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CORPORATIONS REGULATIONS (AMENDMENT) 1995 NO. 222EXPLANATORY STATEMENT
STATUTORY RULES 1995 No. 222
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, prescribing, inter alia, matters which are required by the Corporations Law to be prescribed by regulations, or necessary or convenient to be prescribed by regulations for carrying out or giving effect to the Corporations Law.
The regulations are in support of amendments made by the Corporations Law (Securities and Futures) Amendment Act 1995 and amend the Corporations Regulations made under the Corporations Act. The purpose of the regulations is to establish a regulatory regime under the Corporations Law for the trading of a hybrid financial product. The regulations prescribe an agreement for the purposes of paragraph 92A(1)(b) of the Corporations Law, and provide for the Corporations Law to be modified so as to apply to a prescribed agreement pursuant to subsection 92A(2).
The regulations in effect 'disapply' certain Parts and provisions of Chapter 8 of the Law under subsection 92A(2)(b) in order to permit trading of a particular product on a stock market of a stock exchange (i.e. on the Australian Stock Exchange). The product in question would under the current Law fall within the definition of 'futures contract' in subsection 72(1) and in the absence of prescription and 'disapplication' of Parts and provisions of Chapter 8 of the Law under the proposed provisions could not be traded as a 'security'. On prescription and 'disapplication' of Parts and provisions of Chapter 8 the product is regulated largely as if it were a security under Chapter 7. Some provisions of Chapter 7 are disapplied and some provisions of Chapter 8 continue to apply.
Details of the regulations are contained in the Attachment.
Regulation 1 provides that the regulations are amended are set out in these regulations.
Regulations 2 to 6
Regulation 2 to 6 renumber the disclosing entities regulations to achieve consistency with the Partbased numbering system adopted for the Corporations Regulations. There has been no substantive change.
Regulation 7 inserts new 'Part 1.2 - Interpretation' into Chapter 1 of the Corporations Regulations'.
New Regulation 1.2.01
New regulation 1.2.01 defines a "share ratio contract!' for the purpose of new proposed Part 1.2. A "share ratio contract" is an agreement under which a particular person will be under an obligation to pay or will have a right to receive an amount of money. The amount payable or receivable will depend on a state of affairs at a future time ascertained in accordance with the agreement, in particular, a state of affairs relating to fluctuations in the 'relevant ratio'. The amount will be calculated in accordance with the agreement by reference to that state of affairs. The agreement may be varied or discharged before the future time or may have other effects.
Subregulation 1.2.01(2) specifies that the "relevant ratio" is the ratio P:N. P is the price of a share and N is the relevant level of an index expressed as a number. Six major indexes maintained by the Australian Stock Exchange are specified for this purpose.
New Regulation 1.2.02
Reg 1.2.02 prescribes a share ratio contract for the purpose of paragraph 92A(1)(b) of the Corporations Law.
New Regulation 1.2.03
New regulation 1.2.03 provides that Chapter 7 applies to share ratio contracts as if share ratio contracts were securities, a reference to a sale of securities were a reference to a disposal of a share ratio contract and a reference to the purchase of securities were a reference to a person entering into or taking an assignment of a share ratio contract. Subregulations 1.2.03(2) and (3) clarify what is meant by a disposal of a share ratio contract and what is meant by "bought position", "close out" and "sold position" in relation to the disposal of a share ratio contract.
New Regulation 1.2.04
New regulation 1.2.04 applies Division 2A of Part 7.11 (Insider Trading) of the Corporations Law to the trading of share ratio contracts. This necessitates substituting the definition of "securities" in subsection 1002A(1) of the Law which specifically excludes "futures contracts" with the definition of "securities" in subsection 92(1) and ensuring that share ratio contracts are "securities of a body corporate" for the purposes of Division 2A and, in particular, shares of the body corporate to which the contract relates.
New Regulation 1.2.05
New Regulation 1.2.05 ensures that share ratio contracts are "securities of a body corporate" for the purposes of sections 997, 1001 and 1013 and, in particular, shares of the body corporate to which the contract relates.
