ASIC Class Order [CO 10/464]

Administered by Department of the Treasury

Legislation au F2010L01687 Not in force Legislative Instrument

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ASIC CLASS ORDER [CO 10/464]

 

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 10/464] under s1020F(1)(c) of the Corporations Act 2001 (Act).

 

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

 

1. Background

 

People sometimes sell (short sell) financial products that they do not own with a view

to repurchasing them later at a lower price.

 

Section 1020B regulates the short selling of certain financial products (section 1020B products). That provision has the effect of prohibiting a person from selling (naked short selling) these financial products unless they have a “presently exercisable and unconditional right to vest” the product in the buyer.

 

Generally, the Act permits a person to execute a short sale (covered short sale) where the person relies on an existing securities lending arrangement to have a ‘presently exercisable and unconditional right to vest’ the products in the buyer at the time of sale.

 

If a seller makes a covered short sale of a section 1020B product on a licensed market, the seller may be required to report their short position to ASIC in accordance with Division 5B of Part 7.9 of the Act and Division 15 of Part 7.9 of the Corporations Regulations 2001 (Regulations).

 

On 1 April 2010, the Corporations Amendment Regulations 2009 (No. 8) amended the

Regulations to facilitate reporting of short positions to ASIC. A short position is a position in relation to a section 1020B product in a listed entity where the quantity of the product that a person has is less than the quantity of the product which the person has an obligation to deliver: subregulation 7.9.99(2). ASIC Class Order [CO10/29] deferred the commencement of short position reporting from 1 April 2010 to 1 June 2010.

 


2. Purpose of the class order

 

The purpose of this class order is to amend the definition of short position in regulation 7.9.99 to:

 

  • require a person (e.g. the responsible entity for a managed investment scheme) who holds a product on behalf of another person (except where that other person has the sole discretion to decide whether the product will be sold) to include the product in its calculation of the quantity of the product the person has. This amendment addresses a risk of over-reporting of short positions;
  • clarify that if another person (e.g. a bare trustee) is holding a product on the person’s behalf, and the person has the sole discretion to decide whether the product will be sold, the person must include the product in its calculation of the quantity of a product it has; and
  • clarify the nature of the obligations to deliver referred to in subregulation 7.9.99(4)(b).

 

3. Operation of the class order

 

Subregulation 7.9.99(3) describes circumstances where a person is regarded to “have a financial product”.

 

The class order varies ASIC Class Order [CO 10/29] by inserting new subparagraphs 4(aa) and (ab). By the variation ASIC declares that Part 7.9 of the Act applies in relation to all persons as if subregulation 7.9.99(3) and paragraph 7.9.99(4)(b) were modified.

 

Notional paragraph 7.9.99(3)(aa) has the effect of requiring a person who holds a product on behalf of another person (except where that other person has the sole discretion to decide whether the product will be sold) to include the product in its calculation of the quantity of the product the person has.

 

Paragraph 7.9.99(3)(b), as modified, has the effect of requiring a person to include a product in its calculation of the quantity of the product it has if another person is holding the product on the person’s behalf but only where the person has the sole discretion to decide whether the product will be sold.

 

Paragraph 7.9.99(4)(b) states that the product which the person has an obligation to deliver is the product which the person has an obligation to vest title in a lender under a securities lending arrangement. The class order clarifies that paragraph 7.9.99(4)(b) applies as if it includes an obligation to vest title in a lender under a securities lending arrangement even if the obligation to vest title is contingent upon the lender recalling the product.

 

4. Commencement

 

This class order commences on the later of 21 June 2010 and the date it is registered under the Legislative Instruments Act 2003.  

 

5. Consultation

 

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

 

Overview

ASIC Class Order [CO 10/464] was enacted in 2010 under the Corporations Act 2001, addressing the problem of over-reporting of short positions by financial entities. The Australian Securities and Investments Commission (ASIC), established under the Act, made this class order to refine the definition of "short position" within the existing regulatory framework. The objective of this regulation is to ensure accurate reporting of short positions by clarifying the circumstances in which financial products must be included in the calculation of a person's holdings, thus preventing potential discrepancies in the reporting of short sales. This class order modifies the existing regulations to specify when a product must be included in the calculation of a person's holdings, thereby enhancing the transparency and accuracy of short position reporting.

Scope and Application

ASIC Class Order [CO 10/464], made under section 1020F(1)(c) of the Corporations Act 2001, pertains to all persons engaged in the short selling of financial products, specifically targeting those who execute such transactions on licensed markets. This order modifies the definition of "short position" and clarifies the obligations of those holding financial products on behalf of others, aiming to prevent over-reporting of such positions. The modifications apply nationwide across Australia, impacting entities such as responsible entities for managed investment schemes and bare trustees who may hold products on behalf of others, ensuring they accurately account for the products in their calculations of holdings and obligations to deliver. The order is designed to address technical ambiguities and ensure compliance with reporting requirements, coming into effect on 21 June 2010 or upon registration under the Legislative Instruments Act 2003, whichever is later. The class order does not exempt any specific entities or industries from its purview, applying broadly to all persons involved in the short selling of financial products.

Key Provisions

ASIC Class Order [CO 10/464], made under section 1020F(1)(c) of the Corporations Act 2001 (the Act), seeks to amend the definition and reporting requirements for short positions involving section 1020B products. Section 1020B of the Act regulates the short selling of certain financial products, and generally permits a person to execute a short sale if they have a presently exercisable and unconditional right to vest the products in the buyer. Specifically, the Class Order modifies subregulation 7.9.99(3) of the Corporations Regulations 2001 (the Regulations) to clarify when a person must include a financial product in their calculation of the quantity of the product they have. The changes address situations where a person holds a product on behalf of another person, with specific attention to whether the other person has sole discretion to decide whether the product will be sold. This amendment helps to ensure accurate reporting of short positions to the Australian Securities and Investments Commission (ASIC). The Class Order imposes specific obligations on financial entities and individuals who may be involved in the short selling of section 1020B products. Under the modified regulations, entities holding financial products on behalf of others must include those products in their calculations for reporting purposes, unless the other person has sole discretion over selling the product. This requirement aims to prevent over-reporting and ensure that only those products genuinely at risk of being sold are included in the short position calculations. Additionally, the Class Order clarifies the obligations to deliver products under securities lending arrangements, ensuring that these obligations are fully accounted for, even if they are contingent upon the lender recalling the product. For breaches of the provisions set out in this Class Order, penalties may be applicable under the Corporations Act and other relevant legislation. While the Explanatory Statement does not detail specific penalties, it is reasonable to infer that breaches could lead to enforcement actions by ASIC, which may include financial penalties, public reprimands, or other regulatory actions deemed appropriate by ASIC. These penalties are intended to ensure compliance with the regulatory requirements and to maintain the integrity of financial markets.

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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.