On-market share buybacks in Australia: Disclosure, transparency and regulation

Christine Brown1 Monash University

John Handley University of Melbourne

Asjeet S. Lamba University of Melbourne

1 christine.brown@monash.edu; handleyj@unimelb.edu.au; asjeet@unimelb.edu.au. This research has been funded under the Australian Research Council’s Discovery Project funding scheme (project number DP0878537). We thank Anne Ritter for her excellent and diligent research assistance, and Kevin Davis for helpful comments. We are grateful to Julie Dang from the ASX for insights into ASX procedures.

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On-market share buybacks in Australia: Disclosure, transparency and regulation

Abstract This study investigates listed company compliance with the Australian Securities Exchange (ASX) Listing Rules, during the conduct of on-market (open-market) share repurchases, over the period 1997 to 2013. Australia provides a very transparent reporting regime, where as well as announcing the open and close of the buyback to the ASX, companies are required to make daily reports on their on-market buyback activity before the open of trade on the next business day. Important features of the Listing Rules protect market integrity and safeguard investors against companies transacting at artificially created prices. Using a dataset of 38,541 daily observations, we find a high level of compliance, with around 99 percent or more of the company transactions compliant with the price rules. However, companies are not always timely with their disclosure. Only 69 percent of disclosures occur within the required 30 minutes or more period before the start of trading on the next business day.

Keywords: On-market buybacks; Australia; regulatory regime; compliance. JEL Classification: G18, G30, G32, G35.

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1. Introduction

US studies of company behaviour during the buyback period rely on survey evidence (Cook,

Krigman and Leach, 2003) and more recently monthly data (Dittmar and Field, 2014). Companies

in Australia are required by the Australian Securities Exchange to report any on-market repurchase

activity at least half an hour before the start of trade on the next business day. This study uses the

daily buyback activity data reported by Australian companies to study company behaviour and

compliance with the regulations. The information reported includes the low, high and average

price paid by the company on that day. This rich dataset consists of 38,541 daily observations and

provides a full sample of domestic company on-market repurchase activity in Australia over the

period 1997 to 2013.2 During this period there were 993 on-market buybacks announced with 493

unique companies completing on-market buybacks with total value around $39.9 billion.3

The history of repurchases in Australia is relatively short because they were prohibited until 1989

and then heavily regulated until 1995 with the result that few companies repurchased shares before

1996. Following the implementation of the First Corporate Law Simplification Bill in December

1995 the growth in repurchases in Australia escalated. Companies can elect to repurchase shares

off-market through an invitation to shareholders to tender shares back to the company, or they can

repurchase shares in the ordinary course of trading on the stock exchange. The latter are known

as on-market share buybacks and are the focus of this paper.4

Although on-market buybacks have become an important mechanism in Australia for returning

cash to shareholders there have been few studies investigating whether the existing stock exchange

listing rules provide adequate protection for shareholders. Because companies possess inside

information regarding the true value of the shares they may have an advantage over outsiders

when repurchasing company shares. Early studies such as Mitchell and Robinson (1999) and

Mitchell et al. (2001) focused on firms’ motivations for undertaking buybacks using a survey

methodology. In a more recent study, Holub and Mitchell (2012) document firm disclosure in

initial and final buyback announcements. However they do not examine firm compliance with the

2 There were few buybacks in 1996 and company compliance with the regulations and reporting was patchy. To

avoid potentially contaminating our results we commenced our sample in 1997. 3 All amounts are in Australian dollars. There are 2183 companies listed on the ASX as at 5th October 2015. 4 Hereafter all reference to repurchases or buybacks will refer to on-market activity unless explicitly stated

otherwise. Off-market repurchases are fewer in number and are also economically important in Australia but are not studied in this paper.

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daily reporting requirements under ASX Listing Rules. We fill this gap by examining whether

companies comply with the regulatory requirements governing company behaviour when they are

actually active in the market buying back shares. In particular, it is important to document

company compliance with the listing rule that governs minimum trading before the company can

enter the market to purchase shares, and the rule that sets a maximum price at which the company

can transact. These rules protect shareholders, investors and support market integrity.

It is not clear whether shareholders generally understand on-market share buybacks and their

potential consequences. If the company is purchasing undervalued shares then the result is a

wealth transfer from selling shareholders to those that do not sell. To protect selling shareholders,

and also to guide and police company behaviour during the buyback so as to ensure the regulatory

objectives of orderly market and market integrity, there are a number of rules and regulations

governing on-market buybacks in most markets globally (IOSCO, 2004). Australia is no exception.

The legal requirements of share buybacks in Australia are currently contained in the Corporations

Act 2001, and company conduct during the repurchase is constrained by ASX Listing Rules 3.8A,

7.29 and 7.33.

ASX Listing Rule 3.8A governs the requirements for companies to make an initial announcement,

a final announcement and also notify any changes to buyback parameters during the repurchase

period. Company compliance with disclosure requirements for the initial announcement of an on-

market buyback has been found to be reasonable, but is poor for final buyback notices (Holub and

Mitchell, 2012). Despite good disclosure when the firm announces its intention to repurchase

shares, selling shareholders may still be completely unaware that the opposite party to the

transaction is the company. In addition to the disclosure requirements, a number of ASX Listing

Rules govern company behaviour in the market during the buyback period. The objective of these

rules is to protect creditors and shareholders and ensure that companies undertaking buybacks are

not putting their solvency at risk, are treating shareholders equitably and are disclosing all relevant

information to the market. Australia provides a unique environment to study company compliance

with the Listing Rules because companies must disclose on a daily basis any previous day’s

repurchasing activities.

The first objective of this paper is to document in detail the on-market buyback activity of

Australian companies from 1997 to 2013. The second and important objective is to investigate the

extent to which companies comply with the prescribed listing rules governing company behaviour

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during the on-market repurchase period. The first rule (Listing Rule 7.29 – the minimum trading

rule) stipulates that a company can repurchase shares only if there has been at least five days of

positive trading volume in the three months prior to the date of repurchase. The second rule

(Listing Rule 7.33 – the maximum price rule) provides that the company may buy back shares on-

market at a price which is no greater than 5% above the average of the closing prices over the

previous five days on which trading occurred in the company’s shares. We use data provided by

companies’ daily reporting of buyback activity to investigate company compliance with these two

listing rules.

