Our two corporate cops move from dynamic duo to enemies

Oh, the exquisite irony. The Australian Securities Exchange, a market operator responsible for policing public company disclosure rules, is being sued by the supreme corporate regular for (wait for it) misleading and deceptive disclosure.

For Australia, it is as bizarre as it is embarrassing.

Damian Roche is the chairman of ASX. The exchange operator is being sued by the corporate regulator over alleged disclosure failures.Credit: Alex Ellinghausen

In an Australian first, our two corporate cops, the ASX and the Australian Securities and Investments Commission, have moved from operating as the dynamic duo to combatants in a legal battle.

The legal action was announced with the ink barely dry on a Senate report released last month in which chair Andrew Bragg branded ASIC a failure as regulator, citing its unwillingness or reluctance to commence investigations.

So what are we to make of all this? Australia has an impotent regulator pursuing an alleged lawbreaking regulator?

And remember, the ASX is not just the market operator in charge of the market’s listing rules, which include the timely disclosure of market sensitive information. It is also a listed company and therefore subject to the same disclosure rules as other listed companies. So at one level, the ASX is self-policing its own listing rules.

As such, you might expect ASX Ltd to set a high watermark for corporate behaviour, the finest standards for transparency and governance.

But allegations made by ASIC, which will now be tested in the Federal Court, suggest the conduct of the board in 2022 in approving misleading statements was a long way from being best practice.

Most of those board members and the chief executive at the time, Dominic Stevens, have moved on, but the ASX chairman, Damian Roche, must be shifting uncomfortably in his chair given Wednesday’s statement by ASIC chairman Joe Longo: “We believe this was a collective failure by the ASX board and senior executives at the time.”

ASIC’s concise statement of claim makes for uncomfortable reading for those inside the market operator.

“ASX is the entity responsible for developing and issuing its listing rules and for ensuring Australia’s primary cash equities market, a piece of significant national infrastructure, operates fairly and transparently.

“The ASX Corporate Governance Council develops and issues the corporate governance principles and recommendations to be adopted by ASX listed entities. The principles instil a culture of acting lawfully, ethically and responsibly and highlight the importance of market announcements being accurate. By reason of the misleading conduct … ASX undermined the principles it promotes for itself and other listed entities.”

Just how the ASX is alleged to have misled the market involves the somewhat arcane issue of how it was attempting to update its clearing and settlement trading system to a new high-tech system.

A decision was made in 2016 that the three decades-old CHESS system was to be replaced by a new block trading-based platform.

That this project, which was ultimately abandoned, was a calamitous series of snafus is generally understood.

It has been a seven-year weeping sore for the ASX, riddled with problems and false starts.

Stevens resigned in 2022 when it was clear the wheels were starting to fall off the CHESS replacement project. His replacement, Helen Lofthouse’s appointment postdates the contentious disclosure period.

The trouble is, according to ASIC, that the ASX was tardy in owning up to the troubles it was having on the new trading platform project.

ASX chief executive Helen Lofthouse had to pull the pin on the CHESS upgrade early in her tenure.Credit: Louise Kennerley

But it was particular statements made by the ASX in February 2022 that form the basis of ASIC’s legal action.

ASIC alleges statements made in ASX announcements on February 10, 2022, that the project remained “on-track for go-live” in April 2023 and was “progressing well” were misleading.

It further alleges that: “These statements implied the project was tracking to ASX’s announced project plan and was on track to meet future milestones, including ‘go-live’ in April 2023.

“ASIC alleges those representations were misleading and deceptive because, at the time of the announcements, the project was not tracking to plan and ASX did not have any reasonable basis to imply the project was on track to meet future milestones.”

In a statement from ASX’s Lofthouse, the company acknowledged the civil proceedings, and told investors it would “keep the market informed in accordance with its continuous disclosure obligations”.

Interesting choice of words.

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