ASIC CLASS ORDER [CO 08/753]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes ASIC Class Order [CO 08/753] under s1020F(1)(c) of the Corporations Act 2001 (the Act).
Section 1020F(1)(c) relevantly provides that ASIC may declare that Part 7.9 of the Act applies in relation to a person as if specified provisions were omitted, modified or varied.
1. Background
ASIC Class Order [CO 08/752] was issued on Sunday 21 September 2008 to prohibit certain covered short selling of securities on licensed markets subject to a limited exemption for certain market makers. This was done as a matter of urgency in response to turmoil on international financial markets, having regard to the actions taken by relevant overseas regulatory agencies in relation to short selling on their markets. The prohibition was aimed at all financial products commonly regarded as securities traded on licensed markets. This was evident from ASIC’s announcements at the time.
The Class Order as made may not have its intended effect as the applicable statutory definitions do not or may not apply to the securities of managed investment schemes such as property trusts, or what are commonly known as stapled securities (typically this is a managed investment product traded together with one or more other managed investment products or shares).
2. Purpose of the class order
ASIC Class Order [CO 08/753] corrects the drafting anomaly described above.
3. Operation of the class order
The class order varies ASIC Class Order [CO 08/751] by amending notional s1020BD of the Act (added to that instrument by ASIC Class Order [CO 08/752] which also varies ASIC Class Order 08/751]). Section 1020BD prohibits the covered short selling of certain securities subject to a limited exemption for certain market makers. The variations involve:
- adding references to managed investment products where necessary in s1020BD(1) and (2); and
- expressly ensuring that stapled securities are covered by adding a new definition of able to be traded to s1020BD(3).
The instrument commences on the date it is registered. This is expected to be 22 September 2008.
4. Documents incorporated by reference
No documents are incorporated by reference.
5. Consultation
No consultation was undertaken as the instrument is of a minor or technical nature and required as a matter of urgency.
Overview
ASIC Class Order [CO 08/753] was enacted by the Australian Securities and Investments Commission (ASIC) under section 1020F(1)(c) of the Corporations Act 2001 in response to urgent financial market turmoil. This Class Order was introduced to address a drafting anomaly in the previous Class Order [CO 08/752], which had inadvertently failed to include certain securities such as those from managed investment schemes and stapled securities within the scope of the prohibition on covered short selling. By issuing [CO 08/753], ASIC aimed to ensure the prohibition effectively covered all securities traded on licensed markets, thereby maintaining market stability and integrity during a period of significant financial stress. The Class Order is designed to be technically corrective and was implemented without consultation due to the urgent nature of the required changes.
Scope and Application
ASIC Class Order [CO 08/753] applies to persons engaged in the trading of securities on licensed markets in Australia, aiming to correct a drafting anomaly that potentially excluded certain securities from the prohibition on covered short selling, such as those of managed investment schemes and stapled securities. The order is part of the broader regulatory framework under the Corporations Act 2001, which provides ASIC with the authority to modify or omit specified provisions. This class order is designed to ensure that the prohibition on covered short selling extends to all relevant securities traded on licensed markets, thereby maintaining consistency with actions taken by overseas regulatory agencies in response to international financial market turmoil. The order is a technical amendment to an earlier class order, [CO 08/752], which was issued urgently on 21 September 2008 to address the same issue. The application of this class order is expected to commence on 22 September 2008, following its registration.
Key Provisions
The main operative sections of ASIC Class Order [CO 08/753] pertain to the prohibition of covered short selling of securities on licensed markets, with specific amendments to ensure the inclusion of managed investment products and stapled securities within the scope of the prohibition (sections 1020BD(1), (2) and (3)). This legislative instrument builds upon earlier class orders by correcting a drafting anomaly that potentially excluded certain securities from the prohibition. The modifications are intended to align the statutory definitions with the practical scope of securities that are subject to the prohibition.
The Act imposes specific obligations on the parties it governs by prohibiting covered short selling of securities, including managed investment products and stapled securities, traded on licensed markets. This prohibition is intended to stabilise financial markets and prevent market manipulation or unfair trading practices. The class order also allows for a limited exemption for certain market makers, ensuring that the prohibition does not unduly hinder legitimate market activities.
Non-compliance with the provisions of ASIC Class Order [CO 08/753] can lead to significant legal consequences. The penalties for breaching the prohibition on covered short selling include substantial fines and, in serious cases, imprisonment. The exact penalties are not detailed in the explanatory statement but would be consistent with the penalties applicable under the Corporations Act 2001 for similar breaches. Given the urgency and the context of the legislative action, penalties could be severe, reflecting the importance of maintaining market stability and integrity.