ASIC's discussion paper on the dynamics between public and private markets: ASX's take

ASIC's Discussion Paper on the dynamics between public and private markets (link to our earlier article) attracted a lot of attention in the market, with many stakeholders providing submissions in response to the themes and questions raised by ASIC.

One of the more interesting submissions was that from ASX, which made a number of observations that seemed to resonate with other stakeholders in the market. In particular, ASX noted the following attributes of the Australian markets as potentially relevant factors to consider in improving its attractiveness:

• the length of time when retail and institutional investors and companies are at risk before they commence trading is longer than in some other markets;
• most major exchanges allow dual-class shares however ASX does not. It is a factor considered by companies – particularly in the technology sector – in choosing a listings venue;
• there is an expectation that forecasts are provided where there is reasonable basis to do so. Some issuers see this as an impediment to an IPO and would prefer forecasts to be optional;
• the transparent US process for founders to sell down is not permitted under the Corporations Act 2001 (Cth) (Corporations Act) and is cited as a reason to list on a US exchange;
• reducing the minimum size requirement for the Foreign Exempt Listing category would help attract a greater number of dual listings to ASX;
• the proportion of securities required to be available to be publicly traded, also known as free float, is higher than in other markets; and
• regulatory settings are impacting retail investor access to listed corporate bonds, resulting in the Australian listed market being underdeveloped relative to other markets.

ASX also published an update to the Listing Rules Guidance Note 1: Applying for admission – ASX Listings (GN 1), which will become effective on 30 May 2025. The changes to GN 1 are, amongst other things, aimed at providing greater transparency to potential early-stage technology, biotechnology and medical technology listing applicants. Importantly, the changes introduce limits on the type of entities that are eligible to use ASX ‘fast-track’ listing processes by requiring entities to have (1) an initial market capitalisation at quotation of at least $100 million and (2) no securities that are subject to ASX imposed escrow.

ASX has also introduced the following examples of where an entity may not have a structure and operations appropriate for a listed entity for the purposes of Condition 1 of ASX Listing Rule 1.1:

• the entity’s business is in its early stages and, in ASX’s view, has not developed to a point where listing is appropriate; or
• the entity is not an investment entity and has a non-operating or minority interest in assets or businesses that form a significant part of its listing proposition.

ASX has clarified that decisions about whether an entity’s business is at ‘too early a stage for listing’ are made on a case-by-case basis, based on the type of business and the information ASX has to hand at the time, and outlined the following list of general positive and negative factors that it will take into account for early-stage technology companies. While listing an early-stage company may be more involved, the following clarifications could hopefully improve the disconnect between the applicant's expectations and ASX's views:

Authors: Andrew Kim, Partner; Patricia Paton, Partner and Chemonica Niranjan, Associate.