Continuous Information Asymmetry?

The main aim for the preparation of continuous disclosure framework is to develop strong and efficient equity market in Australia. The main reason is that complying with the regulations of continuous disclosure framework helps the companies in disclosing price sensitive information about shares in order to provide assistance to the investors in the decision making process (Aspris, Foley and Frino 2014). The recent investigation of Newcrest in the role of operations regulator for the investigation of the violation of continuous disclosure obligation has shown a major lesson for the Australian Stock Exchange (ASX) listed companies related to continuous disclosure framework. The main aim of this report is to analyse and evaluate various aspects of continuous disclosure framework in relation with the Australian companies. More specifically, this report aims to discuss the necessity and effectiveness of continuous disclosure framework.    

The continuous disclosure requirements are not new for the Australian Company Law and there has been an urgent necessity of continuous disclosure requirements. The current continuous disclosure framework was proposed in 1994 and it can be seen in “Chapter 6CA (Sections 674 – 678) Corporations Act” through “ASX Listing Rules (Chapter 3)”.

This particular section states that it is the responsibility of the Australian companies to disclose the price sensitive share information having material effect on the price of shares and securities. According to Guidance Note 8, companies have the obligation to disclose the price sensitive information when they become aware of it (Chang  and Wee 2014).

According to the regulations of Principle 5 in ASX Corporate Governance Principles and Recommendations, continues disclosure plays an important role in minimizing the information asymmetry between the companies and investors and is also considered as a mean for effective governance. There are various enforcement alternatives through which companies can breach the continuous discloser obligation. Some major forms of these alternatives are civil penalty up to $1,000,000, undertakings of enforcements, different types of criminal penalty and many others (Fu, Carson and Simnett 2015).

In this context, it needs to be mentioned that ASIC has the authority to take legal actions against the companies violating the obligation of continuous disclosure and it does not have any influence on the third party being affected by the violation of continuous discloser requirement. Even though companies can handle the infringement notices rapidly, big organizations have the scope to evade these notices in the cheap way with minimum effects on their goodwill (North 2014).

The history and current status of Continuous Disclosure Framework

The policing activity of ASIC is very useful in order to judge the extent of continuous disclosure. In a presentation to the Australian Investor Relations Association (AIRA), the commissioner of ASIC mentioned that 28 insider-trading actions is thee, in which 18 have been solved and 5 yet to be solved. Moreover, the current ASIC conviction rate has become almost double in compared to 2009. Currently, ASIC has 25 investigations in their hands that include 11 infringement notices and 9 cases of failing to satisfy the obligation of continuous disclosure (Chapple and Truong 2015).          

The main principles of continuous discourse regime of Australia are discussed below:

It is essential for the Australian companies to disclose sufficient information so that the investors can make right judgment about the share prices by using this information and the investors have the right to make distinct judgment by using this information (Di Lernia 2014).

The companies are also required to disclose the price sensitive share information to the market when they become aware about it. In addition, the need to disclose information on prompt basis when it is evident that disclosure could not be withheld legitimately anymore.

It is required for the companies to disclose the prise sensitive information on an equal basis so that they become advantageous for the investors. In this context, it needs to be management that it is essential not to have selective disclosure in order to maintain the integrity of share market as selective disclosure has the potential for the development of insider trading where the material price sensitive information leads the trade of the investors. In this aspect, continuous disclosure framework reduces the risks of insider trading (Di Lernia 2014).

The continuous disclosure framework has an important role to play in developing a balance between the timely disclosures of price sensitive information about the shares and restricting the aspect of earlier disclosure of such information. Apart from this, it is the restriction on the employees to develop any speculative information including volatility in the share prices with the assistance of frequent conflicting announcements about the share prices (Hermalin and Weisbach 2012).

It is the responsibility of continuous disclosure regime to make an appropriate balance between the timely disclosures of prise sensitive share information and to protect the commercial benefits of the disclosing Australian companies. Business organizations have the authority to provide information to their advisors and the parent firms; but the business partners and the advisors cannot use this information for trading in the share market.

Continuous Disclosure Framework regulations and principles

It is the responsibility of the business organizations to maintain the confidentiality of the prise sensitive information to the investors. It is needed for the companies to disclose the price sensitive information based on their time and equality (Hsu, Lindsay and Tutticci 2012).

As per continuous disclosure framework, it is the right of the companies to get effective guidance related with the continuous disclosure obligation of price sensitive information.

