Banks (Shareholdings) Regulations (Amendment)

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Banks (Shareholdings) Regulations (Amendment) 1991 No. 92

EXPLANATORY STATEMENT

STATUTORY RULES 1991 No. 92

ISSUED BY THE AUTHORITY OF THE TREASURER

BANKS (SHAREHOLDINGS) ACT 1972

BANKS (SHAREHOLDINGS) REGULATIONS (AMENDMENT)

Section 7 of the Banks (Shareholdings) Act 1972 (the Act) provides that regulations may be made for the purposes of the Act.

The Act prohibits bank-owned brokers acting as a principal (owning shares to facilitate the execution of share transactions in an efficient manner) and as an agent (buying and selling shares on behalf of clients) in the case of Commonwealth Bank of Australia (CBA) shares. This is because under subsection 10A(1) of the Act a banking entity, as defined in the Act, must not have an interest in any voting share of the CBA, and under subsection 8(4) and paragraph 8(6)(b) of the Act a bank-owned broker is deemed to be a 'bank entity', and is deemed to have an interest when acting as a principal and as an agent in CBA shares. A bank-owned broker has an interest in CBA shares when acting as principal because it owns the shares, and when acting as an agent because the client may default on a transaction leaving the broker holding the shares.

The Act also prohibits bank-owned brokers and insurers acting as an underwriter and a sub-underwriter in relation to the issue of shares under the CBA's first registered prospectus. Under subsection 8(4) of the Act, bank-owned brokers and insurers are not permitted to have an interest in CBA shares. This means that they are not permitted to act as underwriters or sub-underwriters in the issue of shares under the CBA's first registered prospectus because they are contracted to take up shares if the issue is under-subscribed.

Paragraph 8(9)(d) of the Act provides that the interest of a person in a share may be disregarded if it is a prescribed interest in a share of a person, or a class of persons, as may be prescribed by regulation. This provision provides the power to make the proposed regulations.

The new regulation 5 allows bank-owned brokers to act as a principal and an agent in CBA shares. Brokers are defined as members of the Australian Stock Exchange Limited and as a prescribed class of persons. Any interest a broker has as principal in the voting shares of the CBA is specified as a prescribed interest. The maximum limit on the number of CBA shares that a broker can own in acting as principal is set at 0.5 per cent of the aggregate of the nominal amounts of all voting shares in the CBA.

The new regulation 5 also specifies that any interest a broker has as an agent in the voting shares of the CBA is a prescribed interest. It sets a maximum limit of 5 per cent of the aggregate of the nominal amount of all voting shares of the CBA that a broker is permitted to have an interest in acting as an agent. This limit is also the maximum interest in CBA voting shares an individual person can own as specified in subsection 10A(3) of the Act. It means that in the case where a client defaults on an order for CBA shares for an amount greater than 0.5 per cent (the maximum limit a broker can own acting as principal), the bank-owned broker is required to immediately sell down to the 0.5 per cent limit.

The effect of this regulation is to enable bank owned brokers to trade in CBA shares as part of their normal day to day business. without the regulation, the majority of medium to large brokers operating in Australia would not be permitted to trade in CBA shares.

The new regulation 6 allows bank-owned brokers and insurers to act as underwriters or sub-underwriters, as defined in the regulation, in the issue of shares under the CBA's first registered prospectus. A broker is defined as a member of the Australian Stock Exchange Limited, while an insurer is defined as a body corporate authorised under the Insurance Act 1973 to carry on insurance business or registered under the Life Insurance Act 1945. This means that only those bank owned brokers and insurers operating in Australia become eligible to act as underwriters or sub-underwriters. Persons who are underwriters or sub-underwriters in relation to the issue of       shares by the CBA under its first registered prospectus and who are brokers and insurers are defined as a prescribed class of persons. The regulation specifies that any interest this class of persons has in the course of, or arising out of, underwriting of the CBA's issue is a prescribed interest.

The purpose of the new regulation 6 is to expand the pool of eligible institutions to act as underwriters and sub-underwriters to the issue of shares under the CBA's first registered prospectus. It may be necessary to draw on the institutions made eligible by the new regulation 6 to ensure that the issue of shares under the CBA's first registered prospectus is fully underwritten. It may also be necessary to draw on bank-owned brokers in particular to market the issue to the public as there are very few-medium to large non-bank-owned brokers operating in Australia.

The new regulation 6 ceases to have effect on 1 July 1992. This means that any bank owned broker or insurer that acquires CBA shares because the issue is under-subscribed, is required to sell these shares by 1 July 1992.

