Australian Securities and Investments Commission
Corporations Act 2001 — Paragraph 992B(1)(a) — Exemption
Under paragraph 992B(1)(a) of the Corporations Act 2001 (the “Act”), the Australian Securities and Investments Commission exempts each person who is an Australian ADI (the “prime broker”) from paragraph 984B(1)(a) of the Act to the extent that that paragraph requires the prime broker to hold property to which Division 3 of Part 7.8 of the Act applies on trust for the benefit of a person (the “client”) who is entitled to it where:
(a) the property consists of securities; and
(b) the client is a wholesale client; and
(c) the prime broker holds the property under the terms of a prime brokerage agreement between the prime broker and the client; and
(d) the prime broker and the client have agreed in writing that the prime broker does not hold the property on trust for the client.
Interpretation
In this instrument:
“prime brokerage agreement” means a written agreement under which the prime broker makes all of the following services available to the client:
(a) taking money on deposit and making advances of money in the ordinary course of its banking business as an Australian ADI; and
(b) disposing of securities to the client subject to an arrangement to reacquire the same or similar securities from the client at a later time; and
(c) custodial or depository services;
“securities” has the meaning given by subsection 92(1) of the Act; and
“wholesale client” has the meaning given by subsection 761G(4) of the Act.
Dated this 16th day of December 2003
Signed by Brendan Byrne
as a delegate of the Australian Securities and Investments Commission
Overview
The Australian Securities and Investments Commission Corporations Act 2001, enacted by the Commonwealth Parliament, is designed to provide a comprehensive regulatory framework for financial markets and entities in Australia. One of the Act's aims is to ensure that financial markets are fair, efficient, and transparent, while also protecting consumers. The specific legislative instrument F2007B00627, issued under the authority of the Act, addresses the need to clarify and streamline the regulatory requirements for Australian authorised deposit-taking institutions, or ADIs, that operate as prime brokers. By exempting prime brokers from certain trust holding requirements when dealing with wholesale clients under specific conditions, the instrument aims to facilitate smoother operations within the financial sector, while still maintaining necessary oversight to protect client interests.
Scope and Application
The Australian Securities and Investments Commission Corporations Act 2001, as modified by the legislative instrument F2007B00627, provides an exemption for Australian authorised deposit-taking institutions (ADIs), referred to as prime brokers, under specific conditions outlined in paragraph 992B(1)(a) of the Act. This exemption applies when the prime broker holds property, specifically securities, under a prime brokerage agreement with a client who qualifies as a wholesale client, as defined by subsection 761G(4) of the Act. The exemption is contingent upon the prime broker and the client mutually agreeing in writing that the prime broker does not hold the securities on trust for the client. The instrument defines a "prime brokerage agreement" as a written contract where the prime broker offers a range of services including money deposits and advances, securities disposal with a repurchase arrangement, and custodial or depository services. This exemption does not extend to situations outside the parameters set by the legislative instrument, which focuses narrowly on the defined relationship between prime brokers and wholesale clients.
Key Provisions
The Australian Securities and Investments Commission (ASIC) has issued an exemption under paragraph 992B(1)(a) of the Corporations Act 2001. This exemption applies to Australian Authorised Deposit-taking Institutions (ADIs), also known as prime brokers, under specific conditions. Primarily, the exemption applies when the prime broker holds property, specifically securities, on behalf of a client who is considered a wholesale client (paragraph 984B(1)(a)). The exemption is contingent upon several conditions being met, including that the property in question consists of securities, the client is a wholesale client, and the prime broker holds the property under a prime brokerage agreement. Additionally, the exemption requires that the prime broker and the client have explicitly agreed in writing that the prime broker does not hold the property on trust for the client (subsection 992B(1)(a)).
The obligations imposed by this legislative instrument on the parties involved are quite specific. Firstly, the prime broker must ensure that any securities held on behalf of a wholesale client are subject to a prime brokerage agreement. This agreement must explicitly provide for the services outlined in the legislation, including taking money on deposit, making advances of money, disposing of securities with an arrangement to reacquire them, and providing custodial or depository services. Furthermore, the prime broker and the client must agree in writing that the prime broker does not hold the property on trust for the client, thereby complying with the exemption criteria set out in the Corporations Act 2001.
Failure to adhere to the conditions outlined in this exemption may result in various consequences. While the specific civil or criminal penalties are not detailed in the legislative instrument, breaches of the Corporations Act 2001 generally can lead to substantial penalties. For example, contraventions of the Act can result in fines, imprisonment, or both, depending on the severity of the breach. The maximum penalties can vary widely based on the specific provision of the Act that is breached, but they can be significant, reflecting the importance of compliance with financial regulations in Australia. It is essential for prime brokers and their clients to ensure that they meet all the requirements stipulated in the Act to avoid any potential legal repercussions.