We find high compliance rates with both Listing Rule 7.29 and Listing Rule 7.33. Of the 38,541

observations of company daily reports the compliance rate for Listing Rule 7.29 is 99.8 percent

and that for Listing Rule 7.33 is 98.9 percent. Listing Rule 7.33 protects the market against the

company creating artificially high prices for the shares. This is in the interest of market integrity,

efficient prices and reduces the need for regulatory oversight of company transactions. However,

companies are not as diligent in reporting their activities within the required time limits. We find

only 69 percent of companies have reported their activities within half an hour of the market

opening on the next business day, as required. However, by the end of the trading day 90 percent

of companies have reported their previous day’s buyback activity.

The remainder of this paper is organised as follows. Section 2 provides a summary of the

regulation of on-market share buybacks in Australia and includes relevant comparisons to

regulation in other countries. Section 3 provides information on the data examined while Section

4 presents our findings. Section 5 concludes the paper.

2. Regulation of on-market buybacks 2.1 Regulations around the globe On-market buybacks have become an important mechanism for cash distribution and capital

structure management around the world. Managers implementing buyback programs on-market

are insiders and may therefore have information that selling shareholders do not have access to.

Consequently in most jurisdictions repurchase activities of companies are regulated.

Kim et al, (2004) and IOSCO (2004) compare repurchase regulations across a number of countries.

Generally regulations include rules regarding whether permission must be sought at a

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shareholder’s meeting, whether there is a time limit on the expiration date once approval is given,

whether there is a limit on the percentage of shares outstanding that can be bought under the

buyback, any timing restrictions on actual trading by the company, public disclosure rules, and

whether there are restrictions on the company repurchasing shares during information-sensitive

events such as earnings announcements. The specific nature of the regulations varies from country

to country.

In the U.S., SEC Rule 10b-18 as enacted in 1982 provided an issuer with a “safe harbor” from

liability for manipulation under the Securities Exchange Act of 1934. Up until 2004 US firms

could undertake a repurchase without prior announcement and could announce a repurchase and

not buy back any shares. Overcoming the lack of publicly available data, Cook, Krigman and

Leach (2003) conduct a survey of repurchasing companies and find that only 2 out of 54 firms

were in compliance with all of the Rule 10b-18 guidelines. In December 2003 the SEC adopted

amendments to the rules governing repurchases and required companies to disclose all repurchases.

The new disclosure rules require companies to disclose their repurchase activity quarterly. 5

In France, Canada, Japan and Italy companies are required to report their repurchase activity on a

monthly basis (IOSCO, 2004). Ginglinger and Hamon (2009) examine a sample of 806 repurchase

programs on the Paris Stock Exchange over 2000 to 2002. Companies are constrained by

regulations to purchase no more than 25 percent of the trading volume on any trading day and

must not trade in the period 15 days before an earnings announcement. They find that the smallest

and least liquid firms frequently violate the volume rule, and 70 percent of companies in the

sample repurchased shares at least once in the prohibited trading window prior to earnings

announcements. Companies buying shares in the prohibited period before earnings

announcements had the most detrimental effect on selling shareholders.

The legal and regulatory environment in Hong Kong most closely resembles that of Australia. On-

market repurchases are restricted to less than 10 percent of shares outstanding at the time approval

is given and in any given month the company can buy back no more than 25% of the volume

recorded for the previous month. Companies are prohibited from buying back shares during

5 Under the amendments, issuers are required to disclose, among other things, the total number of shares repurchased during the past quarter, the average price paid per share, the number of shares that were purchased as part of a publicly announced repurchase plan, and the maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs.

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information-sensitive events, at least until that information is made public. The Hong Kong Stock

Exchange requires companies to disclose on a daily basis (and prior to the start of trade on the

next business day) details of the company’s repurchase activities for the previous day. The

exchange then aggregates the daily data and releases the information to data vendors, who release

the information at or around the start of trading (Brockman and Chung, 2001).

2.2 The Australian regulatory environment

The legal requirements of share buybacks in Australia are currently contained in the Corporations

Act 2001, and company conduct during an on-market repurchase is governed by ASX Listing

Rules 3.8A, 7.29 and 7.33. The consequences of this legal framework can be summarised as

follows. A company may buy back up to 10% of its voting shares in any 12 month period without

seeking shareholder approval. This is referred to as the 10/12 limit, and is defined in sections

257B(4) and 257B(5) of the Corporations Act 2001. A buy back is an on-market buy back if it

results from an offer made by a listed corporation in the ordinary course of trading on a prescribed

financial market (s257B(6)).

The disclosure regime in Australia for companies undertaking an on-market buyback is

transparent, enabling a comprehensive study of compliance with the regulatory framework.

Companies must lodge a Form 281 (“Notice of intention to carry out a share buyback”) with the

Australian Securities and Investment Commission (ASIC) at least 14 days before the

commencement of the buyback. Companies must publicly announce an on-market buyback and

they are required to lodge an announcement notice (called an Appendix 3C) with the ASX.

Included in the announcement notice is the name of the broker (or joint brokers) who will act for

the company. A company must not dispose of shares it buys back and the shares are automatically

cancelled when the transfer to the company is registered. (s257H(2), s257H(3)). In addition ASIC

must be notified of the cancellation of shares using Form 484 “Change to company details”.6 Any

changes to the buyback, including for example a change of broker, must be notified to the ASX

through the lodgement of an Appendix 3D form.

6 Under Section 254Y of The Corporations Act a company must lodge a notice detailing the number of shares

cancelled, the total amount paid by the company and the class of shares cancelled, with ASIC within one month of the cancellation of the shares. The company must lodge the notice with the ASX at the same time as it lodges the information with ASIC. Any changes to the original terms of the buyback are notified using Appendix 3D.

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Australian regulation is similar to that in Hong Kong (Brockman and Chung, 2001) in that the

continuous disclosure requirements imply that companies must make a daily statement to the ASX

of any buyback activity on the previous day. Under Listing Rule 3.8A a company undertaking an

on-market buyback must lodge a daily notification (called an Appendix 3E) at least half an hour

before the start of trading on the business day after which any shares are repurchased. Companies

may repurchase shares only if transactions in the company’s shares were recorded on the ASX at

least 5 days in the three months before it repurchases the shares (Listing Rule 7.29, the “minimum

trading rule”). Another important feature of this disclosure environment is ASX Listing Rule 7.33,

the “maximum price rule” rule, pursuant to which a company may only buy back shares under an

on-market buy-back at a price which is not more than 5% above the average of the closing market

price for securities in that class, where the average is calculated over the last 5 days on which sales

in the shares were recorded before the day on which the purchase under the buyback was made.7

See the Appendix for a full statement of these Listing Rules.

Companies are now required to use the ASX on-line portal for electronic lodgement of the required

documents. The market announcement team reviews the document, classifies the announcement

and then it is released to the market usually within a minute of its arrival in the portal. The

responsibility for ensuring that ASX has adequate arrangements for monitoring and enforcing

compliance with the Listing Rules resides primarily with the Listings Unit in ASX Compliance.

