ASIC Class Order [CO 08/764]

Overview

The ASIC Class Order [CO 08/764], enacted in 2008 under section 1020F(1)(a) of the Corporations Act 2001, addresses the issue of short selling through the exercise of exchange traded options (ETO). This legislative instrument, prepared by the Australian Securities and Investments Commission (ASIC), aims to provide clarity and regulatory oversight over the practice of short selling in the financial markets. It exempts certain transactions from specific compliance requirements when they result from the exercise of an ETO registered with Australian Clearing House Pty Limited. The class order also imposes conditions, including positional reporting requirements, to ensure transparency and market stability. ASIC Class Order [CO 08/764] was introduced to mitigate potential risks associated with short selling by regulating the exercise of exchange traded options and ensuring that market participants maintain appropriate levels of disclosure.

Scope and Application

ASIC Class Order [CO 08/764] applies to individuals or entities involved in the exercise of exchange-traded options (ETO) that result in the sale of securities or managed investment products. This legislation is enacted under section 1020F(1)(a) of the Corporations Act 2001 and serves to provide exemptions from certain compliance requirements for transactions that involve the exercise of an ETO registered with Australian Clearing House Pty Limited. The exemptions apply on a national scale, as the Australian Securities and Investments Commission (ASIC) is the federal regulatory authority overseeing financial markets and corporate compliance. The order came into effect in stages, with certain provisions starting on the date of registration under the Legislative Instruments Act 2003, and others becoming effective the day after registration. Additionally, the Class Order includes specific conditions for positional reporting, which requires entities to notify ASIC of their short positions in relation to securities or managed investment products under certain circumstances. The reporting obligations are subject to value and volume limits, which are defined in the Class Order, and exemptions are provided for entities that are already required to report under other provisions of the Act.

Key Provisions

ASIC Class Order [CO 08/764] primarily addresses the exercise of exchange traded options (ETOs) and their impact on short selling practices. Section 4 of the Class Order exempts certain transactions from the general prohibition on short selling, provided the transaction results from the exercise of an ETO registered with the Australian Clearing House Pty Limited. This exemption is subject to specific conditions regarding positional reporting and limits on the value and volume of short positions that must be reported to ASIC. The obligations imposed by the Class Order on the parties it governs include providing particulars of their short positions to ASIC. Specifically, under paragraphs 4A to 4D, individuals or entities relying on the exemption must report their short positions to ASIC on or before 9 am on the third reporting day after the ETO exercise. This reporting must continue each subsequent reporting day as long as the short position exists. Additionally, there are exemptions from reporting requirements if the person is required to report on the same security or product under subsection 1020AB(3) of the Act or if the short position is within the specified value and volume limits. Failure to comply with the reporting obligations under the Class Order may result in civil or criminal penalties. Although the Class Order itself does not explicitly state penalties, non-compliance with the Corporations Act 2001, which the Class Order operates under, may lead to enforcement actions by ASIC. These actions can include fines, compensation orders, or legal proceedings against the non-compliant party, with penalties varying depending on the severity and circumstances of the breach. Under the Corporations Act 2001, the maximum penalties for civil contraventions can include fines of up to $210,000 for individuals and $1,050,000 for bodies corporate, as stipulated in section 1317E. Criminal penalties for breaches can result in fines of up to $210,000 for individuals and $1,050,000 for bodies corporate, along with potential imprisonment terms for officers of the corporation. These penalties underscore the importance of adhering to the requirements set forth by the ASIC Class Order and the broader legislative framework.