Issues to consider in developing or reviewing
the policy on trading in company securities
Ethics and responsible decision making
It is an ASX Listing Rule requirement that listed entities
have a policy on trading in company securities, and it
is considered good governance for the board of listed
entities not only to approve but also review regularly
the entity’s policy on trading in its own securities by
directors and others. This Guide is intended to outline
the issues to consider when doing so. Irrespective of the
provisions of the policy, the policy must be subject at all
times to the law on insider trading.
• any exceptional circumstances in which the entity’s
KMP may be permitted to trade during a ‘prohibited
period’ with prior written clearance, and
The policy should be tailored to the requirements of the
entity concerned. What is suitable for a small start-up
company may be quite different from what is suitable
for a large corporate group. It is important to have a
policy that is specific to the company and addresses the
matters noted below, in order to develop a culture where
trading in company securities and any prohibitions on
such trading is understood and adhered to.
Companies may also need to consider any additional
legal and regulatory requirements in other jurisdictions
if they are dual-listed or have overseas operations, and
the extent to which these requirements might apply to
joint ventures.
Legal and regulatory context
The policy should highlight the legal prohibition on
trading or influencing trading in securities by any
individual if they have inside information, at any time,
which may have a material impact on the company’s
share price.
The Corporations Act prohibits ‘insider trading’ generally
and the ASX Listing Rules and Corporations Act require
notification to the market by directors where a dealing
changes their relevant interest in the entity’s securities.
The ASX Listing Rules also require that each listed entity
have a policy on trading in their own securities by the
entity’s key management personnel (KMP, as defined in
the Corporations Act).
Matters that must be covered in the policy:
• the entity’s ‘closed periods’ when trading is prohibited
• the restrictions on trading that apply to the entity’s KMP
• any trading that is excluded from the entity’s trading
policy
• any approval processes in place for obtaining
clearance to deal (at any time) by KMP
• the procedures for obtaining such clearance.
Material changes to the policy require notification to
the market within five business days. The policy must
be released to the ASX and made publicly available.
Purpose of the policy
The policy should explain how and why the company
restricts trading in company securities that is in breach
of:
• legal and regulatory requirements
• the company’s policy.
The board, senior executives and other internal or
external persons who have access to inside information
relating directly or indirectly to the entity need to be
clear as to the risks that the entity’s policy is meant
to address.
Issues to address in the policy
It is good governance for the trading policy to address:
The prohibition on insider trading
The policy should provide an explanation of the
prohibition on insider trading contained in the
Corporations Act, which may include:
• an accessible and non-legalistic description of inside
information
• examples of inside information
• a list of what may have a material impact on the price of
the securities, including examples specific to the company
• clarification that the prohibition is absolute and not a
matter of guidance
© Governance Institute of Australia 2014. This material is subject to copyright. The Good Governance Guides indicate, in the view of Governance Institute
of Australia Ltd, one interpretation of good practice. They are not designed to cover or comply with all applicable legislation or case law. We cannot be held
liable or accountable to any person who acts or relies upon the information provided. The guides are not a substitute for professional advice.
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Ethics and responsible decision making
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• a non-legalistic explanation of what sanctions might
apply to insider trading
• outline the potential consequences for directors,
executives and employees from the company’s
perspective if either or both of the insider trading
prohibition or the policy is breached
• an explanation that the prohibition on insider trading
extends to trading in the securities of other companies
that an individual has inside information about, which
may include subsidiaries or associated companies or
other companies such as suppliers, contractors and
customers. The company’s policy should set out any
specific requirements about dealing in those types of
securities that it considers appropriate.
Exemptions
Consideration should be given to whether any
exemptions will apply as set out in the Corporations Act.
Directors’ interests notification
The policy should provide an accessible explanation of
the legal requirements on directors to:
• notify the market of any trading, whether in company
securities or otherwise
• notify the market of a substantial shareholding
(more than five per cent) or any change(s) in that
shareholding
• update the company’s register of directors’ interests
(or standing notices), which may be minuted at the
next board meeting.
