On the ASX, VWAP is not only a way of describing how a stock traded. Several Listing Rules price securities off it, so the figure can be the floor under an issue price or the trigger for a conversion rather than a statistic about the market. That is why company secretaries, chief financial officers and directors end up needing one calculated properly, usually at short notice and against a rule that fixes the window for them.
What is VWAP? covers the concept, how VWAP is calculated covers the arithmetic, and the ASX VWAP definition reads the defined term. This one is about the situations that call for one.
Placements under the extra 10% capacity
Rule 7.1 limits placements of equity securities without security holder approval to 15% (ASX Guidance Note 21). An eligible entity is one which, as at the date of the relevant special resolution, is not included in the S&P/ASX300 Index and has a market capitalisation equal to or less than the prescribed amount, which is the maximum ASX determines for this purpose and was $300 million as at 1 December 2019 (ASX Listing Rule 19.12). Such an entity may ask its holders at an annual general meeting to approve by special resolution an additional 10% of capacity on top of that limit (ASX Listing Rules 7.1A and 7.1A.2). The additional capacity comes with a price condition, and the condition is a VWAP.
Securities issued under it must be in an existing quoted class of the entity's equity securities, and issued for a cash consideration per security which is not less than 75% of the volume weighted average market price for securities in that class (ASX Listing Rule 7.1A.3). The expression is the Chapter 19 defined term, so the two-market trade set and the six excluded trade types come with it (ASX Listing Rule 19.12). Which trades count and which are excluded works through the exclusions and multi-venue trading covers pulling both markets into one calculation.
The window is set by the same rule. The price is calculated over the 15 trading days on which trades in that class were recorded immediately before either the date on which the price at which the securities are to be issued is agreed by the entity and the recipient, or, if the securities are not issued within 10 trading days of that date, the date on which the securities are issued (ASX Listing Rule 7.1A.3).
Three features of that sentence do the work.
The count is of days on which trades were recorded. That is narrower than 15 trading days. A day on which the class did not trade is still a trading day under the Listing Rules (ASX Listing Rule 19.12), but it does not fill one of the 15 slots, so for a thinly traded stock the window reaches back over more calendar than 15 days (ASX Listing Rule 7.1A.3). The ASX VWAP definition sets out the difference between the two counts.
The window ends before the anchor date, not on it. The rule measures the 15 days "immediately before" the relevant date (ASX Listing Rule 7.1A.3). Read on its ordinary meaning, that puts the anchor date itself outside the calculation. The rule does not say so in terms, so this is a reading rather than something the text settles, and it is the reading this guide series applies.
The anchor can move. The default anchor is the date the issue price is agreed with the recipient. If the securities are not issued within 10 trading days of that date, the anchor becomes the issue date instead, which means a delayed completion reprices the floor against a later window (ASX Listing Rule 7.1A.3).
ASX's guidance on these Chapter 7 restrictions is Guidance Note 21. Its stated purpose is to assist entities to understand and comply with the restrictions on issuing equity securities in Chapter 7, and the points it covers include the additional 10% placement capacity under rule 7.1A and the conditions an entity must satisfy to access it (ASX Guidance Note 21).
Performance securities and incentive grants
Guidance Note 19 sets out how ASX applies the Listing Rules to performance securities, and it answers the question "what are performance securities?" in its own terms, including the requirement in rule 6.1 that the terms of equity securities be, in ASX's opinion, appropriate and equitable (ASX Guidance Note 19). That definition is not quoted in this guide series. In plain terms, and as a working gloss rather than the guidance's wording, these are equity securities whose conversion or vesting turns on a milestone being met.
Where the milestone is a share price hurdle, ASX's position is that the hurdle should be expressed as a VWAP. The guidance recommends that a security price hurdle attached to a performance security be based on volume weighted average market price over a reasonable period, giving as its example 20 consecutive trading days on which the entity's securities have actually traded, rather than on the market price at a particular date or over a shorter period (ASX Guidance Note 19). The reasoning is stated in the same passage: prices can fluctuate significantly over a short period, and may be susceptible to manipulation, especially for thinly traded securities or where the price is measured at a single point in time (ASX Guidance Note 19).
Note the shape of that example. Like the placement floor, it counts days on which the securities actually traded rather than trading days flat (ASX Guidance Note 19; ASX Listing Rule 7.1A.3). The two provisions do different jobs, but they treat a non-trading day the same way.
This is a recommendation about how terms should be drafted, not a formula the rules apply on their own. Once the terms are approved, the operative text is the terms themselves, so a milestone that says nothing about which venues are counted or which trade types come out leaves those questions to whoever runs the calculation years later.
The same is true of the wider set of incentive grants. Exercise prices for options, and the number of rights awarded for a given dollar value, are commonly struck off a VWAP over a period ending at grant date or at the start of a performance period. That is drafting practice rather than a Listing Rule requirement, and the plan rules or offer letter are the only place the window is fixed.
