LIC Governance Spotlight: Expiry of Listed Options

8 Jun 2017

In this update we take a look at the expiry of Listed Options and the disclosure and regulatory obligations for a Listed Investment Company (LIC). The ASX Listing Rules require certain disclosure and communication with option holders however when the options are ‘out of the money’ this obligation can be waived. A proforma standard waiver is provided at the end of this update.

LICs frequently use Listed Options to reward shareholder loyalty and raise additional capital to fund further growth. These Listed Options have specific disclosure requirements imposed by the ASX. The expiry of Listed Options should be incorporated into a LIC’s corporate calendar with board meetings and marketing plans scheduled to coincide with the expiry timetable.

ASX Disclosure Obligations

The Listing Rules require compliance with Appendix 6A (LR 6.24). Appendix 6A imposes a timetable that LICs must follow in relation to the expiry of “convertible securities” which includes options (Paragraph 6 of Appendix 6A) and the time limits that apply. The following is provided from Paragraph 6 of Appendix 6A:

Event Time Limits Business Day
Entity sends notice to holders of convertible securities. not more than 30 business days before the conversion or expiry date and at least 20 business days before the conversion or expiry date 0
Entity applies for quotation (Appendix 3B). at least 2 business days before trading on a deferred settlement basis 14
Quotation of convertible securities ends at close of trading, unless there is a later maturity date. 4 business days before the conversion or expiry date 16
Quotation of the underlying securities quoted on a deferred settlement basis, if the convertible securities are “in the money” and the conversion ratio is fixed. 3 business days before the conversion or expiry date 17
Conversion date or options expire. 20
Issue date. Deferred settlement trading ends. Entity issues underlying securities.

Last day for entity to confirm to ASX all information required by Appendix 3B.

Note: normal trading (T+2) starts in the underlying securities on the next business day after the issue date (i.e. day 36).

Settlement of on-market trades conducted on a deferred settlement basis and the first settlement of trades conducted on a T+2 basis occurs 2 business days after T+2 trading starts (i.e. day 38).
not more than 15 business days after the conversion or expiry date 35

Documents to be sent to Option Holders

The first event listed in the table requires LICs to provide notice of the expiry of Listed Options to its option holders. Paragraph 6.1 of Appendix 6A states what the notice is required to include:

  1. The name of the holder of the Listed Options.
  2. The number of Listed Options held, and the number of securities to be issued on their conversion.
  3. The conversion or exercise price.
  4. The due date for payment to exercise the Listed Options.
  5. In the case of Listed Options, the consequences of non-payment.
  6. The date that quotation of the Listed Options will end (which is 4 business days before the expiry date for options).
  7. The latest available market price of the underlying securities.
  8. The highest and lowest market price of the underlying securities during the 3 months immediately before the notice is issued, and the dates of those sales.
  9. The information required by (g), (h) and (j) in respect of all quoted securities that would be, if fully paid, in the same class as the underlying securities.

An LIC must send a notice with the above information to each holder of Listed Options at least 20 business days before the conversion date or expiry date of the option. This timeframe excludes printing and postage times.

Options ‘out of the money’ and Waivers

The ASX has recognised that where Listed Options are substantially ‘out of the money’, there is no value is sending communication to option holders encouraging conversion. As such the ASX have allowed entities to apply for a standard waiver. For a standard waiver application to be successful, LICs will need to establish that the Listed Options are ‘substantially out of the money’.

‘Substantially out of the money’ is defined in the Annexure to ASX Guidance Note 17 as:

  1. where the current market price for the underlying security is less than 50% of the listed option exercise price; and
  2. the highest market price at which the underlying security has traded on the ASX in the last 6 months was less than 75% of the option exercise price.

A proforma standard waiver application is provided at the end of this update.

Where your LIC’s Listed Options do not fall into the above definition of ‘substantially out of the money’, but are still ‘out of the money’, a non-standard waiver may be applicable.

Proforma Standard Waiver

A template standard waiver from Listing Rule 6.24 is available here.

Please note that the waiver is intended as a guide only and does not consider the specific circumstances of your LIC.

This update is prepared by the Company Secretarial Team at Boardroom Pty Limited. The update is designed to provide general information and is not designed to replace legal or tax advice or a detailed review of the subject matter nor is it intended to cover all circumstances.

Click here to download a printable PDF file.

Contact BoardRoom for more information:

Tom Bloomfield

General Manager, Growth & Partnerships
+61 2 9290 9617