It is also good practice to set “trading windows” and/or blackout periods. In my experience not all companies set specific times to trade or not trade. They are not essential as the prohibition on “insider trading” will always apply but they do help the entity demonstrate to the public that its directors and senior employees will not be trading at those times when they are most likely to know more than the market.
Insider Trading
The policy should include:
- A non-legal explanation of what insider trading means (including examples);
- A list of factors that would have material impact on the price of securities;
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Clarification that the prohibition is mandatory;
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A non-legal explanation of the consequences and sanctions involved in insider trading;
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An explanation that the prohibition extends to trading in the securities of subsidiaries and may also extend to trading in the securities of other entities (including suppliers and customers).
Directors’ Disclosure Observations
The policy should explain the legal requirements on directors to notify the market of any trading, in addition to their obligations where they are substantial shareholders, and to update the company’s register of directors’ interests.
Restrictions on timing of trades
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The policy should include clearance procedures for permitted trading in the entity’s securities (including the number of days available for trading subsequent to clearance and a list of who is subject to the policy).
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It is worthwhile describing restrictions on trading securities as either black out periods (typically the time between the end of a financial period and the release of a periodic financial report) or trading windows (e.g 14 or 30 days after certain milestones such as release of periodic financials, and the AGM). The restrictions on trading should include information such as what constitutes an active trade and what transactions are not restricted by the policy (for example participation in dividend reinvestment plans).
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In my experience it is appropriate to require directors and senior managers to seek prior clearance to trading outside permitted times, whereas less senior employees may simply be restricted from trading while in possession of price-sensitive information.
Good company secretarial practice
CSA recommends a number of practical steps for company secretaries to promote good practice:
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Ensure a director’s letter of appointment includes the requirement that the director immediately (and where practical in advance) notify the company secretary of any trading in company securities in addition to obtaining any required clearance;
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Set up a process for directors to advise the company of indirect interests (including their SRNs and HINs) so that changes in these interests can be monitored;
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Create a share registry ‘alert notice’ to notify the company of changes in the number of securities held by directors;
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Implement a reminder system to alert directors, executive and employees when trading windows and black out periods open and close.
Embedding good practice in company culture
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The company policy should provide general information on how the company develops a culture of awareness of the policy, who provides training on issues relating to trading in company securities and how the company ensures its policy is communicated to relevant parties.
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The policy should be styled in a clear, comprehensive and user-friendly manner, identifying one or more contact persons to handle any queries.
Action Items
As many listed entities are finishing their annual reporting and AGM 'season,' we recommend you use this 'less busy' time check whether your tradidng policy is clear and effective. More information on trading policies is set out in the ASX Corporate Governance Council’s Revised Corporate Governance Principles and Recommendations (2).
Lis Boyce, Partner
T: 61 2 8233 9566
E: lis.boyce@dibbsbarker.com
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(1) Available on www.csaust.com
(2)www.asx.com.au/about/corporate_governance/revised_corporate_governance_principles_recommendations.htm