The compliance team follows up with an entity if it does not provide timely lodgement of required

documents. However, the Listing Rules are not law and the sanctions available to the ASX for an

entity that breaches the Listing Rules are suspension of trading in its securities or the ultimate

sanction of termination of its listing on the ASX.

One explanation of a company’s motivation for repurchasing shares is the information/signalling

hypothesis with its roots in the information asymmetries that exist between managers and

outsiders. Managers can use a repurchase announcement to signal to the market that its shares are

undervalued. The positive abnormal returns observed on announcement of a buyback (Dann

(1981), Vermaelen (1981), Comment and Jarrell (1991), and Peyer and Vermaelen, (2009) in the

U.S. and Lamba and Ramsay (2005) and Mitchell and Dharmawan (2007) in Australia) are

generally viewed as consistent with this hypothesis.

7 Note that a “volume-weighted average price” version of this rule was introduced in July 2014, but does not affect our sample.

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Of course, once the market has reacted to the announcement and the share price has adjusted to

the new information, then the company can repurchase the shares at a price below the fair market

price only if it can time the market (Rau and Vermaelen, 2002; Brockman and Chung, 2001). An

efficient market may respond instantaneously to the announcement of a buyback, making the

purchase of undervalued shares a difficult investment strategy for the company. But in many cases

on-market buybacks continue over an extended time period, and the company, as an insider, may

use the opportunity to manipulate the share price. Although under the ASX Listing Rules

buybacks may be of unlimited duration, under ASIC Regulatory Guide 110 (enacted in July 2007)

the company must announce a start- and end-date for the on-market buyback. The company can

repurchase shares for up to 12 months; after 12 months a fresh notice is required (ASIC Regulatory

Guide 110 RG 110.26 to 110.30). The company must commence repurchasing shares within two

months of the announcement or a new announcement with accompanying required documents is

required (ASIC Regulatory Guide 110 RG 110.31to 110.34).

Holub and Mitchell (2012) provide a comprehensive overview of the history of the Corporations

Law and the ASX Listing Rules pertaining to on-market buybacks. They find reasonable

compliance with the disclosure requirements for the initial announcement of an on-market

buyback, but disclosure in the appropriate ASX notice is provided in only 53 percent of cases for

the final notice. However the announcement of a buyback does not provide information to the

market of when the company is actually buying back its shares; in fact uninformed selling

shareholders may be completely unaware of the possibility that the company is the opposite party

to the transaction as the announcement of the buyback could have occurred sometime before.

Holub and Mitchell (2012) suggest that the continuous disclosure requirements embedded in the

adherence to Listing Rule 3.8A are unnecessary and recommend policy changes to lessen those

disclosure requirements to quarterly, more in line with regulations in the U.S.

We take a contrary position and argue that the continuous disclosure requirements provide

substantial protection to investors and enhance market integrity during the conduct of the buyback.

One role of the exchange is to provide information to the market, and the ASX expends

considerable resources ensuring compliance with its rules and the timely release of continuous

disclosure information. In this capacity daily notifications are useful to market participants

wanting to know company buyback activities once the buyback has been announced. Specifically,

because on-market buybacks may give rise to price distortions when the company is actively

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purchasing, more frequent disclosure by the company is better. Shareholders selling into such

buybacks are at a substantial information disadvantage which may allow the company to exploit

them in favour of the remaining (or non-selling) shareholders. Although on-market buybacks have

become an important mechanism in Australia for some companies to return cash to shareholders,8

and have the potential to affect the orderliness and integrity of the market, there have been no

studies investigating whether companies actually comply with the continuous disclosure

requirements (Listing Rule 3.8A).

As well as investigating company compliance with the continuous disclosure rules we examine

company compliance with Listing Rules 7.29 and 7.33. Listing Rule 7.29 requires that

repurchasing companies must have positive trading volumes (on exchange) before they can

commence a buyback. This provides some assurance to shareholders that they will be selling at

‘market’ prices when the company is the opposite party to the transaction. The main intention of

the maximum price rule (Listing Rule 7.33) is to protect investors because it restricts companies

from using share buybacks as a means to artificially inflate share prices. While companies may

wish to provide liquidity in periods of selling pressure, they may do so only at prices that satisfy

this rule.

A significant development in global equity markets, including Australia, has been a growing

awareness of the importance of off-market trading. A relatively large percentage of trades in shares,

including smaller trades, occur off-market in so-called ‘dark pools’ (estimated to be around 25

percent in Australia (ASIC, 2013). Around 20 broker-operated crossing-systems are registered

with the market regulator ASIC. The outcome of off-market trading is a lack of pre-trade

transparency, because these trades are arranged outside the limit order book. The effect for larger

block trades is to make the market more efficient, but these off-market trades harm the price

discovery process for smaller trades (Comerton-Forde and Putnins, 2013). However, ASX Market

Rule 20.9.1 (introduced 28/11/05) prohibits special crossings of any cash market products of an

issuer during the term of an on-market buyback conducted by the issuer, implying that the

company and all other investors must transact in the shares on-market during the duration of the

buyback, thus protecting pre-trade transparency during the period where the company is

potentially in the market trading its own shares.

8 Brown, Handley and O’Day report that the cash distributed by companies repurchasing shares over the period 1996 to 2009 via both on-and off-market repurchases is comparable to that distributed via dividends, but that only a small percentage of listed companies are active repurchasers.

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3. Data and sample statistics

We use data from several sources to construct a comprehensive database for all ASX repurchases

beginning in 1997 and continuing until December 2013. 9 The Morningstar DatAnalysis

Imagesignal service is used to identify all initial buyback announcements. We use the

announcements file of the Securities Industry Research Centre of Asia-Pacific (SIRCA) to extract

information from company announcements for all on-market buybacks over the period 1997 to

2013. The SIRCA announcement files are in both pdf and text format. The information in the text

files enables construction of a database with details for every daily announcement provided by

companies undertaking on-market repurchases over the period from 1997 to 2013. The ASX daily

trade data used for this study is sourced from SIRCA. We are interested only in repurchases of

ordinary shares by Australian (domestic) companies listed on the ASX. Our sample therefore

differs from that of Holub and Mitchell (2012) who investigate buybacks for both domestic and

foreign companies listed on the ASX over 2000 to 2009.

