ASIC CLASS ORDER [CO 08/781]
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 08/781] under paragraph 1020F(1)(a) of the Corporations Act 2001 (the Act).
Paragraph 1020F(1)(a) provides that ASIC may exempt a person or class of persons from specified provisions of Part 7.9 of the Act.
1. Background
Section 1015B of the Act requires that a Product Disclosure Statement (PDS) and a supplementary PDS which relate to managed investment products that are tradeable on a financial market, or which state or imply that the products are tradeable on a financial market, must be lodged with ASIC before they can be given to a client.
If a PDS or a supplementary PDS does not need to be lodged with ASIC under section 1015B of the Act then paragraph 1015D(2)(a) of the Act requires that a responsible person for the PDS, except in the case of a supplementary PDS, must lodge a notice with ASIC when a PDS is first given to someone in a recommendation, issue or sale situation (in-use notice).
If a PDS or a supplementary PDS does not need to be lodged with ASIC under section 1015B of the Act then paragraph 1015D(2)(c) of the Act requires that a responsible person for the PDS (other than the trustee of a self managed superannuation fund) must lodge a notice with ASIC when the financial product to which the PDS or supplementary PDS relates is no longer available to be given in a recommendation, issue or sale situation (out-of-use notice). A responsible person notifies ASIC of each such circumstance by lodging a Form FS 90 Notice that a product in a PDS has ceased to be available with ASIC.
The objective behind paragraph 1015D(2) of the Act is to:
- Ensure ASIC is aware of all financial product information that it requires to be useful;
- Minimise the cost to business in providing this information; and
- Enhance protection of consumers by ensuring ASIC has regulatory oversight of all financial products able to be sold to investors.
2. Purpose of the class order
What is the problem addressed by the class order?
A warrant is a financial product as defined in reg 1.0.02(1) of the Corporations Regulations 2001. The characteristics of a warrant in terms of the underlying security, expiry date and exercise price, is such that each warrant in a PDS or supplementary PDS can be considered to constitute a separate financial product under Chapter 7 of the Act. Therefore the operation of paragraph 1015D(2)(c) of the Act has the unintended consequence that a responsible person of a PDS or supplementary PDS for a series of warrants has to lodge out-of-use notices frequently, which is disproportionately burdensome compared to the regulatory benefit of these notices.
Why is a class order necessary to address this problem?
The purpose of [CO 08/781] is to minimise the burden on warrant issuers of complying with paragraph 1015D(2)(c) of the Act by modifying the lodging requirements for out-of-use notices. ASIC considers that the relief is consistent with the policy objectives of section 1015D of the Act.
3. Operation of the class order
Paragraph 5 of [CO 08/781] provides an exemption to a responsible person who has a PDS or supplementary PDS for warrants from the requirement to lodge an out-of-use notice with ASIC until all the warrants to which the PDS or supplementary PDS relates, cease to be available to be recommended or offered to new clients in a recommendation, issue or sale situation.
Where relief applies
The exemption will only apply where:
(a) a document has set out in it 2 or more product disclosure statements (that includes 2 or more separate documents given at the same time) or supplementary product disclosure statements for warrants; and
(b) the responsible person for each product disclosure statement and supplementary product disclosure statement is the same.
4. Consultation
ASIC did not consult with outside parties as the relief in [CO 08/781] is considered to be of a minor or machinery nature.