The policy should also refer here to the relevant matters
set out in the section below ‘The company secretary’.
Restrictions on trading
Restrictions on trading in trading policies can be
expressed as either ’black out’ or ‘closed’ periods,
where the entity’s policy stipulates certain periods
where trading may not occur, or ‘trading windows’
where trading is generally prohibited save for certain
specified approved periods.
Regardless of which approach is decided by the
company, periods where trading is not allowed are
‘black out’ or ‘closed periods’ for the purposes of the
Ethics and responsible decision making
ASX Listing Rules. It is good governance to ensure that
the company clarifies which restrictions on trading are
in place. A policy that does not include either, a closed
period, trading windows or a black-out approach to
restrictions will give rise to reputation and compliance
risk, as the perception could arise that trading is
permitted despite legal prohibitions on insider trading.
Trading windows
A policy based on trading windows can:
• provide greater clarity and certainty around when
directors and executives are able to deal in company
securities and can be easier to administer. As it is now
common for corporate activity to occur throughout
the year, it can become difficult to locate a period
in which directors and executives can trade without
insider trading occurring, or the perception that
insider trading is occurring. However, the policy must
be clear on the length of time for which the trading
window operates, what triggers are appropriate to
allow the trading window to operate, and be mindful
of the continuous disclosure obligations to keep the
market informed of price-sensitive information at all
times
• give rise to a misunderstanding that trading is
permitted during trading windows despite legal
prohibitions relating to insider trading. It is important,
therefore, that the policy clarifies that trading windows
provide a conditional lifting of a blanket prohibition
rather than permission and that any such lifting of the
prohibition is subject to clearance procedures and the
legal prohibition relating to insider trading.
Closed periods before trading windows
A policy based on closed (or black-out) periods can:
• clarify that restrictions and protocols are in place
to counter any suspicion of insider trading
• provide reasonable (and easily defended) periods from
balance date to results release for full and half-year
results (and maybe quarterly blackouts for companies
that report quarterly)
• give rise to a misunderstanding that trading is
permitted in the period leading up to a black-out
period despite legal prohibitions relating to insider
trading. It is important, therefore, that the policy
clarifies that black-out periods provide a conditional
lifting of a blanket prohibition rather than permission
© Governance Institute of Australia 2014. This material is subject to copyright. The Good Governance Guides indicate, in the view of Governance Institute
of Australia Ltd, one interpretation of good practice. They are not designed to cover or comply with all applicable legislation or case law. We cannot be held
liable or accountable to any person who acts or relies upon the information provided. The guides are not a substitute for professional advice.
Visit our website at governanceinstitute.com.au to find more Good Governance Guides and information on governance.
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and that any such lifting of the prohibition is subject
to clearance procedures and the legal prohibition
relating to insider trading.
It is good governance to note in the policy that a blackout period exists following the close of books until at
least one trading day after the release of interim and full
year results (to allow time for the market to digest the
results).
There may also be black-out periods imposed by a
company at any time without explanation to those
affected, including if the company is involved in
corporate transactions that might have a material
impact on the share price.
It is essential that the policy clarify that, irrespective of
whether trading occurs in a trading window or outside
a black-out period, no trading can occur if it involves
the use of inside information.
The restrictions on trading should also clarify to
whom the restrictions apply. The ASX Listing Rules,
as a minimum, require the policy to cover KMP. Many
companies, dependent on the size and nature of the
organisation, also restrict others from trading at certain
times.
Trading excluded from the policy
It is good governance for companies to also consider
whether any types of trading in the company’s securities
by an individual covered by the policy should be
excluded from the prohibitions on trading in the policy
(although still being subject to the law on insider trading
unless specifically excluded by regulation).