The lodgement of the Appendix 3E form (described in Section 2.2 above) is used to document for

each announcing company the days on which the company was present in the market buying back

ordinary shares. Included in the record of the company’s daily notification to the stock exchange

of repurchasing activity are details of the time at which the Appendix 3E form is lodged. The

company supplies information including the number of shares bought back, the total consideration

paid for the shares, the highest, lowest and average prices paid for the shares during the day and

the company’s own calculation of the maximum price allowed under Listing Rule 7.29. We

manually check the integrity of the individual entries in the database that is built up from these

daily notifications. We are able to build a running tally of shares repurchased throughout the

buyback period using this information, and also to ensure that the tallies are internally consistent

for each company. At the expiration of each buyback, the total of all shares repurchased calculated

from the daily notices must match the final buyback notice.10 In this way we are confident of the

integrity of the data because we are able to correct any obvious data entry mistakes that the

company has made when filling out the Appendix 3E form.

Whilst all the data are available electronically, the data has been painstakingly manually checked.

Table 1 contains a summary of the filtering rules applied and provides labels for the various

9 We use actual repurchases; companies announcing repurchases which do not subsequently repurchase are not included in the sample. 10 We check against the Appendix 3F if that has been lodged.

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samples used later in this study. Company supplied information on shares repurchased is matched

in the first instance by volume and price. There are observations where an Appendix 3E has been

lodged but which cannot be matched to a purchase date. In addition, there are observations where

a company reports data that could not be matched with volumes recorded in SIRCA for a particular

date. For example, there are instances where the company reports a number of shares bought back

that is greater than the total volume for the day, and in addition that cannot be matched with any

other day around that date. In these cases the observation is placed in the unmatched sample. In

total there are 56 observations in the unmatched sample, including 10 off-market trades. There are

216 observations where no Appendix 3E was lodged, but where the buybacks can be manually

matched to a purchase date. As documented in Table 1 Sample 1 is the raw data sample and

consists of 38,541 daily observations representing all buyback activity from 1997 to 2013. Sample

2 consolidates multiple records where the buyback number and purchase date are the same and

consists of 38,253 observations. Sample 3 has the unmatched observations removed and any

duplicate reports of shares bought back for the same date are consolidated and consists of 38,194

observations.

[Insert Table 1 around here]

Figure 1 plots the total dollar value of shares repurchased through on-market buybacks for each

calendar year over the sample period (left-hand axis) and the number of repurchase programs

announced each calendar year (right-hand axis). There are a couple of preliminary observations

from Figure 1 that will be explored in more detail in sub-sample analysis in Section 4. The number

of repurchase programs reached a peak in 2008; however the dollar value peaked earlier in 2007.

Although the Australian economy emerged from the liquidity and credit crunch of 2007-08

(Brunnermeier, 2009) relatively unscathed, there was a substantial correction in the equity market.

The Australian share market peaked in November 2007 and by the end of December 2008 had

dropped around 45 percent. The drop in the dollar value of shares repurchased from 2007

($5,886m) to 2008 ($1,763m) partly reflects the devaluation in the equity market. Casual

observation of the number of the number of on-market buybacks in 2008 suggests that companies

may have been opportunistically repurchasing undervalued shares in 2008, or that they were

engaging in price support to a greater extent than in other periods. Such an observation is

consistent with survey results of Graham, Harvey and Michaely (2005) in which financial

executives state that they repurchase when the shares represent good value relative to fundamental

or true value.

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[Insert Figure 1 around here]

Table 2 records the summary statistics of the on-market repurchasing activity, and contains the

statistics for the 993 buybacks in the sample (labelled the ‘summary’ sample in Table 1). As shown

in Table 2 and also in Figure 1 the number and value of repurchases varies considerably over the

sample period. Table 2 gives details of the number of buybacks announced in each calendar year

(column 2) and the number of unique companies announcing buybacks each calendar year

(column 3). In column 4 the number of buybacks active in each calendar year are reported while

the number of unique companies actively buying back each calendar year is recorded in column

5. Because buybacks can straddle calendar years, and because companies may announce a

repurchase in one calendar year and not commence until the following year, the entries in Column

2 may be equal to or greater or less than those in column 4. Column 6 (7) records the average

(median) length in trading days of buybacks over each calendar year and column 8 (9) records the

average (median) shares repurchased as a percentage of shares outstanding. The last column

records the total consideration paid for repurchases over each calendar year.

[Insert Table 2 around here]

The average number of shares repurchased as a percentage of the total shares outstanding reported

in Table 2 is similar to that reported by Holub and Mitchell (2012) for ordinary shares repurchased

by domestic companies. The mean percentage of shares repurchased is 3.44 percent for the sample.

To get some sense of the distribution of repurchases we split the sample into the top, middle and

bottom one-third in terms of the dollar size of the buyback. Figure 2 shows the distribution for

each tercile of 331 observations. Figure 2A gives the distribution of the largest buybacks with

consideration paid ranging from a low of $5.04m to a high of $2,813m, with almost 100 buybacks

with consideration between $5m and $10m. In this category there are 7 buybacks which have

repurchase amounts greater than $1b. Figure 2B contains the distribution for buybacks with

consideration between $0.647m and $4.993m. Figure 2C gives the distribution of small buybacks

with consideration from a low of $441 to a maximum of $0.647m, and illustrates the fact that there

are a large number of very small buybacks.

[Insert Figure 2 around here]

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Summarising the on-market repurchasing activities of the companies in the sample, the typical

repurchasing firm enters the market on around 39 days with each repurchase, buying back over

the entire repurchase period around 8.3 million shares or on average 3.4 percent of outstanding

shares for total consideration on average of approximately $39 million. Almost 20 percent of the

sample firms repurchase five or fewer times during the buyback, while almost 25 percent of the

sample firms repurchase more than 50 times during the course of the buyback. Figure 3A gives

the distribution of the number of days on which the firm is actively repurchasing shares in each

buyback.

The continuous disclosure regime requires companies to lodge the Appendix 3E notification half

an hour before the open of trade on the next business day. Our argument that this increases market

integrity has greater credence if the daily lodgement actually sends a credible signal to the market

regarding company presence in the market. To investigate this we calculate the gap (number of

trading days) between dates on which the company is present in the market actively buying shares.

Using Sample 3 (38,194 observations) there are 25,176 observations where the company is in the

market on two successive trading days. This implies that when a company reports its activity on

the next business day there is a 67 percent11 chance of it repurchasing shares on the day that it

lodges the Appendix 3E.

4. Empirical results and discussion

The institutional framework in which Australian companies undertake on-market buybacks

provides a very transparent regime and after careful manual compilation of the data, results in a

database that enables a thorough investigation of the extent to which companies adhere to the ASX

Listing Rules. The primary purpose of this study is to use this dataset to examine whether

Australian companies are complying with the regulations. We therefore perform this analysis on

the full data set, Sample 1, because the filtering process identified in Table 1 removes some of the

non-compliant observations, which need to be counted in our statistics for non-compliance.

