ASIC Class Order [CO 10/135]

Overview

The ASIC Class Order [CO 10/135], enacted in 2010, is a regulatory instrument issued by the Australian Securities and Investments Commission (ASIC) under the Corporations Act 2001. This order was introduced to address the need for streamlined reporting requirements for short positions that are considered small, aiming to alleviate the administrative burden on sellers without significantly impacting market transparency or investor protection. The Corporations Act 2001 empowers ASIC to exempt certain parties from specific provisions, and this class order serves to exempt sellers from reporting small short positions that fall below a specified threshold. The objective of the order is to ensure that only significant short positions are reported, thereby balancing the need for market oversight with the practicalities of compliance for market participants.

Scope and Application

ASIC Class Order [CO 10/135] applies to sellers who engage in the short selling of financial products, particularly those covered under section 1020B of the Corporations Act 2001. This legislation aims to exempt certain sellers from the requirement to report their short positions to ASIC if these positions fall below a specified threshold. Specifically, sellers are exempt if their short position in a security or managed investment product does not exceed the monetary value of $100,000 and the volume of 0.01% of the total quantity of the products in the class, as at 7pm on a particular day. This exemption applies to the obligations under section 1020AB of the Act and regulation 7.9.100A of the Corporations Regulations 2001, which mandate the reporting of short positions to ASIC. The class order is applicable nationally, given that it is an instrument of the Australian Securities and Investments Commission, which operates under the Commonwealth jurisdiction. The class order came into effect on the later of the registration date under the Legislative Instruments Act 2003 or 1 June 2010. Notably, no public consultation was undertaken due to the technical and minor nature of the class order.

Key Provisions

The ASIC Class Order [CO 10/135] under the Corporations Act 2001 provides exemptions for certain short selling activities. Specifically, it exempts sellers from reporting short positions that fall below a specified threshold. Section 1020B of the Act regulates the short selling of certain financial products, prohibiting naked short selling unless the seller has a presently exercisable and unconditional right to vest the product in the buyer. Generally, a seller can execute a covered short sale if they rely on an existing securities lending arrangement to have such a right. However, if the seller conducts a covered short sale on a licensed market, they must report their short position to ASIC. The class order exempts sellers from the reporting requirements if their short position does not exceed a value limit of $100,000 and a volume limit of 0.01% of the total quantity of the products in the class as at 7pm on a particular day. This means that sellers with small short positions below these limits do not need to comply with section 1020AB of the Act or regulation 7.9.100A of the Regulations, which require them to provide specific details about their short position. The exemption is intended to reduce the reporting burden on sellers while still ensuring that larger short positions are properly disclosed. The obligations imposed by the class order are primarily on sellers who are engaged in short selling activities. They must ensure that their short positions do not exceed the specified limits. If a seller's short position falls below the value and volume limits, they are exempt from the reporting requirements. However, if their short position exceeds these limits, they must comply with the relevant reporting provisions in the Act and Regulations. This includes providing details about the short position to ASIC as required. Breaching the reporting requirements can lead to civil or criminal consequences. Under the Corporations Act 2001, individuals or entities that fail to comply with reporting obligations may be subject to enforcement actions by ASIC. Penalties for breaches can include fines, and in some cases, criminal charges. The maximum penalties for civil contraventions can vary depending on the nature and severity of the breach, but they can be significant. For criminal offences, the penalties can include substantial fines and, in some cases, imprisonment. The specific penalties are determined by the courts based on the circumstances of the breach.