Some of the situations that may be considered are set
out below and normally involve situations where the
trading is passive, outside of the individual’s control or
there is no underlying change in beneficial owner:
• transfers of company securities already held by the
individual into a superannuation fund or other saving
scheme in which the individual is a beneficiary
• an investment in, or trading in units of, a fund or
other scheme or arrangement (other than a scheme
only investing in the company’s securities) where the
assets of the fund or other scheme are invested at
the discretion of a third party
Ethics and responsible decision making
• where an individual is a trustee, trading in the
company’s securities by that trust where the
Individual is not a beneficiary of the trust and any
decision to trade during a prohibited period is taken
by the other trustees or by the investment managers
independently of the individual
• undertakings to accept, or the acceptance of, an
announced takeover offer
• dealing under an offer or invitation made to all or most
of the security holders, such as a rights issue, a security
purchase plan, a dividend reinvestment plan and an
equal access buy-back, where the plan that determines
the timing and structure of the offer has been approved
by the board. This may include decisions relating to
whether or not to take up the entitlements and the sale
of entitlements required to provide for the take up of the
balance of entitlements under a renounceable pro rata
issue
• bona fide gifts of the company’s securities to an
individual by a third party
• where the beneficial interest in the relevant company
security does not change
• transactions conducted between an individual and
their spouse, civil partner, child, step-child or other
close family member
• cancellation of the company’s securities as a result of
failure to vest or other forfeiture of securities received
by Individuals as part of performance based
remuneration, and
• vesting (but not any subsequent sale) of the
company’s securities as a result of meeting
performance hurdles or release of the company’s
securities from holding lock or holding term in
respect of securities received by individuals as part
of performance-based remuneration.
Exceptional circumstances
It is good governance that companies consider
for inclusion in their policy whether there are any
circumstances where trading (not excluded by the
policy) may be carried out during a period that is
otherwise prohibited.
Some companies may consider that where an individual
who is not in possession of inside information is
in severe financial difficulty or if other exceptional
circumstances apply, they may request and be given
© Governance Institute of Australia 2014. This material is subject to copyright. The Good Governance Guides indicate, in the view of Governance Institute
of Australia Ltd, one interpretation of good practice. They are not designed to cover or comply with all applicable legislation or case law. We cannot be held
liable or accountable to any person who acts or relies upon the information provided. The guides are not a substitute for professional advice.
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clearance to sell (but not purchase) the company’s
securities when they would otherwise be prohibited by
the policy from doing so.
The company needs to consider how the policy
will address the situation of a KMP who may be in
severe financial difficulty due to a pressing financial
commitment that cannot be satisfied otherwise than
by selling the company’s securities. A liability to pay tax
would not normally constitute severe financial difficulty.
A circumstance will be considered exceptional if the
KMP in question is required by a court order to transfer
or sell the company’s securities or there is some other
overriding legal requirement for them to do so (eg a
family law settlement). The policy should not be silent
on the issue of exemptions in relation to KMP.
Clearance to deal procedures
The policy should include:
• clearance or notification procedures for allowing
trading in company securities, including information
on who must be contacted within the company to
provide such clearance; in what circumstances
clearance will be supplied or denied; and forms of
notification before trading takes place. Where a
request involves the consideration of exceptional
circumstances, justification for a sale as the only
reasonable course of action, and particulars of those
exceptional circumstances must accompany the
relevant clearance request
• how many days are available for trading once
clearance has been provided
• details of who is covered by the company rules on
trading in company securities, with clarity on how the
policy may apply beyond the employment contract to
spouses, dependents and external consultants and
advisers.
Other policy considerations
It is also considered good governance to consider
including the following matters in the policy:
• whether lending of the company’s securities is
included in the definition of trading or is a prohibited
practice
• whether Individuals are able to undertake any form
of short-term trading in company securities, or if not,
what the company considers to be short-term
Ethics and responsible decision making
• whether margin lending over the company’s securities
is allowed and if so, whether there any additional
disclosures required by the company to be made to it
• the company’s policy on prohibiting hedging and an
explanation of how the company prevents executives
from dealing in unvested entitlements to company
securities, or vested entitlements subject to a holding
lock.