For all 993 identifiable buybacks we first check compliance with the lodgement of Appendix 3C

and 3F forms, required under Listing Rule 3.8A, which respectively signal the start and close of

the buyback to the market. The compliance rate with lodging Appendix 3C (3F) is 98.6 percent

11 There are 38,194 observations in sample 3, with 993 of these the first date on which the company purchases. There are thus 37,201 observations of the gap between active purchasing days.

15

(65.6 percent). These figures compare with those reported by Holub and Mitchell (2012) of 98

percent and 53 percent respectively over the period 2000 to 2009. From 1st September 1999, when

the new set of ASX Appendices 3C, 3D, 3E, 3F replaced the old Appendices 7C, 7D, 7E and 7F,

on-markets buybacks have been allowed to be of unlimited duration.12 Under the new rules the

Appendix 3F should be lodged when the company has bought back the maximum number of

shares it wanted, or if it decides it will stop buying back shares (see the Appendix). Of the 993

buybacks in the sample there are 342 (around 34 percent of the total) instances where the company

did not lodge an Appendix 3F; Figure 4A plots the distribution of active repurchase days for these

buybacks, while Figure 4B plots the distribution for companies that are compliant with lodging

the final notice. There does not appear to be any apparent reason in terms of the length of the

buyback as to why companies fail to lodge the final notice. It may simply be that companies have

not conclusively decided that the buyback has ended and therefore do not lodge the final notice.

We next investigate whether companies comply with Listing Rule 3.8A which requires them to

lodge Appendix 3E at least thirty minutes before the start of trade on the next business day after

the date of any repurchase activity. Trading on the ASX starts at 10.00 am. Table 3 reports the

results of these tests. Using the time of lodgement of Appendix 3E we find 12,068 breaches for

the full sample, reflecting the number of lodgements of Appendix 3E that occur after 9.30am on

the business day immediately after the company trades occurred. Of these, 7887 have not been

lodged by 10.00 am, 5361 have not been lodged by midday and 3914 have still not been lodged

by the end of the day. For the full sample, of the 38,541 lodgements of Appendix 3E 68.7 percent

comply with Listing Rule 3.8A by occurring at least 30 minutes before the start of trade on the

next business day. For large (small) companies this figure is 71.1 (54.0) percent. 13

[Insert Table 3 around here]

There is no discernible pattern in the compliance rates over time. Companies execute their

purchases through one or two designated brokers; brokers are identified in the Appendix 3C form.

The broker’s executed trades are notified to the company typically at the end of the trading day

and then the company must lodge through the ASX on-line portal the details of the day’s

repurchases. Unless the broker has the authority to lodge the Appendix 3E (which does not appear

to be the case for most companies), there is a delay between the actual trades and the company

12 Although as previously noted ASIC requires companies to lodge a form to extend the buyback after 12 months. 13 We split the sample into large (small) firms where the size of the firm is greater (smaller) than the median market capitalisation for all firms listed on the ASX in the month prior to the announcement of the buyback. Tests of compliance are run on the large and small firm sample separately, but are not tabulated.

16

being notified of the details of the trades. Hence to lodge the details of the trades 30 minutes before

the start of trade on the next business day as required under Listing Rule 3.8A will be difficult if

the broker does not report the trades to the company in a timely fashion. It is arguably more

difficult for smaller companies to comply because they may not necessarily have dedicated

treasury staff to lodge the Appendix 3E forms.

We integrate the daily repurchasing activity with daily closing prices for all repurchasing

companies on all trading days over the period of each buyback, and for a period three months

before the announcement date of the buyback. Daily volume data three months prior to the day

on which each company repurchases shares is used to document breaches of Listing Rule 7.29.

Recall that in order to buy back shares on-market a company must have had five days in the

previous 3 months in which trading in the company shares occurred. Therefore the filter we apply

is to select the date three months prior to the date that the company first buys back shares, and

record the number of days of positive volumes. It is clear that in the context of Listing Rule 7.29

it is particularly important that the company complies with Rule 7.29 the first time it repurchases

shares for an announced buyback, because the potential for creating an artificially inflated price

through the company’s actions is greater if this condition does not hold. For this analysis we use

Sample 3 consisting of 38,194 daily observations and find 66 breaches of Listing Rule 7.29 as

documented in Table 4. The compliance rate with this listing rule is very high (99.8 percent), and

is not unexpected as the compliance hurdle is low. As would be expected, small companies are

more likely to be in breach of this listing rule.

[Insert Table 4 around here]

The intention of Listing Rule 7.33 is to prevent companies from artificially inflating share prices

through transacting at prices above fundamental value or providing price support at unrealistic

prices in a falling market. The sample period in this study includes the downturn in the Australian

equity market as a result of the 2007-08 liquidity and credit crunch. From the All Ordinaries Index

daily price series we identify 1st November 2007 as a high point of the market (Index Value =

6853.6) and 23rd January 2009 as a low point (3300.3).

Using daily prices we calculate the price which is equal to the average of the recorded closing

prices over the previous five days on which sales are recorded plus 5% - the “maximum price”

designated in ASX Listing Rule 7.33. To make this explicit let this price be designated as M. Then

1.05 (Averageof last 5day's (on which sales are recorded) closing prices)M = ×

17

The company does not report the actual prices at which it buys back shares, rather the low, high,

and average price at which it repurchased shares each day are reported on the Appendix 3E form.

We designate these low and high prices as Plow and Phigh. The company also records on Appendix

3E its calculation of M which we label Mco. However there are 4690 of the 38,541 (12.2 percent)

Appendix 3E reports where the company does not record a calculated maximum price. In Table 4

we calculate the average percentage difference between M and Mco for the 33,852 Appendix 3E

reports that record the company’s calculation of the maximum price.

We first compare M and Mco to check for breaches of Listing Rule 7.33. If Plow > M then clearly

the company is in breach of Listing Rule 7.33 for all purchases on that day. If Phigh >M then the

company has breached Rule 7.33 for a portion of the transactions on that day. We also calculate

the extent of the maximum breach by calculating the percentage difference between the two prices

where a breach has occurred:100*(M − Phigh)/M. Table 5 documents the results of this

investigation. Panel A presents the results for the full sample.

