ASX requires listed companies to monitor social media

Posted by Nicole Reid and Alberto Colla

Directors and senior executives of companies listed on the Australian Stock Exchange (ASX) have another reason to play close attention to what is being said about their company on the internet. The ASX's recently released updates to its guidance note 8, which deals with listed entities' continuous disclosure obligations, make it clear that the ASX expects companies to monitor social media for certain content. The updates are expected to come into effect around 1 May 2013.

ASX Listing Rule 3.1 requires a listed entity to immediately notify ASX once it becomes aware of 'any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities'. There are a number of exceptions to this rule, including where the information is (and has not ceased to be) confidential. Listed companies sometimes request trading halts where they are not in a position to 'immediately' disclose market sensitive information, so as to prevent uninformed trading in the market prior to the disclosure being made. This is a practice that the ASX continues to support, where appropriate, to ensure compliance with the spirit of Listing Rule 3.1.

The updated guidance note relating to this Rule 'strongly encourages' an entity that has not yet disclosed existing market sensitive information to monitor 'any investor blogs, chat-sites or other social media it is aware of that regularly include postings about the entity… for signs that the information in the announcement may have leaked'. In the ASX's view, such monitoring should take place both while the company is awaiting board approval for an announcement, and where it is relying on the exception for confidential information. If the monitoring identifies that the market sensitive information has been leaked online, in the ASX's view the company should either immediately request a trading halt or provide the required notification to the ASX.

In the course of the ASX's consultations after the draft updated guidance note 8 was released in October 2012, ASX received a number of comments about this new monitoring requirement. Some respondents were particularly concerned about the breadth of the requirement, and advocated limiting it to 'credible' sites or by taking into account the resources of the listed entity. However, the ASX did not take up these suggestions. In its consultation response, the ASX stated that:

• the requirement to monitor social media is limited to where market sensitive announcements are pending or are being delayed for reasons of confidentiality;
• listed entities would be aware of any 'shareholder action' blogs that exist for that entity which may post content including leaked market sensitive information, and many larger listed entities also monitor certain sites as part of their investor relations activities; and
• accordingly, 'where a market sensitive announcement is pending and where a listed entity is most likely already monitoring the site in question, ASX does not believe it is unreasonable or imposes an undue burden on the entity to expand that monitoring to look for signs that information in the pending announcement may have leaked.'

Although the ASX guidance does not expressly require ongoing monitoring of social media sites, it will be necessary for listed companies to look at their policies and processes before any market sensitive information arises that could be affected by the monitoring requirement. These policies and processes need to be adequate to ensure that appropriate persons are aware of the social media sites on which content about the company may be posted and how those sites may be effectively monitored for relevant information. Even if a company is already carrying out some monitoring of social media for its own purposes, as the ASX suggested, this does not mean that the individuals carrying out that work are best placed to quickly identify information that may indicate early disclosure of market sensitive information. Members of team monitoring social media for reputational and other issues may not even be aware of market sensitive information that has not yet been publicly disclosed, in which case they would not be in a position to identify content that could give rise to a disclosure obligation and accordingly may need to be internally escalated.

Listed entities may also need to ensure that their social media monitoring is sufficient to detect any rumours that may be circulating about the entity and affecting the price of its securities. In such a situation, according to the updated guidance note, the ASX expects that the entity will confirm an accurate rumour or correct a false one, so that the market can trade on an informed basis. As the reach of social media sites expands ever further, rumours circulating on those sites are more likely to be widely disseminated and thereby affect a company's share price if they are perceived to be credible. It will therefore become increasingly important for companies to ensure that social media monitoring is not simply left to marketing personnel but treated with due weight. Failure to comply with continuous disclosure obligations can give rise to penalties, infringement notices and the potential for class actions, so companies need to ensure that their compliance processes are rigorous.