Awareness of and compliance with policy
Training and education should be provided for
employees and directors to make them aware of
and compliant with the policy. There should also be
processes included for certifying that such training
and education has taken place.
The policy should also include:
• information on how the entity approaches the
development of a culture of awareness of the policy,
and the matters it covers, for example, induction when
commencing with the entity; and ongoing training
• who is responsible for providing training on issues
relating to trading in company securities
• how the company ensures the policy is communicated
to all persons subject to it (including those external to
the company)
• confirmation that ASX, ASIC and governance advisers
take an interest in whether or not companies are
complying with their share trading policies.
Style
Consideration of the following matters may assist in
clarifying the terms of the policy to those to whom it
applies:
• a summary of the main issues dealt with in the policy
• a glossary, including a clear definition of dealing (note
that a poor definition of dealing will render the policy
ineffective) and securities
• a set of questions and answers (Q & As) in relation
to company rules for trading in company securities
• a process chart setting out clearance procedures
and opportunities for trading
• a link to the board charter and code of ethics
• the details of the person who needs to be contacted
if there are any queries.
© Governance Institute of Australia 2014. This material is subject to copyright. The Good Governance Guides indicate, in the view of Governance Institute
of Australia Ltd, one interpretation of good practice. They are not designed to cover or comply with all applicable legislation or case law. We cannot be held
liable or accountable to any person who acts or relies upon the information provided. The guides are not a substitute for professional advice.
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Each company needs to decide if it will cover all of
the issues noted below in the policy itself or in a
supporting document provided to the directors and
senior executives and other internal or external persons
who have access to inside information relating directly
or indirectly to the entity. In such cases, the published
policy would need to set out the core intent of the
restrictions on trading in company securities and
the supporting document would set out the internal
administration details. The policy must, however,
include all issues required by the Listing Rules.
The company secretary
It is good governance for the company secretary to:
• ensure that any letter of appointment for directors
includes a requirement that, in addition to obtaining
clearance, the director must immediately and where
practical in advance notify the company secretary of
any trading in company securities (see Listing Rule
3.19B). The letter should clarify that directors are
obliged to notify the market of any trading in company
securities under s 205G of the Corporations Act (14
days) and Listing Rule 3.19A (five days)
Ethics and responsible decision making
• immediately circulate all Appendix 3X (initial) or 3Y
(change) announcements to all directors, so that
the board as a whole is kept informed of all trading
by directors
• implement a reminder system, for example via email
or the company intranet, to alert directors, executives
and employees when trading windows and black-out
periods open and close.
References:
Corporations Act ss 1042 to 1043 (insider trading)
Corporations Act s 300A(1)(da) (hedging policies)
ASX Listing Rules chapter 12 (rules relating to trading
policies)
ASX Listing Rules 3.19A & B and Appendices 3X, 3Y
and 3Z and Corporations Act s 205G (directors’
interests’ notifications)
ASX Guidance Note 27 — Trading policies.
• set up a process for directors to advise the company
of indirect interests, including their SRNs and HINs.
Trustees may deal in securities in which a director
has or is deemed to have an interest (for example,
a family trust or outsourced superannuation fund),
without the director making a decision to trade, but
the director maintains the legal obligation to notify the
market (whether the securities are company securities
or otherwise). Alternatively, directors may hold shares
through a broker, with the financial adviser controlling
the holding, and the director again is not the person
making the decision to trade
• set up an ‘alert service’ through the share registry, to
notify the company of any changes in the number of
company securities held by directors in any one or
more of their holdings, whether directly or indirectly
© Governance Institute of Australia 2014. This material is subject to copyright. The Good Governance Guides indicate, in the view of Governance Institute
of Australia Ltd, one interpretation of good practice. They are not designed to cover or comply with all applicable legislation or case law. We cannot be held
liable or accountable to any person who acts or relies upon the information provided. The guides are not a substitute for professional advice.
Visit our website at governanceinstitute.com.au to find more Good Governance Guides and information on governance.