VWAP for performance rights and share price hurdles
Where a performance security's milestone is a share price hurdle, ASX recommends that the hurdle 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 the market price at a particular date or over a shorter period (ASX Guidance Note 19). We prepare that figure from trade-level data to the Listing Rule 19.12 definition and state the window, the markets counted, the trade types removed and the source alongside it, whether the hurdle is tested once or as each new day of trading is added.
How the guidance works
Guidance Note 19 sets out how ASX applies the Listing Rules to performance securities, 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).
Where the milestone is a share price hurdle, ASX's position is that the hurdle should be expressed as a VWAP over a reasonable period, and its example is 20 consecutive trading days on which the entity's securities have actually traded (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 under rule 7.1A.3, it counts days on which the securities actually traded rather than trading days flat, so the window is built by the same backwards walk (ASX Guidance Note 19; ASX Listing Rule 7.1A.3).
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.
What differs from a placement is what the finished figure is for, and it changes how often the calculation runs. A placement VWAP sets a minimum price and is worked out once against a fixed anchor. A hurdle VWAP is compared against a threshold, and where the terms allow the hurdle to be met at any time before an expiry date, the comparison has to be re-run as each new day of trading is added, over a period measured in years rather than weeks.
Read the full guide to why and when VWAP is used on the ASX.
What the report includes
- The figure and the window
The volume weighted average market price for the security, with the first and last dates of the period it covers and the number of days in it.
- Methodology stated against the rule
The calculation is prepared to the ASX Listing Rule 19.12 definition of volume weighted average market price, from trade-level data rather than a daily price table.
- What the report sets out
A daily breakdown of volume, value and VWAP with the period low, high, opening and closing price, the complete trade-level data set behind the calculation, and a record of any excluded trades.
- The excluded trade types removed
Block trades, large portfolio trades, permitted trades during the pre-trading and post-trading hours periods, out of hours trades and exchange traded option exercises are taken out before the sum is run (ASX Listing Rule 19.12).
- Workings anyone can redo
Every row of the trade-level list carries its timestamp, price, volume and the running turnover, so anyone who disagrees with the figure can redo the arithmetic from the same data.
- PDF report and Excel spreadsheet
A written report plus a spreadsheet carrying the input data and the calculation steps.
Every regulatory statement on this page names the rule or guidance note it comes from, and every report states the window, the markets counted, the trade types removed and the source of the data. Reports are prepared by Riverstone Corporate Pty Ltd T/AS VWAP.com.au, ABN 42 883 208 403, West Leederville, Western Australia.
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Common questions
How many days go into a performance rights VWAP?
ASX 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). That is a recommendation about how terms should be drafted, not a formula the rules apply on their own.
Why does ASX recommend a VWAP rather than a price on one day?
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).
What if the terms do not say which venues or exclusions apply?
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. Where the terms do not settle a choice, the only useful response is to record which choice was made.
Does a hurdle have to be retested as trading continues?
It depends on the terms. A placement VWAP sets a minimum price and is worked out once against a fixed anchor. Where the terms allow a hurdle to be met at any time before an expiry date there is no single anchor: the comparison has to be re-run as each new day of trading is added, and the window slides forward with it. A hurdle measured once at a stated date is a different calculation from one tested on a rolling basis, and the two can give different answers on the same trading.
Are option exercise prices set off a VWAP too?
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.