Commonwealth Numbered Regulations - Explanatory Statements

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CORPORATIONS REGULATIONS (AMENDMENT) 1996 NO. 90

STATUTORY RULES 1996 No. 90

Issued by the Authority of the Treasurer

Corporations Act 1989

Corporations Regulations (Amendment)

Section 22 of the Corporations Act 1989 (the Act) empowers the GovernorGeneral 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 Heads of Agreement on Future Corporate Regulation in Australia, reached between State, Northern Territory and Commonwealth Ministers who had responsibilities in relation to corporate regulation in June 1990 forms the political compact on which the national companies and securities scheme is based. It is envisaged that this Agreement will be supplemented by a more formal agreement, to be known as the Corporations Agreement.

Both the Heads of Agreement and the draft Corporations Agreement require the Commonwealth to consult the States and the Northern Territory on legislative proposals relating to matters falling within Chapters 7 and 8 of the Corporations Law. The proposed regulations relate to matters within Chapters 7 and 8. The responsible Ministers of the States and the Northern Territory have been consulted about the proposed regulations and have not indicated that they have any difficulties with them.

The purpose of the regulations is:

*       to alter a reference to a Listing Rule of the Australian Stock Exchange in light of proposed amendments to those rules (Regulation 3);

*       extend exemptions from inappropriate requirements of the Corporations Law to subsidiaries of the Australian Stock Exchange (Regulation 4);

*       exempt certain futures brokers from the requirement to issue details of transactions to clients where more than one broker is subject to such a requirement (Regulations 5 and 6); and

*       prescribe a form for the purpose of making a claim against the National Guarantee Fund (Regulations 7 and 8).

Details of the regulations are contained in the Attachment.

Regulation 3 commences on 1 July 1996 - the date of the commencement of the new Listing Rules of the Australian Stock Exchange. The remaining regulations commence on the date of gazettal.

ATTACHMENT

Regulation 1

Regulation 1 provides that regulation 3 commences on 1 July 1996 to coincide with the introduction on that date of new listing rules of the Australian Stock Exchange Ltd (ASX). The remaining regulations commence on gazettal.

Regulation 2

Regulation 2 provides that the Corporations Regulations are amended as set out in these regulations.

Regulation 3

The ASX is proposing to replace its Listing Rules with effect from 1 July 1996. The former concept of "exempt foreign company" in former Listing Rule 1B is to be replaced with the concept of an "exempt foreign entity" in proposed new Listing Rule 1.11. In recognition of this change Regulation 2 replaces the concept of "exempt foreign company" in regulation 1.2A.01 (a) with the concept of an "exempt foreign entity".

Regulation 4

Regulation 4 replaces the term "an Exchange subsidiary" with the term "a subsidiary of the Exchange" in regulation 7.3.01A. The term "an Exchange subsidiary" is limited to securities exchanges or stock exchanges that are subsidiaries of the Exchange. The amendment will extend the exemptions from Chapter 7 provided by regulation 7.3.01A to subsidiaries of the Exchange which undertake Exchange functions but are not themselves securities exchanges or stock exchanges.

Regulation 5

Regulation 5 inserts new regulation 8.4.01A. New regulation 8.4.01A specifies which broker will issue a contract note to a client where the obligation to do so potentially falls on more than one broker.

Section 1206 of the Corporations Law requires a futures broker to give a person on whose behalf the broker has acquired or disposed of a futures contract a contract note setting out details of the transaction. It, is a feature of futures trading that not one but a number of different brokers may handle a trade. Sec 1206 would impose an obligation on all the brokers handling a trade to provide contract notes to clients. A client need only receive one contract note.

Subregulation 8.4.01A(1) specifies when the regulation applies. It applies in relation to a transaction described in subsec 1206(1) when more than one futures broker enters into the transaction on behalf of another person. (Sees 26, 27 and 28 may have the effect of deeming more than one person to have acquired, disposed of or dealt in a futures contract on another person's behalf.)

Subregulation 8.4.01A(2) provides that if a person has instructed a broker to allocate a dealing to another broker subsection 1206(1) does not apply except to the broker who last deals in the transaction. The broker who last deals in a transaction on behalf of a person in the circumstances of subreg. 8.4.01A(2) will ordinarily be the broker to whom the dealing is allocated. It may include a clearing member where the futures contract has been allocated to that member and the clearing member has a client-broker relationship with the 'rear client of the transaction. Allocation is the process whereby a futures contract is transferred from one member of an exchange to another member prior to registration by the clearing house. Such allocation will take place in accordance with the business rules or practice of a self regulatory organisation (an exchange). (The business rules of the Sydney Futures Exchange provide for the allocation of contracts under its General By-Laws G.22.1 to G.23.8. Trades may only be allocated to floor members or clearing members: General ByLaw G.23.1 (c).)

Sub-regulation 8.4.01A(3) applies where more than one broker deals in a transaction and the transaction is not allocated to another broker (e.g. a client instructs a floor member who is not a clearing member to enter into a transaction on his/her behalf and the trade is cleared by another member. Both the floor member and the clearing member are potentially liable to issue contract notes to the client.) Sub-regulation 8.4.01A(3) provides that in circumstances not covered by subreg. 8.4.01A(2), subsection 1206(1) does not apply except to the broker whom the client has instructed to enter into the transaction.

Regulation 6

Regulation 6 inserts new regulation 8.4.03A. New regulation 8.4.03A specifies which broker will issue a monthly statement to a client where the obligation to do so potentially falls on more than one broker.

Subsec 1207(1) requires a broker who has acquired a futures contract on a person's behalf to give a client a statement setting out current details of a futures contract where the contract has not been disposed of. The interpretation provisions of Division 4 of Part 1.2 may have the effect that more than one futures broker is subject to such a requirement. A client need only receive one monthly statement.

Subregulation 8.4.03A(1) specifies when the regulation applies. It applies in relation to a transaction described in para 1207(1)(b) when more than one futures broker acquires a contract on behalf of a client.

Subreg. 8.4.03A(2) provides that if a person instructed a broker to allocate a dealing to another broker subsection 1207(1) does not apply except to the broker who last deals in the transaction. The broker who last deals in a transaction on behalf of a person in the circumstances of subreg. 8.4.03A(2) will ordinarily be the broker to whom the dealing is allocated. It may include a clearing member where the futures contract has been allocated to that member and the clearing member has a client-broker relationship with the 'real' client of the transaction.

Sub-regulation 8.4.03A(3) applies where more than one broker deals in a transaction and the transaction is not allocated to another broker (e.g. a client instructs a floor member who is not a clearing member to enter into a transaction on his/her behalf and the trade is cleared by another member. Both the floor member and the clearing member are potentially liable to issue monthly statements to the client) Subregulation 8.4.03A(3) provides that in circumstances not covered by subreg. 8.4.03A(2), subsection 1207(1) does not apply except to the broker whom the client has instructed to enter into the transaction.

Regulation 7

Regulation 7 amends Schedule 1 of the Corporations Regulations. Schedule 1 is an index of the forms in Schedule 2 of the Regulations. Details of new 'Form 719B - Notice calling for claims against Securities Exchanges Guarantee Corporation' are inserted in Schedule 1.

Regulation 8

Regulation 8 prescribes a form for the purposes of subsec. 961E(4). The form is a notice for publication in a newspaper requiring claims for a contravention of share certificate cancellation provisions by a named dealer to be served on the Securities Exchanges Guarantee Corporation before a specified day.