Close association can be observed between selective disclosure and insider trading. The dependency of market can be seen on the flow of information; but it cannot be at a cost of equality and efficiency. Moreover, it must not affect the confident of the investors. For this reason, selective hinders in bringing loyalty in the analysis, restricting the investors from obtaining equal access to the share information, affecting the transparency of share market and spoiling the confidence of the investors (Russell 2015). Selective disclosure could lead to a cruel cycle where business organizations disclose the chosen share information in order to gain their favourable results that have no association with the goals and objectives of the companies. In addition, the process of selective disclosure makes the institutional investors able to extract preferential access to their preferred information for listed organizations with the help of private briefing. In spite of that, there is still need for selective briefing for the companies as they play an integral part in filling the gap in the analysis of share prices. This has relevancy as the investors become benefitted from the expert analysis. Level the playing field refers to the process of webcasting and getting access to the relevant documents by using the website of the companies. For this reason, most of the businesses organizations prefer to use adopt this process for the analysis of information.  Recently, ASIC has taken the initiative of surveillance for the various aspects of selective disclosure of price sensitive information (Riaz et al. 2013).    

The recent initiative of ASIC for carrying out the spot check process of selected organization is still overdue. The main reason of this is the presence of complexities in the process of successful monitoring along with the process of criminal prosecuting (Tran 2015). In addition, the total cost of ASIC is another significant matter to consider. For this reason, there is a need for strict laws. Apart from this, corporate governance is considered as another major aspect that needs to be implemented along with the required regulations. For all these reasons, the program of surveillance by ASIC has a great importance in the total process (Seamer 2014).     

Enforcement alternatives for Continuous Disclosure Framework

Conclusion

From the above discussion, it can be observed that the continuous disclosure regime is a good aspect for the Australian companies. However, in this aspect, it is required for the authorities like ASIC to participate in this matter in order to balance the whole initiative of continuous disclosure framework. As per the above discussion, different layers of continuous disclosure regime in Australia are enforcements, regulations and guidance aiming towards the development of a strong and effective share market in Australia. Apart from this, the initiative of ASIC business surveillance is considered as another major step towards strengthening the equity market of Australia. For all these reasons, it can be concluded that the continuous disclosure regime is an effective tool for Australian companies in disclosing price sensitive timely information about the shares.

References

Annualreports.com. (2018). Annual Report 2015-16. [online] Available at: https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BAL_2016.pdf [Accessed 16 Jan. 2018].

Aspris, A., Foley, S. and Frino, A., 2014. Does insider trading explain price run?up ahead of takeover announcements?. Accounting & Finance, 54(1), pp.25-45.

Chang, M., Hooi, L. and Wee, M., 2014. How does investor relations disclosure affect analysts' forecasts?. Accounting & Finance, 54(2), pp.365-391.

Chapple, L. and Truong, T.P., 2015. Continuous disclosure compliance: does corporate governance matter?. Accounting & Finance, 55(4), pp.965-988.

Di Lernia, C., 2014. Empirical Research in Continuous Disclosure. Australian Accounting Review, 24(4), pp.402-405.

Di Lernia, C.A., 2014. Faith/less? Market integrity and the enforcement of Australia’s continuous disclosure provisions.

Fu, Y., Carson, E. and Simnett, R., 2015. Transparency report disclosure by Australian audit firms and opportunities for research. Managerial Auditing Journal, 30(8/9), pp.870-910.

Hermalin, B.E. and Weisbach, M.S., 2012. Information disclosure and corporate governance. The Journal of Finance, 67(1), pp.195-233.

Hsu, G.C.M., Lindsay, S. and Tutticci, I., 2012. Inter?temporal changes in analysts’ forecast properties under the Australian continuous disclosure regime. Accounting & Finance, 52(4), pp.1101-1123.

Investors.bellamysorganic.com.au. (2018). Annual Report 2017. [online] Available at: https://investors.bellamysorganic.com.au/FormBuilder/_Resource/_module/hwGxZyb3NkyBtC5tw1kqzQ/docs/reports/Bellamys_Annual_Report_2017.pdf [Accessed 16 Jan. 2018].

North, G., 2014. Listed Company Disclosure and Financial Market Transparency: Is this a Battle Worth Fighting or Merely Policy and Regulatory Mantra?. Browser Download This Paper.

Riaz, Z., Ray, S., Ray, P.K. and Kirkbride, J., 2013. Collibration as an alternative regulatory approach for remuneration governance: A contextual analysis of Australia. International Journal of Disclosure and Governance, 10(3), pp.246-260.

Russell, M., 2015. Continuous disclosure and information asymmetry. Accounting Research Journal, 28(2), pp.195-224.

Seamer, M., 2014. Does Effective Corporate Governance Facilitate Continuous marketing Disclosure?. Australian Accounting Review, 24(2), pp.111-126.

Tran, A., 2015. Can taxable income be estimated from financial reports of listed companies in Australia?. Browser Download This Paper.

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