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The Unintended Consequences of the ASX’s Tighter Listing Requirements

Friday, May 20, 2016

When one looks at the ASX’s proposals for Tighter Listing Requirements as announced last week by the ASX, companies wishing to list on the ASX will need to have:

  • Net Tangible Assets of A$5M (up from current A$3M); plus

  • Market Capitalisation of A$20M (up from current A$10M).

In the words of many commentators including Chanticleer (AFR 13th May 2016) there is “much to admire” about the ASX proposals for toughening the requirements for admission to the ASX official list.

ASX Chief Compliance Officer Mr Kevin Lewis said:

  • The aim of the package of proposals was “designed to strengthen the ASX’s reputation as a listings market of quality and integrity.”

  • It also reflects the market’s current dynamics and provides enhanced guidance about the standards expected of an ASX listed company.

Supporters of the move as reported in the press even included Atlassian's Mike Cannon-Brookes and TechnologyOne chief executive Adrian Di Marco.

To us at PrimaryMarkets, on the face of it, the ASX’s proposals appear to be somewhat in conflict with the Federal Government’s high-profile emphasis on Innovation.

Those speaking against the proposed changes include:

  • George Parthimos, chief executive of Connexion Media, whose company’s listing in August 2014 could not have taken place under the new rules, since its net assets and market capitalisation would have fallen below the new thresholds; and

  • Bruce Lane, Managing Director of Protean Wave Energy, complains "These new rules will prevent many innovative technologies from getting the early stage funding they seek."

Primary Markets are broadly in favour of the proposals for our own business-case point of view.

PrimaryMarkets is the listing service for unlisted (ie non-ASX listed entities) for raising new equity as well as offering a platform for trading existing securities in unlisted entities.

The ASX has a well-regarded worldwide reputation for enhancing capital raising efforts for start-ups and smaller market capitalisation companies via listing on the ASX at much earlier time in their traditional life-cycle when compared to other bourses such as HKSE, NYSE, NASDAQ and the like.

The smaller entities have been an attractive investment opportunity for smaller investors who are happy to invest in early-stage entities provided they have a simultaneous opportunity for liquidity for their individual investment ie trading their shares on the ASX.

The new ASX proposals change the risk/reward profile for such investors and thus potentially dry up a source of funding for such early-stage entities.

The ASX rule changes will push more companies with ambitions to list on the ASX into waiting until they are on a commercially-larger footing. In effect, denying companies this established source of funding that has in the past let the ASX lead the world in raising early stage funding.

This traditional large pool of investor funds will be shut off to early stage companies, with best intentions and positive future outlooks, forcing them to look elsewhere.

To us, this conflicts with the Federal Government and its National Innovation and Science Agenda which is aimed at innovation and more funding by early stage investors.

A likely consequence of these proposed ASX changes, planned for implementation on 1st September 2016, will be an increased demand for PrimaryMarkets’ own services. PrimaryMarkets represents the worldwide solution for companies that have a desire to raise new equity whilst at the same time offering a platform for liquidity for investors – opportunities which would be denied to early stage investors by these proposed ASX changes.

It sounds to us that all we need to do is reach out to all innovative Australian Companies who are now being sidelined or rejected by the ASX to let them know that the ASX’s proposals may not be quite the dampener for early-stage Capital Raisings and liquidity for their investors as they fear - the alternative is already out there.

If one were an ASX shareholder you might ask your Board why limit new listings as won’t this reduce ASX income and marketshare? Won’t the new proposals make other marketplaces such as PrimaryMarkets or Chi-X now look more attractive? What is the business case for the ASX shrinking its pool of new entrants?

PrimaryMarkets welcomes all Companies that may feel slighted or rejected by the ASX.

Photo Source: AP

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