The regulations are made at this time with a view to the initial public offer of CBA shares being made in the middle of this year.

 

Overview

The Banks (Shareholdings) Regulations (Amendment) 1991 No. 92 were issued under the authority of the Treasurer and aim to amend the Banks (Shareholdings) Act 1972. This legislation was enacted to address specific concerns regarding the ownership and trading of shares by banks, particularly the Commonwealth Bank of Australia (CBA). The Act originally prohibited bank-owned brokers from acting as both principals and agents in CBA shares and restricted their involvement in underwriting the bank’s first registered prospectus. The primary policy objective behind these amendments is to facilitate more fluid trading in CBA shares by bank-owned brokers and to broaden the eligibility of underwriters for the bank's first registered prospectus. These regulatory changes enable bank-owned brokers to own a limited percentage of CBA shares while acting as both principals and agents, thus allowing them to participate more actively in the market. Additionally, the amendments permit bank-owned brokers and insurers to underwrite CBA shares, enhancing the pool of eligible institutions and potentially supporting the success of the bank’s initial public offer.

Scope and Application

The Banks (Shareholdings) Regulations (Amendment) 1991, made under the Banks (Shareholdings) Act 1972, amend existing regulations to allow bank-owned brokers and insurers to act in specific capacities relating to the Commonwealth Bank of Australia's share transactions. The Act applies to banking entities and their brokers as defined within the legislation, with a particular focus on prohibiting these entities from owning shares of the Commonwealth Bank of Australia (CBA). The amendment allows these entities to act as principals and agents in CBA shares under certain conditions, such as owning a maximum of 0.5% of CBA shares as principal and 5% as an agent. Additionally, the amendment permits bank-owned brokers and insurers to underwrite or sub-underwrite CBA shares under its first registered prospectus, a privilege previously restricted. These regulations are designed to facilitate the efficient functioning of share transactions and underwriting activities for the CBA while maintaining regulatory oversight over the involvement of banking entities in such activities. The changes are intended to be temporary, with the new regulations ceasing to have effect on 1 July 1992, ensuring that any shares acquired under the underwriting activities are sold by that date.

Key Provisions

The Banks (Shareholdings) Regulations (Amendment) 1991 No. 92, issued under the authority of the Treasurer and in accordance with the Banks (Shareholdings) Act 1972, make amendments to existing regulations to permit certain activities by bank-owned brokers and insurers in relation to Commonwealth Bank of Australia (CBA) shares. Regulation 5 (subsections 8(9)(d) and 10A(3)) allows bank-owned brokers, defined as members of the Australian Stock Exchange Limited, to act as principals and agents in CBA shares, subject to specific limits. When acting as a principal, a broker can hold up to 0.5 per cent of the aggregate nominal amount of all voting shares in CBA. As an agent, the broker can hold up to 5 per cent of the same aggregate, but must reduce holdings back to 0.5 per cent if a client defaults on a transaction exceeding that limit. Regulation 6 permits bank-owned brokers and insurers, defined as members of the Australian Stock Exchange Limited and bodies corporate authorised under the Insurance Act 1973 or registered under the Life Insurance Act 1945, to act as underwriters and sub-underwriters in the issue of CBA shares under its first registered prospectus. This regulation also ceases to have effect on 1 July 1992. The Banks (Shareholdings) Act 1972 imposes several obligations on the parties it governs. Firstly, banking entities, as defined in the Act, must not have an interest in any voting share of the CBA (subsection 10A(1)). Secondly, bank-owned brokers and insurers are not permitted to have an interest in CBA shares (subsection 8(4)). The amendments made by the 1991 Regulations seek to balance these restrictions with the need for market efficiency by allowing certain activities under specific conditions, as outlined in Regulation 5 and Regulation 6. These regulations also define what constitutes a prescribed interest in CBA shares and under what circumstances it can be disregarded. Under the Banks (Shareholdings) Regulations (Amendment) 1991 No. 92, there are potential consequences for breaches of the regulations. Although the Explanatory Statement does not specify particular offences or penalties, breaches of the Banks (Shareholdings) Act 1972 or the regulations made under it could lead to civil or criminal consequences. The Act provides for fines and imprisonment for breaches, although the specific penalties are not detailed in the Explanatory Statement. In general, unauthorised interests in CBA shares or failure to adhere to the specified limits and conditions could result in enforcement actions by relevant authorities. The cessation of Regulation 6 on 1 July 1992 also imposes a time limit on the permissible activities of bank-owned brokers and insurers in relation to the underwriting of CBA shares.

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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.