ASIC Class Rule Waiver [CW 11/734]

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Legislation au F2011L02070 Rules Not in force Legislative Instrument

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ASIC CLASS RULE WAIVER [CW 11/734]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

ASIC Market Integrity Rules (ASX 24 Market) 2010

The Australian Securities and Investments Commission (ASIC) makes this instrument under Rule 1.2.1(1) of the ASIC Market Integrity Rules (ASX 24 Market) 2010 (the ASX 24 Rules).

Under that rule, ASIC may relieve any person or class of persons from the obligation to comply with a provision of the ASX 24 Rules.

1. Background

Rule 2.2.5(1) of the ASX 24 Rules requires a market participant to have in force, prior to the commencement of trading of contracts (eg futures contracts) on behalf of a client, an agreement with that client, containing certain minimum requirements.

Rule 2.2.5(1)(b)(vi) of the ASX 24 Rules imposes a requirement that the agreement must contain an acknowledgment by the client that the client is responsible to pay in cash any deficit owing in relation to a margin to the market participant after the closing out of a contract and that, if the client defaults in payment of such a deficit, the market participant may realise any securities held by the market participant and apply the proceeds against that deficiency.

ASIC has granted a number of individual waivers from Rule 2.2.5(1)(b)(vi) of the ASX 24 Rules to allow market participants to insert a limitation of liability (LOL) clause in their client agreements with trustees.

Where a market participant is acquiring and disposing of futures contracts on the ASX 24 market on behalf of a trustee client, the effect of a LOL clause in the client agreement is that the client’s liability to pay deficits in margins is limited to the extent that the client has a right to be indemnified for that liability from the assets of the trust or fund operated by the trustee client.

ASIC’s decisions to grant individual waivers were not dependent on information specific to particular trusts or funds, or specific to the particular market participant. Accordingly, ASIC decided to grant a class waiver to ASX 24 market participants generally to permit the inclusion of LOL clauses for trustee clients, subject to certain conditions, to create a level of consistency for all ASX 24 market participants.

2. Purpose of the class rule waiver

The purpose of this Class Rule Waiver is to relieve an ASX 24 market participant from the obligation to have in force a client agreement containing a term to the effect of the acknowledgement specified in Rule 2.2.5(1)(b)(vi) of the ASX 24 Rules in respect of certain kinds of clients on whose behalf they acquire and dispose of contracts on the ASX 24 market.

Relieving an ASX 24 market participant from this obligation will allow the inclusion of a LOL clause in an ASX 24 market participant’s agreement with a client who is:

(a) a trustee of a trust; and/or

(b) an operator of a managed investment scheme.

The Class Rule Waiver applies in relation to both these kinds of clients to reflect the fact that some managed investment schemes may not be structured as trusts, and some overseas jurisdictions do not recognise the legal concept of trust.

This Class Rule Waiver has been made on the grounds that:

The risk associated with ASX 24 market participants limiting their ability to seek recourse from a trustee-like client for the payment of margins primarily relates to that of default by the client. As participants have the capability to assess both the financial stability of the client, and to perform the necessary monitoring of client positions, market participants are able to determine whether they can assess and monitor the risks involved.
The Class Rule Waiver also generates a consistency of approach by ASIC for ASX 24 market participants who may rely on the Class Rule Waiver with no need to apply to ASIC for individual relief for each client.

3. Operation of the class rule waiver

An ASX 24 market participant will only be able to rely on the Class Rule Waiver if the market participant has an agreement in place with a client to the effect that the client will reimburse the market participant for liabilities incurred through trading on behalf of the client where, as a result of an act or omission of the client, the client does not have a right of indemnification out of the assets of the relevant trust or fund.

In addition, the class rule waiver is subject to conditions that:

(i) the market participant keep a written record of each client for whom the market participant relies on this Class Rule Waiver to include a LOL clause in the client agreement; and

(ii) the market participant has an agreement in place that gives the market participant reasonable access to the accounts and records of the client in its capacity as trustee or operator of a managed investment scheme to enable the market participant to assess its exposure to the trust or fund.

4. Consultation

ASIC consulted with 4 market participants and the Australian Financial Markets Association (AFMA) before making this class rule waiver. Feedback was overwhelmingly in support of the proposal.

Overview

The ASIC Market Integrity Rules (ASX 24 Market) 2010, enacted by the Australian Securities and Investments Commission (ASIC) under Rule 1.2.1(1), provides a framework to ensure market integrity on the ASX 24 market. This legislation aims to address the need for a consistent approach in the application of rules, particularly concerning client agreements and liability for margin deficits. The Class Rule Waiver [CW 11/734] was introduced to relieve ASX 24 market participants from certain compliance obligations regarding client agreements with trustee clients and operators of managed investment schemes. This waiver allows for the inclusion of limitation of liability clauses in client agreements, subject to conditions designed to maintain the financial stability and monitoring of client positions. The policy objective is to foster consistency and reduce the administrative burden on market participants while ensuring that they can effectively manage the risks associated with client defaults.

Scope and Application

The ASIC Class Rule Waiver [CW 11/734] applies to market participants who are authorised to trade contracts on the ASX 24 market and seeks to provide relief from certain obligations imposed by the ASIC Market Integrity Rules (ASX 24 Market) 2010. Specifically, the waiver allows market participants to include limitation of liability clauses in their client agreements with trustees of trusts and operators of managed investment schemes. This waiver applies to market participants within the Commonwealth of Australia, extending to all entities engaged in trading on the ASX 24 market. The waiver does not exempt market participants from other obligations under the ASX 24 Rules, but provides specific relief regarding the inclusion of limitation of liability clauses in their agreements with the specified clients. Conditions apply to the use of the waiver, including the requirement that market participants maintain written records of clients for whom the waiver is relied upon and have agreements that provide reasonable access to client accounts and records to assess exposure. This waiver is an extension of ASIC's regulatory flexibility to maintain consistency and fairness in market practices.

Key Provisions

The main operative sections of the ASIC Class Rule Waiver [CW 11/734], as referenced in the Explanatory Statement, concern the waiver of specific requirements under Rule 2.2.5(1)(b)(vi) of the ASIC Market Integrity Rules (ASX 24 Market) 2010. This rule mandates that client agreements must acknowledge the client's responsibility to cover any cash deficits arising from margin requirements. The Class Rule Waiver (paragraph 3) allows ASX 24 market participants to include a Limitation of Liability (LOL) clause in their agreements with clients who are trustees or operators of managed investment schemes, provided certain conditions are met. The obligations imposed by the Class Rule Waiver (paragraph 3) on ASX 24 market participants include maintaining a written record for each client who benefits from the LOL clause. Additionally, the market participant must have an agreement with the client that allows reasonable access to the client's accounts and records. This requirement ensures that the market participant can adequately assess and monitor the risks associated with trading on behalf of the client. The market participant must also ensure that the client agrees to reimburse the participant for any liabilities incurred through trading, where the client does not have a right of indemnification out of the assets of the relevant trust or fund. Any breaches of the conditions specified in the Class Rule Waiver may result in consequences for the ASX 24 market participant. While the Explanatory Statement does not explicitly state penalties for non-compliance, it is reasonable to infer that failure to meet the conditions could lead to regulatory action under the ASIC Market Integrity Rules. Such action could include fines, enforcement actions, or other sanctions as determined by ASIC. Given the nature of the waiver, the primary concern for market participants would be ensuring compliance to avoid potential legal and financial repercussions.

Area of Law: Commercial Law
Instrument: Regulation
Concepts: Regulatory Standards; Reporting & Disclosure Obligations; Consultation Requirements
Catchwords: Class Rule Waiver

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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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