Rakon's censure and fine is a timely reminder of the importance of continuous disclosure for all listed companies, says Shareholders Association chairman John Hawkins.

The NZX-listed company, which makes crystal oscillators used in smart phones and navigation devices, has been publicly censured and fined $30,000 by the stock market's disciplinary tribunal for breaching disclosure rules when it sold 80 per cent of its Chinese factory last year.

Hawkins said investors expected quality information and that could only occur if all companies met their obligations to the letter.

"Unfortunately, in this case some shareholders or potential shareholders gained an advantage over others."


Hawkins said Rakon's excuse that no disclosure was required until the factory deal was legally binding was a weak argument.

"Companies are required to inform the market as soon as a material matter is agreed," he said. "It is very common for this to be in advance of all the legal details being completed."

The Auckland-based manufacturer breached the rules for about an hour and a half when it didn't inform the market it had entered into a tentative agreement with Zhejiang East Crystal Electronic Co for the firm to buy its stake in a Chengdu-based facility on July 4, the NZ Markets Disciplinary Tribunal said.

Rakon didn't believe the agreement was binding until it had received a US$500,000 deposit, as both parties could reopen negotiations until that was paid.

"Rakon submitted that the uncertainty as to whether ECEC would pay the deposit meant that announcing the agreement before it was paid could have misled the market," the tribunal's said in its ruling.

"However, the tribunal considered that an announcement could have been worded appropriately to ensure the market was aware of the deposit requirement."

NZX discovered the breach after seeing a significant increase in trading volume and a price rise in Rakon shares on July 5, and found Chinese media reports of the deal. The shares were subsequently halted, and Rakon announced details of the agreement.

"There was no suggestion that Rakon deliberately breached the rules," the tribunal said.

Both Rakon and the stock market operator agreed the deal was material information and that as soon as Chinese media reported it, disclosure was required.

Where they differed was on whether it was an incomplete transaction before the announcement.

Rakon told the tribunal the agreement was governed by Chinese law, though the manufacturer didn't seek any advice as to when the transaction would become legally effective, or ask for guidance of ECEC as to its own disclosure obligations.

The tribunal decided the agreement was complete on the evening of July 4, and Rakon should have informed the NZX before the market opened the following day. Rakon was also ordered to pay costs incurred by the tribunal and NZX.

Among the mitigating circumstances was that the potential detriment to shareholders was small, the length of time of the breach was short, and that Rakon had internal processes in place to meet its listing obligations.

"The tribunal noted that it was clear that Rakon's senior management and board were aware of the need to announce the agreement and sought to manage the timing of the announcements by Rakon and ECEC."