New regulation 1.2.06
New regulation 1.2.06 modifies the application of certain provisions of Chapter 7 to share ratio contracts. Sections 775, 842, 843 and 844 are not to apply to share ratio contracts as the equivalent Chapter 8 provisions (sections 1138, 1206, 1208 and 1266) are to apply to them. These provisions relate to intervention powers of the Australian Securities Commission, contract notes, own account dealings and priority of client orders. Division 2 of Part 7.4 (Short Selling) and Parts 7.12 and 7.13 are inappropriate to the trading of futures contracts and are excluded.
New regulation 1.2.07
New regulation 1.2.07 provides that a holder of a dealers licence may only deal in share ratio contracts on behalf of another person if the licensee is a member of the Australian Stock Exchange, or holds a futures brokers licence, or the Commission approves in writing the holder to deal in share ratio contracts, or subject to regulation 1.2.09 the dealing in share ratio contracts comes within subregulation 8.3.02(2).
For the purposes of regulations 1.2.07 and 1.2.08 "deal" has the meaning that it has under section 9 of the Corporations Law as if the contracts were securities. This is intended to ensure that the Chapter 7 definitions apply to dealings in a share ratio contracts in regulations 1.2.07 and 1.2.08.
New regulation 1.2.08
New regulation 1.2.08 provides that a holder of a securities licence may only carry on an investment advice business in relation to share ratio contracts or hold out that the person is an investment adviser in relation to share ratio contracts if the licensee is a member of the Australian Stock Exchange, or holds a futures brokers licence or a futures advisers licence, or the Commission has approved in writing the holder to carry on an investment advice business in relation to share ratio contracts or, subject to regulation 1.2.09, the advice relates to a dealing to which regulation 8.3.02 would apply if Part 8.3 of the Law applied.
New regulation 1.2.09
New regulation 1.2.09 provides that Part 8.3 of the Law applies to share ratio contracts only for the purposes of paragraphs 1.2.07(2)(c) and 1.2.08(e) of the regulations, and that a reference to a futures brokers licence in regulation 8.3.02 is to be taken to refer to a dealers licence.
Regulation 8.3.02 permits dealings in futures contracts without a license in certain circumstances. The intention in applying Part 8.3 of the Law is only to apply the paragraphs of regulation 8.3.02 to the share ratio regime which is largely regulated by Chapter 7. If the holder of a dealers licence or an investment advisers licence deals in share ratio contracts and that dealing is of a type referred to in one of the paragraphs of subregulation 8.3.02(2), then it will not be necessary for that dealer or adviser to come within another paragraph of new regulations 1.2.07 or 1.2.08. Dealing in a share ratio contract is defined in subregulation 1.2.07(1). Part 8.3 will not apply for any other purpose.
New regulation 1.2.10
New regulation 1.2.10 excludes the application of Chapter 8 of the Corporations Law to share ratio contracts but, subject to subregulation (2), preserves the application of specified Chapter 8 provisions (sections 1137, 1138, 1205 to 1208, 1210 and Part 8.7 with the exception of sections 1258 and 1267.
Subsection 1137(1) concerns the duty of a futures exchange, and a clearing house for a futures exchange, to ensure an orderly and fair market for dealings in futures contracts. Subsections 1137(2) and (3) permit a futures exchange to give binding directions to a party to a futures contract who is not a member of the exchange. Section 113 8 concerns the powers of the Australian Securities Commission to intervene in markets in futures contracts. Section 1205 concerns the powers of the Australian Securities Commission over undesirable advertising of futures contracts. Section 1206 regulates the provision of contract notes to clients. Section 1207 regulates the provision of monthly statements to clients. Section 1208 concerns dealings by futures brokers on their own account. Section 1210 deals with the provision of information to clients. Part 8.7 deals with various forms of market manipulation in futures markets.
Section 1210 applies as if the words in the prescribed form were omitted. The appropriate form is provided for in Exchange business rules. Section 1207 is to apply only in the circumstances of paragraph 1207(1)(b).
Subregulation 1.2.10(3) modifies references in the provisions of Chapter 8 specified in subregulation 1.2. 10(1) so as to ensure that they apply appropriately to share ratio contracts.
New regulation 1.2.11
Subsection 93(7) provides that a dealing in a futures contract is to be disregarded in determining whether a person carries on a securities business. Regulation 1.2.11 provides that subsection 93(7) has no application to share ratio contracts. This technical amendment ensures that unlicensed persons are not able to deal in share ratios without a dealers licence, and that dealings in share ratio contracts can be taken into account in determining whether a person is carrying on a securities business.