Overview

The Australian Securities and Investments Commission (ASIC) Class Order [CO 05/682], enacted in 2005, provides relief to issuers of financial products from the requirement to disclose the costs associated with acquiring warrants in dollars as part of their Product Disclosure Statement (PDS). This measure was introduced to address the practical difficulties faced by issuers of warrants that are not derivatives in disclosing such costs in a fixed dollar amount, given the variable nature of these costs. The Class Order was made under section 1020F(1)(a) of the Corporations Act 2001, which allows ASIC to exempt certain persons from specified provisions of the Act. The policy objective is to provide consistent relief for all warrants, aligning the approach for warrants that are not derivatives with those that are, while ensuring that significant factors affecting the costs are clearly disclosed and explained. This was in response to a submission from a law firm representing several warrant issuers, seeking relief from the strict dollar disclosure requirements.

Scope and Application

ASIC Class Order [CO 05/682] pertains to the Australian Securities and Investments Commission’s exemption under the Corporations Act 2001 for certain disclosure requirements concerning the costs of warrants. Specifically, this Class Order amends the existing Class Order [CO 04/1431] to provide relief for issuers of warrants from the obligation to disclose acquisition costs in dollars in their Product Disclosure Statements (PDS). This relief is applicable provided that the PDS details any significant factors influencing the cost of acquiring the warrant and explains how these factors affect the acquisition cost. The Act applies to issuers of financial products, including warrants, that are being offered to retail clients. The jurisdictional reach of this Class Order is national, as it pertains to the Commonwealth under the Corporations Act 2001. The relief granted by [CO 05/682] is specific to warrants that are not derivatives, which have costs that are typically variable and difficult to disclose in a fixed dollar amount. The Class Order does not apply to derivatives, which are already covered under other provisions. The amendment reflects feedback from a law firm representing multiple warrant issuers and aims to create a consistent approach to cost disclosure for all warrants.

Key Provisions

The key operative sections of the ASIC Class Order [CO 05/682] are Section 1020F(1)(a) of the Corporations Act 2001, which allows ASIC to exempt a person or a class of persons from all or specified provisions of Part 7.9 of the Act. This class order specifically addresses the disclosure of acquisition costs for warrants in a Product Disclosure Statement (PDS) and amends the earlier Class Order [CO 04/1431] to include non-derivative warrants. Section 1012B of the Act mandates that an issuer of a financial product must provide a PDS when issuing a product to a retail client, with the disclosure requirements outlined in Sections 1013D, 1013DA, and 1013E. Specifically, Section 1013D(1)(d) and 1013D(1)(m) require the costs associated with acquiring a product to be stated in dollars, which is the focus of the amendment. The Class Order [CO 05/682] imposes obligations on the responsible persons preparing the PDS for warrants. These obligations include specifying any significant factors that will affect the cost of acquiring the warrant and providing an explanation of the impact of each of those factors on the cost of acquiring the warrant. This ensures that while the exact acquisition costs in dollars do not need to be disclosed, the factors influencing those costs are clearly outlined and explained in the PDS. This approach aims to maintain transparency and inform retail clients adequately about the potential costs associated with acquiring a warrant. There are no specific offences or penalties outlined in the Class Order [CO 05/682] itself. However, any breach of the Corporations Act 2001, including failure to comply with the requirements of a PDS, can result in civil or criminal penalties under the Act. The maximum penalties for breaches of the Corporations Act can include fines for individuals and corporations, depending on the nature and severity of the breach. Additionally, ASIC has the authority to take enforcement action, which may include seeking injunctions, compensation orders, and other remedies to ensure compliance with the Act. The relief provided by [CO 05/682] is intended to streamline compliance and avoid unnecessary complexity without compromising the need for adequate disclosure to protect retail clients.