Commonwealth Consolidated Acts

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The losses to be covered

             (1)  Subject to section 885D, the compensation rules must cover losses ( Division 3 losses ) of a kind described in the following paragraphs:

                     (a)  a person (the client ) gave money or other property, or authority over property, to a person (the participant ):

                              (i)  who was a participant in the market at that time; or

                             (ii)  who the client reasonably believed to be a participant in the market at that time and who was a participant in the market at some earlier time; and

                     (b)  the money or other property, or the authority, was given to the participant in connection with effecting a transaction, or proposed transaction, covered by provisions of the operating rules of the market relating to transactions effected through the market; and

                     (c)  the effecting of the transaction through the market constitutes or would constitute the provision of a financial service to the client as a retail client; and

                     (d)  the client suffers a loss because of:

                              (i)  if the client gave the participant money or other property--the defalcation or fraudulent misuse of the money or other property by the participant; or

                             (ii)  if the client gave the participant authority over property--the fraudulent misuse of that authority by the participant.

             (2)  The compensation rules must provide that a claim relating to an alleged loss caused by defalcation or fraudulent misuse may be allowed even if:

                     (a)  the person against whom the defalcation or misuse is alleged has not been convicted or prosecuted; and

                     (b)  the evidence on which the claim is allowed would not be sufficient to establish the guilt of that person on a criminal trial in respect of the defalcation or fraudulent misuse.

             (3)  The compensation rules may exclude losses of a kind described above that occur in specified situations. However, the compensation arrangements will not be adequate unless the Minister is satisfied that those exclusions are appropriate.

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