TPG blunder: What you need to know about ASX trading halts
A mistaken takeover notice sent TPG Telecom shares tumbling, wiping millions before the ASX clarified the error - without explanation.
The Australian Stock Exchange (ASX) Group found itself dealing with the fallout from another blunder on August 8.
This time it wasn't a glitch in the settlement system. Instead, the incident involved a mix-up between listed telecommunications company TPG Telecom (ASX:TPG) and private equity firm TPG Capital Asia.
At 9:20am on August 8, the ASX posted an announcement that automotive software provider Infomedia (ASX:IFM) had entered into a scheme implementation agreement with TPG. In essence, that TPG was purchasing Infomedia.
In the release the ASX also cross-referenced TPG Telecom - standard practice when two listed companies are involved.
The issue was that TPG Telecom wasn't acquiring Infomedia. The actual party involved was TPG Capital Asia - an unrelated, unlisted firm.
Both Infomedia and TPG Telecom reportedly informed the ASX of the mistake within minutes, and at 9:47am, the ASX announced that the trading pause it had initially put on TPG Telecom had been lifted.
What the announcement lacked was an explanation as to why. When the market opened 13 minutes later at 10am, TPG Telecom shares sunk, wiping millions off the market value.
By 10:15am the ASX had paused trading on TPG shares again. An hour later a correction was issued, and at 12:26pm an announcement was released noting that the pause had been lifted and that all trades involving TPG between 10am and 10:15am had been cancelled.
In a statement put out by the ASX, executive of markets and listings Darren Yip apologised to TPG Telecom and investors, explaining that the issue was down to human error.
"This mistake shouldn't have happened and we are reviewing our internal processes to understand if there are additional safeguards or procedures we could implement to reduce the risk of a similar reoccurrence."
While investors will likely have been interested in the news itself, they may also have been intrigued by some of the mechanics involved. Specifically, trading halts and company announcements.
What is a trading halt?
In short, a trading halt is a temporary pause on shares being traded. In the context of the ASX, trading halts are facilitated by the exchange, though they are often requested by companies themselves.
"A trading halt can be company-specific or market-wide. For example, for a specific company, a trading halt could happen before a major announcement," says Angel Zhong, professor of finance at RMIT University.
"Companies can also request a halt before they release price-sensitive information related to mergers and acquisitions, capital raising, earning announcements or any kind of regulatory investigation."
The ASX does set out rules for trading halts though. Companies need a reason for the halt, they must specify how long it will last (though it can't exceed two trading days) and they have to indicate the event that will end the halt.
Zhong notes that the ASX can also implement a trading halt itself. For instance, it may pause trading on a particular company if it identifies unusual price or volume movement that it needs to investigate.
Trading halts can also be applied across the market. In November 2020, the ASX was forced to halt trading for nearly an entire session after a technical issue impacted share price updates.
Why do companies have to make announcements?
Listed companies have obligations to their shareholders and the market to disclose important information. It's all about transparency and accountability.
"Publicly listed companies are supposed to act in the best interests of their shareholders, because the shareholders are the owners of the company," Zhong says.
"Based on listing rules and corporation acts, they need to disclose information to shareholders about what they are doing."
Companies listed on the ASX, for instance, have continuous disclosure obligations related to what's referred to as material information.
This is information that a 'reasonable person' would expect to have a material impact on a company's price or value of its securities. For example, it could be related to a takeover, an acquisition, legal action, earnings or something else of importance.
While there are exceptions, most companies will need to disclose material information to the ASX right away. As Zhong notes, this is in addition to any announcements they make through their own channels.
"They [listed companies] will have their own media releases, but they need to report this information to the ASX. It's a listing rule that companies need to report these announcements so that the ASX can then announce it to traders."
These announcements aren't few and far between either. For instance, on the day of the TPG bungle, the ASX published more than 600 announcements.
Mistakes can be significant though. After all, as Zhong notes, traders put stock in the accuracy of information provided by the ASX in its role as a market operator.
"Investors trade on this market and the basis of their trading is that information is true. So, if the information - which price movement is based on - is incorrect, how can you make trades?"
Interested in learning more about the workings of exchanges? Check out our explainer on what actually happens when a stock is delisted.
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