[Insert Table 5 around here]

Of the 38,194 daily reports there are 4690 days (12%) on which the company does not report its

calculation of the maximum price (Mco), and 237 days (0.6%) where Phigh is not reported. There

are 326 days where both the maximum price and Phigh are not reported. This provides evidence of

occasions where the company submits the Appendix 3E report without filling out the requested

prices. As reported in Table 5 Panel A, 5.5 (0.88) percent of the remaining observations have a

reported maximum price that is at least 1 (5) percent above the maximum calculated from actual

closing prices. This may not have material consequences if companies buy back shares well below

their stated bound, Mco. Of more importance are the violations of the maximum price rule

calculated using the true value of M. Companies are not fully compliant on the Appendix 3E forms

with stating the value of Phigh, there are 237 instances where the Appendix 3E form does not record

this price. In addition, there are 415 reports where Phigh > M. In other words of the 38,304 usable

daily reports only 1.1 percent of the reports contain days where one or more repurchase trades by

the company have occurred at a price that violates Listing Rule 7.33. The violations are not

economically significant, as Table 5 Panel A shows that half of these violations (0.54% in total)

occur within 1 percent of the required price.

That companies might use on-market repurchases to provide liquidity in severe market downturns

has been noted by Cook, Krigman and Leach (2003). Companies can absorb sell-side pressure to

support a falling stock price through their purchases. Such purchases will be unlikely to violate

18

the maximum price rule in a downward trending market. In order to investigate whether there is

greater price support provided during the downturn in the market resulting from the liquidity and

credit crunch of 2007-08 we investigate the violations of Listing Rule 7.33 that occurred between

November 1st 2007 and 23rd January 2009, the high and low points of the Australian equity market.

Table 5 Panel B shows that there are 4917 daily reports during this period, of which 4,886 have

Phigh recorded. There are 70 (1.4%) where Phigh > M and 0.84% of trades occur at prices that violate

the maximum price rule by more than 1 percent. We report in Panel C that for the non-crisis period

(before 1st November 2007 and after 23rd January 2009) there are 0.50% of trades occurring at

prices that violate the maximum price rule by more than 1 percent. Notwithstanding that the

violations are a small percentage of trades and do not appear to be economically significant, the

percentage of violations that are greater than 1 percent of the maximum price during the crisis is

67 percent higher than the non-crisis period. Using a binomial test, the frequency of violations in

the crisis period greater than 1 percent is statistically significantly different from the non-crisis

period at a one percent level of significance, as shown in Table 5.

6. Conclusions

On-market repurchases by Australian companies occur in a transparent environment where

companies are required to lodge documents announcing the commencement of the repurchase

program, the closure of the program, and all buyback activity must be notified to the ASX at least

half an hour before the open of trade in the next business day. This rich information environment

facilitates the collection of a dataset of 38,541 daily observations with which to investigate

company compliance with the regulatory requirements.

Our findings are as follows. While over 98 percent of firms comply with the requirement to lodge

the Appendix 3C form announcing the firm’s intention to repurchase shares, only around 66

percent comply with lodging the Appendix 3F form which announces the closure of the buyback

to the market. Moreover only around 69 percent of observations comply with the requirement

(Appendix 3E) to disclose any repurchase activity 30 minutes before the start of trade on the next

business day. The inevitable delays between being notified by the firm’s broker of trades occurring

on the company’s behalf and then reporting to the ASX may be a logistic reason for the delay in

lodging daily reports. However, we can think of no reason for companies not reporting the closure

of the buyback, other than speculation that the company’s purchases may just ‘peter out’ and there

is no explicit acknowledgement that the buyback activity has officially stopped.

19

Listing Rules 7.29 and 7.33 provide minimum activity and price rules respectively to protect

market integrity and maintain an orderly market. It is reassuring to note that repurchasing

companies are almost 100 percent compliant with the two listing rules. Rule 7.29 requires there

to be positive volumes on at least 5 days in the three months prior to the company repurchasing.

Companies are 99.8 percent compliant with this rule. Rule 7.33 sets a maximum price at which

companies can transact, to prevent companies from artificially inflating share prices. Over the

whole sample period companies are just under 99 percent compliant with Listing Rule 7.33. Where

there are breaches their economic significance is small with 0.54% of observations being in breach

of the maximum price rule by less than one percent. There is evidence from our analysis that

repurchasing companies provided more price support in the crisis period of 2007-2008, with

breaches of the maximum price rule by more than one percent increasing by 67 percent.

Australia offers a regulatory environment for on-market buyback reporting that is far more

transparent than most jurisdictions around the globe. This paper is the first to thoroughly

investigate company compliance in a regime where companies are required to report daily any on-

market repurchase activity. We have documented a very high level of compliance with the ASX

Listing Rules designed to protect the market and maintain both its orderliness and integrity. This

is reassuring and in line with our view that the daily reporting requirements of on-market buyback

activity are of economic benefit. Further research is needed to explore the extent to which

companies can time the market to the detriment of selling shareholders. Also, in Australia, unlike

in many other markets, there are no restrictions on companies with respect to purchasing shares

around price-sensitive events such as earnings announcements. Whether companies are using

private information to trade to their own advantage around these events is not investigated in this

paper, but could be another fruitful line of research in the future.

20

References ASIC, 2013, Dark liquidity and high frequency trading, Report 331, March 2013, http://download.asic.gov.au/media/1344182/rep331-published-18-March-2013.pdf Brockman, P. and D. Chung, 2001, Managerial timing and corporate liquidity: evidence from actual repurchases, Journal of Financial Economics 61, 417-448. Brown, C., Handley, J. and J. O’Day, 2015, The dividend substitution hypothesis: Australian evidence, Abacus 15, 37-62. Brunnermeier, M., 2009, Deciphering the Liquidity and Credit Crunch 2007–2008, Journal of Economic Perspectives 23, 77–100. Comment, R. and G. Jarrell, The Relative Signalling Power of Dutch-Auction and Fixed-Price Self-Tender Offers and Open-Market Share Repurchases, Journal of Finance, 46, 4, 1243-1271. Cook, D. O., L. Krigman and J. C. Leach, 2003, An analysis of SEC guidelines for executing open market repurchases, Journal of Business 76, 289-315. Cook, D. O., L. Krigman and J. C. Leach, 2004, On the timing and execution of open market repurchases, Review of Financial Studies 17, 463-498. Dann, L. Y., 1981, Common Stock Repurchases: An analysis of returns to bondholders and stockholders, Journal of Financial Economics, 9, 113-138. Dittmar, A., and C. Field, 2015, Can managers time the market? Evidence using repurchase price data. Journal of Financial Economics 115, 261-282. Ginglinger, E. and J. Hamon, 2009, Share repurchase regulations: Do firms play by the rules? International Review of Law and Economics 29, 81-96. Harris, Thomas C., and Ian M. Ramsay, 1995, An empirical investigation of Australian share buy-backs, Australian Journal of Corporate Law 4, 393-416. Holub, M, and J. Mitchell, 2012, On-market share buybacks: ASX disclosure requirements and compliance, Abacus 48, 31-58. Hatakeda, T., and N. Isagawa, 2004, Stock price behavior surrounding stock repurchase announcements: Evidence from Japan, Pacific-Basin Finance Journal 12, 271-90. IOSCO, 2004, Report on “Stock Repurchase Programs”. https://www.iosco.org/library/pubdocs/pdf/IOSCOPD161.pdf Kim, J., R.Schremper, and N. Varaiya, 2005, Open market repurchase regulations: A cross-country examination, Corporate Finance Review 9, 29-38. Lamba, A. S., and I. M. Ramsay, 2005. Comparing share buybacks in highly regulated and less regulated market environments, Australian Journal of Corporate Law 17, 261-280. Mitchell, J. and P. Robinson, 1999, Motivations of Australian Listed Companies Effecting Share Buy-Backs, Abacus, 35, 1, 91-119. Mitchell, J. and G. Dharmawan, 2007, Incentives for on-market buy-backs: Evidence from a transparent buy-back regime, Journal of Corporate Finance 13, 146–69.

