ASIC Class Order [CO 10/1034]

Overview

The ASIC Class Order [CO 10/1034], introduced in 2010 under the Corporations Act 2001, addresses the need to clarify the classification of certain financial products, specifically ASX-traded instalment warrants, within the scope of margin lending. This class order was enacted by the Australian Securities and Investments Commission (ASIC) to ensure consistency and transparency in the financial markets. The policy objective of this legislation is to provide relief by explicitly excluding certain standard margin lending facilities related to ASX-traded instalment warrants from the definition of margin lending facilities, thereby preventing them from being subject to additional regulatory requirements applicable to margin lending. This class order aims to streamline the regulatory framework for these financial products while maintaining necessary oversight to protect investors.

Scope and Application

ASIC Class Order [CO 10/1034] applies to specific financial products known as instalment warrants, which are admitted to quotation on the licensed market operated by ASX Limited or Chi-X Australia Pty Ltd, and are issued by financial services licensees. This class order specifically pertains to standard margin lending facilities provided in connection with these instruments. The geographic reach of this legislation is national, as it is enacted under the Commonwealth Corporations Act 2001, applying across Australia. The primary aim of this class order is to declare that certain instalment warrants, meeting the criteria of being a standard margin lending facility, will not be classified as margin lending facilities for the purposes of the Act. This exclusion, however, does not alter the status of these warrants as financial products. The class order has been amended to keep pace with legislative changes, with the most recent amendment taking effect on 10 November 2015, and these changes are recorded in the table of amendments provided in the class order.

Key Provisions

The primary operative sections of ASIC Class Order [CO 10/1034] (hereafter referred to as the Class Order) declare that specific types of instalment warrants will not be considered as margin lending facilities. Section 4 of the Class Order states that an instalment warrant that meets the specified criteria will not be regarded as a margin lending facility under the Corporations Act 2001 (the Act). These criteria include the warrant being admitted to quotation on a licensed market operated by ASX Limited or Chi-X Australia Pty Ltd, being issued by a financial services licensee, and being a standard margin lending facility (section 4(a)-(c)). It is important to note, however, that this declaration does not affect the status of the instalment warrant as a financial product (section 4, Note). The Class Order imposes certain obligations on the parties involved, particularly the issuers of the instalment warrants. These issuers must ensure that the warrants they issue meet the criteria outlined in section 4 of the Class Order, thereby qualifying for the relief from being classified as a margin lending facility. The Class Order also mandates that the underlying assets of the instalment warrants must be held on trust, providing the client with a beneficial interest that can be converted into full ownership through subsequent payments (section 5(d)-(e)). Furthermore, the rights of the issuer or any other person must be strictly limited to those relating to the underlying asset (section 5(e)). Breaching the provisions of the Class Order may result in legal consequences for the parties involved. Although the Class Order itself does not specify explicit penalties for non-compliance, it operates under the broader framework of the Corporations Act 2001. Under the Act, contraventions of financial services laws, including those related to margin lending facilities, can lead to civil penalties, criminal charges, and other enforcement actions. For instance, individuals or entities found guilty of misleading or deceptive conduct, which could encompass non-compliance with the Class Order, may face civil penalties of up to $2.5 million for corporations and $500,000 for individuals, as stipulated in section 1317E of the Act. Additionally, criminal penalties may apply, with maximum fines and imprisonment terms varying depending on the severity and nature of the breach. In summary, ASIC Class Order [CO 10/1034] provides specific relief for certain instalment warrants by excluding them from the definition of margin lending facilities under the Corporations Act 2001. This relief applies to warrants that meet particular criteria, such as being admitted to quotation on a licensed market and issued by a financial services licensee. The Class Order imposes obligations on issuers to ensure compliance with these criteria and stipulates that the underlying assets must be held on trust. While the Class Order does not explicitly state penalties for non-compliance, breaches may lead to civil and criminal consequences under the broader provisions of the Corporations Act 2001, including substantial fines and potential imprisonment.