If recent rule changes and proposed amendments to Listing Rules are anything to go by, the ASX and ASIC seem to be hell-bent on wiping out speculation in the Australian stock market. Cannings Purple’s Investor Insight team explain.
If recent rule changes and proposed amendments to Listing Rules are anything to go by, the ASX and ASIC seem to be hell-bent on wiping out speculation in the Australian stock market.
And while the sentiment behind the rule changes and amendments – in summary, protecting the investor from unscrupulous company promoters – may be admirable, the apparent lack of thought given to the consequences of this crackdown should be cause for concern for everyone that values the sophisticated and efficient operation of the ASX.
For resources companies, the recent rule change preventing companies from publishing the results of a Scoping Study is simply breathtaking and contrary to the ASX’s stated goal of ensuring an informed market. Scoping Studies are understood to be early stage economic assessments of a project. They are not PFS or DFS level and investors should understand the difference.
Consider this – Company A drills some holes, gets good results and embarks on a Scoping Study. The results indicate a solid NPV, a high IRR and fast payback – all good measures of a quality project. Now, under the new rules, all they can say is the results were positive.
For directors of Company A, three issues arise. Firstly, are they in breach of Listing Rule 3.1 (continuous disclosure) by witholding information? Secondly, are Directors restricted from trading in the stock on the basis that they have inside information, right up untll a PFS is completed? And finally, how many companies will hit the road with a bland ASX announcement only to verbally pass on the results to the brokers, analysts and fund managers that they are seeking to raise funds from?
The second major excitement suppressing development from the regulators is the proposal to limit the ability of tech companies with little or no revenue to list. This presupposes two things – that there is a sufficiently deep private equity pool available to fund these companies in Australia and that the investors in the eventual IPO are going to be satisfied with medium growth prospects (and not the speculative ‘fear of missing out’ gains).
On both counts, the answer is no.
If the goal of the rule changes is to reduce the speculative appeal and returns from early stage resources and tech companies, it is likely to have a devastating impact on exploration (the lifeblood of the resources sector) and tech development (which drives the current focus on innovation).