21

Mitchell, J., G. Dharmawan. and A. Clarke, 2001, Managements’ views on share buy-backs: an Australian survey, Accounting & Finance, 41, 1&2, 93-129. Peyer, U. and T. Vermaelen, 2009, The nature and persistence of buyback anomalies, Review of Financial Studies 22, 1693-1745.

Rau, P. and T. Vermaelen, 2002, Regulation, Taxes and Share Repurchases in the United Kingdom, Journal of Business, 75, 2, 245-282. Vermaelen, T., 1981, Common Stock Repurchases and Market Signaling - An Empirical Study, Journal of Financial Economics, 9, 139-183.

22

Appendix Table A1 This table documents the ASX Listing Rules relevant to this study.

Listing Rule When the document must be given to the ASX or statement of listing rule

Listing Rule 3.8A: Covers a number of rules regarding lodgement of announcement and final notices (Appendix 3C and 3F respectively), and the daily update of repurchase activities (Appendix 3E).

Appendix 3C: In the case of an on-market buyback immediately the company decides that it wants to buy back shares. Appendix 3F: At least half an hour before the commencement of trading on the business day after any of the following:

• The company buys back the maximum number of shares that it wanted.

• The company decides that it will stop buying back shares. Appendix 3E: At least half an hour before the commencement of trading on the business day after any day on which shares are bought back.

Listing Rule 7.29 A company may only buy shares under an on-market buy-back if transactions in the company’s shares were recorded on the ASX on at least 5 days in the 3 months before it buys back the shares.

Listing Rule 7.33 A company may only buy back shares under an on-market buy-back at a price which is not more than 5% above the average market price for securities in that class calculated over the last 5 days on which sales in the shares were recorded before the day on which the purchase under the buy-back was made.

23

Figure 1

The dollar value of shares repurchased via on-market buybacks in Australia for each calendar year over 1997 to 2013 is the solid line (left-hand axis). The dotted line represents the number of repurchases announced each calendar year (right-hand axis).

0

20

40

60

80

100

120

0.00E+00

1.00E+09

2.00E+09

3.00E+09

4.00E+09

5.00E+09

6.00E+09

7.00E+09

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Num

ber

Dolla

rs

24

Figure 2

We split the sample into the top, middle and bottom one-third in terms of the dollar size of the buyback. Panel A gives the distribution of the largest buybacks with consideration paid ranging from a low of $5.04m to a high of $2,813m, Panel B contains the distribution for buybacks with consideration between $0.647m and $4.993m. Panel C gives the distribution of small buybacks with consideration from a low of $441 to a maximum of $0.647m.

0

20

40

60

80

100

120

10 20 30 40 50 60 70 80 90 100

110

120

130

140

150

160

170

180

190

200

Mor

e

Freq

uenc

y

Range ($millions)

A: Large

010203040506070

5000

00

7500

00

1000

000

1250

000

1500

000

1750

000

2000

000

2250

000

2500

000

2750

000

3000

000

3250

000

3500

000

3750

000

4000

000

4250

000

4500

000

4750

000

5000

000

Mor

e

Freq

uenc

y

range

B: Medium

01020304050607080

3500

0

7000

0

1050

00

1400

00

1750

00

2100

00

2450

00

2800

00

3150

00

3500

00

3850

00

4200

00

4550

00

4900

00

5250

00

5600

00

5950

00

6300

00

6650

00

7000

00

Mor

e

Freq

uenc

y

Range

C: Small

25

Figure 3

This figure shows in Panel A the distribution of the number of active trading days of the 993 buybacks in the sample, and in Panel B the distribution of the gap, that is the number of days that elapse between successive purchase days.

A

B

0

100

200

300

400

500

600

20 40 60 80 100 120 140 160 180 More

Freq

uenc

y

number of days actively repurchased

0

5000

10000

15000

20000

25000

30000

Freq

uenc

y

Days between successive purchase dates

26

Figure 4

This figure plots the distribution of the number of days companies are actively repurchasing shares for each buyback. Figure 4A plots the distribution for companies that did not lodge an Appendix 3F, while Figure 4B provides the plot for companies that were compliant with lodging the final notice.

A

B

0

20

40

60

80

100

120

140

Freq

uenc

y

Number of days actively repurchasing

0

50

100

150

200

250

Freq

uenc

y

Number of days actively repurchasing

27

Table 1

This table documents the filtering applied to the initial raw sample of daily observations in order to arrive at the various sample used in the analysis.

Description Sample Number of observations Total daily observations Sample 1 – raw data

38,541

Appendix 3E exists but observations cannot be matched with market data

Unmatched 56

Buybacks with the same buyback number and same purchase date are rolled together

Sample 2 38,253

Buybacks with different buyback numbers but the same purchase date are consolidated and unmatched data removed

Sample 3 38,194

Constructed from sample 2 and linked to the Appendix 3C/3F forms. This contains the summary of each buyback for each company in the sample.

Summary 993

28

Table 2

This table reports year-by-year sample statistics, calculated for Sample 3, consisting of 38,194 observations.

