ASIC Class Order [CO 10/1037]

Administered by Department of the Treasury

Legislation au F2011L00059 Not in force Legislative Instrument

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ASIC CLASS ORDER [CO 10/1037]

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 10/1037] under s1020F(1)(c) of the Corporations Act 2001 (the Act).

Section 1020F(1)(c) of the Act provides that ASIC may declare that Part 7.9 applies in relation to a person as if specified provisions were omitted, modified or varied.

1. Background

In December 2008, Government passed the Corporations Amendment (Short Selling) Act 2008. One aspect of the amendments was the introduction of a framework for a permanent disclosure regime.

In December 2009, the details of the Government’s permanent disclosure regime were provided under the Corporations Amendment Regulations 2009 (No 8) (SR No 327 of 2009). The Government’s permanent disclosure regime is comprised of two separate short selling reporting requirements:

“short sale transaction reporting” (i.e. the reporting of daily volumes of section 1020B products that are short sold in the market); and
“short position reporting” (i.e. the reporting of a position in relation to a listed section 1020B product where the quantity of the product which a person has is less than the amount of product which the person has an obligation to deliver).

The Government described short position reporting as providing an indication of the bearish sentiment within a particular product at any point in time and also the amount of overhang in the product that will need to be covered at some point in time by short sellers purchasing products.

Under ASIC Class Order [CO 10/29], we deferred the commencement date of short position reporting from 1 April 2010 to 1 June 2010.

Generally, a person must report their short position in relation to a section 1020B product in a listed entity if the person makes a covered short sale of the section 1020B product on a licensed market (i.e. the seller intends that a securities lending arrangement will ensure that the section 1020B products can be vested in the buyer).

At the time ASIC issued [CO 10/464] in June 2010, ASIC informed relevant industry associations that it was preparing a class order that will modify the definition of 'short position' in regulation 7.9.99 to require a person to include products that the person holds on behalf of another person (other than in a capacity as bare trustee) in its calculation of the quantity of a product that a person has.

This class order is relevant to short position reporting only.

2. Purpose of the class order

We have observed different industry practices for calculating and reporting short positions.

The variation to the “short position” definition in regulation 7.9.99 clarifies how a person should calculate their short position in a product in circumstances where the person, acting in more than one capacity, has products and has obligations to deliver products. A person calculating their short position in a product must not net “long” and “short” positions that are held in different capacities. However, a person who acts on their own behalf, for example, both making a market in a financial product and conducting proprietary trading, acts in the same capacity.

This clarification supports the purpose of short position reporting, by ensuring a more accurate representation of the market’s overall short positions in section 1020B products.

3. Operation of the class order

The class order varies ASIC Class Order [CO10/29] by inserting new subparagraphs 4(aaa) and (ac).

Subparagraph 4(aaa) of [CO 10/29] varies subregulation 7.9.99(2) of the Corporations Regulations such that “short position” means “a position in relation to a section 1020B product in a listed entity where the quantity of the product which a person, acting in a particular capacity, has is less than the quantity of the product which the person, acting in the same capacity, has an obligation to deliver”.

Subparagraph 4(ac) of [CO 10/29] inserts subparagraph 7.9.99(4A) of the Corporations Regulations to clarify those instances where the person has the product or has an obligation to deliver the product, where the person is acting in one or more of the following capacities:

the person is acting on their own behalf; or
the person is acting on behalf of another person except where that other person has the sole discretion to decide whether the product will be sold; or
another person (e.g. a bare trustee) is acting on behalf of the person but only where the person has the sole discretion to decide whether the product will be sold.

Subparagraph 4(ac) of [CO 10/29] also inserts subparagraph 7.9.99(4B) which identifies whether the capacities in subparagraph 7.9.99(4A) are to be taken as the same or different capacities in relation to short position reporting.

4. Documents incorporated by reference

No documents are incorporated by reference.

5. Consultation

ASIC informally consulted with the Australian Financial Markets Association, The Financial Services Council, Alternative Investment Management Association and Australian Bankers Association before making this instrument.

Given the minor and technical nature of the instrument, no general public consultation was taken.

Overview

The ASIC Class Order [CO 10/1037] was enacted in 2010 under the Corporations Act 2001. This class order was introduced to address discrepancies in industry practices regarding the calculation and reporting of short positions in financial products. The Australian Securities and Investments Commission (ASIC), acting under the authority granted by the Corporations Act, issued this class order to modify the definition of 'short position' in regulation 7.9.99, thereby ensuring a more accurate representation of the market’s overall short positions in section 1020B products. The policy objective behind this class order is to clarify how a person should calculate their short position in a product in circumstances where the person, acting in more than one capacity, holds products and has obligations to deliver those products. This clarification aims to support the purpose of short position reporting by preventing the netting of 'long' and'short' positions held in different capacities.

Scope and Application

ASIC Class Order [CO 10/1037] applies to entities and individuals who are required to report short positions in section 1020B products under the Corporations Act 2001. This includes entities that conduct short selling transactions in listed securities, particularly those acting in various capacities such as proprietary traders, market makers, or agents on behalf of other entities. The geographic and jurisdictional reach of this class order is effectively national, applying across Australia in accordance with the federal structure of the Corporations Act. The order specifies how the term 'short position' should be calculated to ensure accurate reporting, preventing the netting of 'long' and'short' positions held in different capacities. It clarifies that capacities are the same when the person acts on their own behalf or where they have sole discretion over the sale of products. The order does not introduce new substantive requirements but refines the interpretation and application of existing provisions, ensuring consistent and accurate reporting of short positions. The explanatory statement notes that while there was informal consultation with relevant industry associations, no general public consultation was undertaken due to the technical nature of the changes.

Key Provisions

ASIC Class Order [CO 10/1037] modifies the definition of "short position" under the Corporations Regulations, specifically addressing how short positions are calculated and reported. Section 7.9.99(2) now defines a "short position" as the difference between the quantity of a product a person holds and the quantity they are obligated to deliver, when acting in a particular capacity ((7.9.99(2))). This clarification aims to ensure that short positions are accurately reported, preventing the netting of positions held in different capacities ((7.9.99(4A))). For example, a person cannot net their short position if they are both a market maker and a proprietary trader unless they are acting in the same capacity. The obligations imposed by this class order require individuals or entities involved in short selling to accurately report their short positions. This involves distinguishing between products held and obligations to deliver products when acting in different capacities, and ensuring that positions are not netted across different capacities. This is particularly relevant for those acting on their own behalf, on behalf of another person (except when the other person has sole discretion over the sale), or when another person is acting on their behalf but the individual has sole discretion over the sale ((7.9.99(4A))). Breaches of these reporting requirements can lead to various consequences. The Corporations Act 2001 provides for civil penalties for non-compliance with reporting obligations. Specifically, under section 1317E, a person who contravenes a civil penalty provision may be liable for a pecuniary penalty of up to $210,000 for a corporation and $42,000 for an individual, depending on the severity and intent of the breach. In addition to civil penalties, ASIC can also take enforcement actions, including issuing infringement notices, pursuing court orders, or seeking criminal charges in cases of serious or repeated non-compliance.

Area of Law: Corporate Law & Governance
Instrument: Regulation
Concepts: Regulatory Standards; Reporting & Disclosure Obligations; Administrative Discretion; Consultation Requirements

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.

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