Related party issues
Chapter 10 governs transactions with persons in a position of influence. Rule 10.11 is the approval requirement for an issue of equity securities to a related party or other person in a position of influence, and rule 10.14 covers acquisitions under an employee incentive scheme. Neither rule references VWAP. Pricing for transactions approved under them is handled through deal-specific disclosure and independent expert opinion under rules 10.13 and 10.15, not through a VWAP-referencing formula (ASX Listing Rules Chapter 10).
VWAP still turns up in these deals, but it arrives through the way the deal was priced rather than through the rule text. A director or substantial holder subscribing alongside a placement is typically taking the placement price, and that price may itself have been set as a discount to a VWAP. Because no rule fixes the window in that case, the window is whatever the board agreed and the notice of meeting describes, which makes stating the basis part of describing the transaction.
Share purchase plans
The rules call these security purchase plans; the market calls them share purchase plans, or SPPs. Chapter 10 contains one VWAP pricing floor and it sits in the SPP carve-out, but note the scope before borrowing the number: Exception 4 is an exception to rule 10.11, the related party approval requirement, so it governs participation by related parties and other persons in a position of influence rather than SPPs at large (ASX Listing Rule 10.12, Exception 4).
Exception 4, one of the exceptions set out in rule 10.12, takes an issue of securities under an SPP outside the rule 10.11 approval requirement where the plan satisfies the conditions in ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547. It also reaches a plan that would satisfy those conditions but for the entity's securities having been suspended from trading on ASX for more than a total of 5 days during the 12 months before the day the offer is made under the plan, or, where the securities have been quoted for less than 12 months, during the period of quotation (ASX Listing Rule 10.12, Exception 4).
Conditions attach. The exception is available only once in any 12 month period; the number of securities to be issued must not be greater than 30% of the fully paid ordinary securities already on issue; and the issue price must be at least 80% of the volume weighted average market price for securities in that class, calculated over the last 5 days on which sales in the securities were recorded before the day on which the issue was announced, or the day on which the issue was made (ASX Listing Rule 10.12, Exception 4). The exception does not apply to an issue of securities under an agreement to underwrite the shortfall on a plan (ASX Listing Rule 10.12, Exception 4).
The mechanic is the same shape as the placement floor, with a shorter window and a higher percentage. It also counts days on which sales were recorded rather than days on the calendar, though it says "days" where rule 7.1A.3 says "trading days" (ASX Listing Rule 10.12, Exception 4; ASX Listing Rule 7.1A.3). A second difference is worth noting before relying on it: the rule offers two end points joined by "or", the day the issue was announced and the day the issue was made, without spelling out which governs, where rule 7.1A.3 states the condition that shifts an issue from one anchor to the other (ASX Listing Rule 10.12, Exception 4; ASX Listing Rule 7.1A.3). Two readings are open on the text. The "or" may leave the entity a choice between the two end points, or it may be doing the same work as rule 7.1A.3's second limb, pointing at the announcement day for a plan announced and made in the ordinary course and at the issue day where the two come apart. The extract settles neither, so record which end point was used and why.
Plans offered outside this exception are frequently priced off a VWAP as well, at a discount set by the offer. There the window comes from the offer terms rather than from a rule, so the offer document has to say what it is.
Execution benchmarking
The use that most general material describes is the trading one. A broker given an order to work across a day is measured against that day's VWAP, and execution algorithms are built to track it. Here the number is a measuring stick rather than a price. Nothing turns on it beyond an assessment of how well the order was worked, the window is the order's own, and none of the Listing Rules exclusions apply unless the mandate imports them. It is a different calculation answering a different question from the ones above, which is worth keeping in mind when a figure produced for trading purposes is reused in a corporate context.
When the number gets contested
In the trading use, being a cent out is a question of performance. In the Listing Rules uses, the VWAP is an input to a price with legal consequences. The floor beneath a placement issued under the additional capacity is 75% of it (ASX Listing Rule 7.1A.3), the floor beneath a plan issue relying on the related party exception is 80% of it (ASX Listing Rule 10.12, Exception 4), and a hurdle drafted as a VWAP decides whether securities convert (ASX Guidance Note 19). A figure built over the wrong window, from one market's trading alone (multi-venue trading), or without the excluded trade types removed (which trades count and which are excluded), can put an issue price below a floor while every document in the file says it is above one.
The basis is also on the record rather than buried. For an issue under rule 7.1A, the entity is prompted to state the pricing date, the pricing period and the VWAP for the relevant class over that period, and to identify the source of its VWAP calculation (ASX Guidance Note 21). Anyone who wants to can redo the arithmetic from the same trading data. Common mistakes collects the errors that most often produce a number that does not survive being redone.