Year No of Buybacks

announced

Number of

companies

Number of

buybacks running

Number of

companies

MEAN (Length)

MEDIAN (Length)

Mean (Rvol/SO*100)

Median (Rvol/SO*100)

Total consideration

$million

1997 32 20 24 20 92.53 97 2.47 1.63 483 1998 64 56 72 56 94.47 70 3.38 1.64 2135 1999 52 62 75 62 153.75 69 2.79 2.13 1635 2000 51 62 71 61 135.92 76 2.83 1.63 3948 2001 49 66 72 66 136.82 64 3.39 1.61 1162 2002 53 67 77 67 189.19 75 3.75 1.94 2846 2003 45 62 72 63 195.47 121 2.89 1.96 2858 2004 44 56 68 56 182.16 93 6.11 2.14 1134 2005 70 73 90 73 150.10 85 3.57 2.12 2387 2006 63 81 102 83 112.71 88 2.64 1.08 2567 2007 59 74 92 74 157.44 145 3.99 2.55 5886 2008 105 131 145 131 170.87 139 2.93 1.63 1763 2009 67 102 125 102 176.43 122 3.86 2.39 2202 2010 55 83 103 83 141.27 119 5.22 2.83 1566 2011 84 96 120 97 133.52 106 2.97 1.78 2174 2012 55 100 117 100 129.98 106 4.24 1.81 2189 2013 31 56 72 56 38.39 21 1.50 0.58 2138

29

Table 3 This table reports compliance with ASX Listing Rule 3.8A, which requires companies to lodge (on an Appendix 3E form) the previous trading day’s activities before 9.30am on the next business day. Panel A documents statistics for the full sample. Panel B (C) records the statistics for large (small) firms where the size of the firm is greater (smaller) than the median market capitalisation for all firms listed on the ASX in the month prior to the announcement of the buyback.

year count Complied by 9.30

Complied by 10.00

Complied by 12:00

Complied by EOD

Complied by 9.30

(%)

Complied by EOD

(%) Panel A: All companies

1997 335 189 251 280 292 56.4 87.2 1998 1529 801 1012 1223 1325 52.4 86.7 1999 1949 1095 1299 1518 1731 56.2 88.8 2000 2173 1101 1400 1772 1957 50.7 90.1 2001 1809 1116 1341 1507 1634 61.7 90.3 2002 1755 1217 1376 1477 1589 69.3 90.5 2003 1806 1136 1365 1508 1640 62.9 90.8 2004 1311 901 1043 1140 1212 68.7 92.4 2005 2085 1539 1797 1918 1959 73.8 94.0 2006 1959 1341 1597 1734 1777 68.5 90.7 2007 2461 1755 2016 2216 2291 71.3 93.1 2008 4169 2972 3414 3602 3675 71.3 88.2 2009 3177 2361 2712 2806 2841 74.3 89.4 2010 3291 2312 2719 2859 2909 70.3 88.4 2011 3708 2805 3137 3303 3376 75.6 91.0 2012 3326 2484 2753 2855 2916 74.7 87.7 2013 1698 1348 1422 1462 1503 79.4 88.5

Average 68.69% 79.54% 86.09% 89.84% 66.9 89.9 Panel B: Large companies

1997 217 120 167 189 191 55.3 88.0 1998 1204 617 815 1003 1079 51.2 89.6 1999 1766 969 1163 1375 1574 54.9 89.1 2000 1900 928 1223 1589 1743 48.8 91.7 2001 1492 954 1164 1312 1387 63.9 93.0 2002 1550 1155 1312 1396 1435 74.5 92.6 2003 1516 1083 1291 1380 1437 71.4 94.8 2004 1163 831 959 1037 1088 71.5 93.6 2005 1842 1341 1595 1705 1741 72.8 94.5 2006 1689 1193 1428 1532 1561 70.6 92.4 2007 2068 1500 1717 1892 1961 72.5 94.8 2008 3668 2698 3079 3248 3307 73.6 90.2 2009 2769 2111 2425 2500 2522 76.2 91.1 2010 2691 2016 2348 2439 2465 74.9 91.6 2011 3025 2402 2689 2809 2849 79.4 94.2 2012 2934 2313 2550 2614 2660 78.8 90.7 2013 1565 1282 1351 1385 1422 81.9 90.9

Average 71.1% 82.5% 88.9% 92.0% 69.0 91.9

30

year count Complied by 9.30

Complied by 10.00

Complied by 12:00

Complied by EOD

Complied by 9.30

(%)

Complied by EOD

(%) Panel C: Small companies

1997 118 69 84 91 101 58.5 85.6 1998 325 184 197 220 246 56.6 75.7 1999 183 126 136 143 157 68.9 85.8 2000 273 173 177 183 214 63.4 78.4 2001 317 162 177 195 247 51.1 77.9 2002 205 62 64 81 154 30.2 75.1 2003 290 53 74 128 203 18.3 70.0 2004 148 70 84 103 124 47.3 83.8 2005 243 198 202 213 218 81.5 89.7 2006 270 148 169 202 216 54.8 80.0 2007 393 255 299 324 330 64.9 84.0 2008 501 274 335 354 368 54.7 73.5 2009 408 250 287 306 319 61.3 78.2 2010 600 296 371 420 444 49.3 74.0 2011 683 403 448 494 527 59.0 77.2 2012 392 171 203 241 256 43.6 65.3 2013 133 66 71 77 81 49.6 60.9

Average 54.0% 61.6% 68.9% 76.7% 53.7%

31

Table 4

This table reports the number of violations of Listing Rule 7.29 which requires that when companies repurchase for the first time on-market they must have had at least five days in the last three months where positive volumes occurred in the market. We use Sample 3 with 38,194 observations for these calculations.

X= No of days of trading in the past 3 months

4 3 2 1 0 TOTAL

No of violations where there were exactly X days of trading in the past three months

23 18 20 3 2 66

No for large companies 0 2 0 0 0 2 No for small companies 23 16 20 3 2 64

32

Table 5 Violations of the maximum price rule, Listing Rule 7.33. This table records extent to which the company misreports the maximum price under the maximum price rule: 100*(MCo – M)/M and the extent to which the company violates the maximum price rule: 100*(Phigh – M)/M. Panel A presents results for the full sample 1997 to 2013 and Panel B records violations of Listing Rule 7.33 for the crisis period, which is identified as the period from the highest point of the Australian equity market to the lowest point, 1st November 2007 to 23rd January 2009. Panel C reports violations greater than one percent for the non-crisis period (that is,whole sample period with the crisis period removed).

Period Obs Obs with Phigh recorded

> 1.0 (%)

> 5.0 (%)

>10.0 (%)

Panel A Full 38,541 38,304 100*(MCo – M)/M 5.5 0.88 0.40 sample 100*(Phigh – M)/M 0.54 0.13 0.07 Panel B Crisis 4,917 4,886 100*(Phigh – M)/M 0.84 0.16 0.08 period Panel C Non-crisis period

33,568 33,365 100*(Phigh – M)/M 0.50

Difference (non-crisis – crisis) -0.34***