Commonwealth Numbered Regulations - Explanatory Statements

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CORPORATIONS REGULATIONS (AMENDMENT) 1992 NO. 450

EXPLANATORY STATEMENT

STATUTORY RULES 1992 No. 450

Issued by the authority of the Attorney-General

Corporations Act 1989

Corporations Regulations (Amendment)

Section 22 of the Corporations Act 1989 (the Act) empowers the Governor-General to make regulations, not inconsistent with the Act or the Corporations Law (the Law), prescribing, inter alia, matters which are required by the Law to be prescribed by regulations or necessary or convenient to be prescribed by regulations for carrying out or giving effect to the Law.

In accordance with the Heads of Agreement between the Commonwealth, State and Territory Ministers having responsibilities in relation to corporate regulation, the Attorney-General has consulted the relevant State and Territory Ministers on the proposed amendments. Under the terms of the Heads of Agreement, the Attorney-General is required only to consult Ministers on legislative proposals relating to matters falling within Chapter 7 of the Law. The Regulations are in this category.

The purposes of the Regulations are:

       to exempt the Australian Stock Exchange Limited from certain parts of the Law when it deals in securities in connection with specified services the Exchange has introduced in connection with its fixed settlement regime (the Exchange is to be regulated only as a securities exchange and not, in addition, as a dealer); and

        to allow authorised trustee corporations under the Law to offer to investors in a cash common fund additional investments in the fund without having to comply with certain fundraising provisions of the Law.

Details of the Regulations are contained in the Attachment.

The Regulations commenced on the date of gazettal.

ATTACHMENT

Regulation 1

Amendment

Regulation 1 provides that the regulations amend the Corporations Regulations (the Regulations).

Regulation 2

Regulation 7.3.01A (Exemptions from Chapter 7 of the Corporations Law)

Subregulation (1) exempts the Australian Stock Exchange and its subsidiaries from certain provisions of the Corporations Law when it deals in securities in connection with specified services the Exchange has introduced to facilitate the fixed settlement regime. The services specified are the transfer delivery service, guaranteed securities loans and the netting of cash and delivery obligations.

The provisions of the Corporations Law referred to in the preceding paragraph are:

       Divisions 1 and 3 of Part 7.3 which include the basic obligations on dealers and investment advisers, and their representatives;

       Part 7.5 which regulates dealers' accounts and audit;

       Part 7.6 which regulates the handling of clients' money and scrip;

       Part 7.7 which requires registers of interests in securities to be maintained by certain people; and

       section 842 which regulates the issue of contract notes.

Subregulation (2) relates to the activities of employees of the Exchange (and those acting for the Exchange or an Exchange subsidiary and under an agreement with the Exchange or an Exchange subsidiary). It exempts such individuals from:

       section 806 which requires representatives of a dealer to hold a proper authority from a dealer who holds a dealers licence; and

       Part 7.7 which requires registers of interests in securities to be maintained by certain people

when they are acting in connection with the Exchange services specified in proposed subregulation (1).

Regulations 3 and 4

Background

The regulations allow certain trustees which are authorised trustee corporations under the Corporations Law to offer to investors in a cash common fund additional investments in the fund without having to comply with certain fundraising provisions of the Corporations Law.

An authorised trustee company is a body corporate that is declared by the Regulations to be an authorised trustee corporation. The list of authorised trustee corporations set out in Schedule 9 to the Regulations includes a number of bodies which are empowered by State trustee company legislation to establish "common funds" for the pooling of moneys held on behalf of estates or under powers of attorney. Common funds are made up of a large number of small cash balances, which are pooled for investment purposes in order to get a higher return at a lower cost, with the net return being distributed pro-rata.

Cash common funds have two features which distinguish them from other common funds:

(a)       they generally provide for the calculation of daily interest; and

(b)       their investments are generally restricted to a narrow range of safe securities (government securities, bank deposits, short-term bills of exchange backed by a bank and certificates of deposits issued by a bank).

Where a trustee company offers an interest in a common fund, the company is offering a prescribed interest under the Corporations Law. In the absence of an exemption, this would generally require full compliance with the prescribed interest provisions of the Corporations Law. In particular, it would require that an application for offers of interests in the fund could only be made on an application form attached to a current prospectus.

In relation to cash common funds, however, additional investments can be small and frequent, so that the requirement to issue a prospectus in respect of every additional investment would be a burden. Similarly, the relatively safe nature of the securities in which a cash common fund may invest means that the need for additional investor protection is not so great.

The Australian Securities Commission (the Commission) in November 1991 granted interim relief from certain of the fundraising provisions of the Corporations Law to offers of additional investments in trustee company cash common funds. It is appropriate for the Commission's discretionary relief to be replaced by a regulation.

Regulation 3

Regulation 7.12.01 (Interpretation)

The regulation inserts the definitions of "cash common fund" and "cash common fund interest" into regulation 7.12.01.

Regulation 4

Regulation 7.12.06 (Excluded offers or invitations: paragraph 66(3)(k) of the Corporations Law)

The regulation declares an offer or invitation to holders of cash common fund interests of additional cash common fund interests in the same cash common fund operated by an authorised trustee corporation to be an excluded offer or invitation. The effect of the regulation is to exclude offers or invitations of additional interests in cash common funds, from the prospectus requirements of the Corporations Law, where those offers or invitations are made to persons who already hold interests in the relevant fund.


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