Banks (Shareholdings) Regulations (Amendment)

Overview

The Banks (Shareholdings) Regulations (Amendment) 1991 No. 225, issued under the authority of the Treasurer, were introduced to amend the Banks (Shareholdings) Act 1972. The primary aim of the Act was to prevent any individual from holding more than 5 per cent of the aggregate nominal amount of all voting shares in the Commonwealth Bank of Australia (CBA), as stipulated in subsection 10A(3). This amendment specifically targets the underwriting of CBA shares, which, if exceeding the 5 per cent limit, would breach the Act as the underwriting agreement obligates the underwriter to purchase the shares if they remain unsubscribed by investors. By allowing underwriters to underwrite more than 5 per cent of CBA shares, the amendment aims to facilitate the traditional underwriting process, with a major broker taking the underwriting role and arranging sub-underwriting. The amendment specifies that underwriters in relation to the issue of shares by the CBA under its first registered prospectus are defined as a prescribed class of persons, and 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 regulations are set to cease on 1 July 1992, requiring any shares exceeding the 5 per cent limit acquired by underwriters to be sold by that date.

Scope and Application

The Banks (Shareholdings) Regulations (Amendment) 1991 No. 225 applies to the Commonwealth Bank of Australia, underwriters in relation to its share issues, and other entities or persons who may hold an interest in CBA shares. The amendment extends to the underwriting of more than the 5 per cent limit of CBA shares, allowing a major broker to underwrite the CBA issue traditionally, which involves arranging sub-underwriting. This regulation is made under the authority of the Banks (Shareholdings) Act 1972 and is intended to provide flexibility in the underwriting of CBA shares without breaching the 5 per cent shareholding limit imposed by the Act. The amendment also specifies that underwriters in relation to the issue of shares by the CBA under its first registered prospectus are defined as a prescribed class of persons, and their interest in the shares during the underwriting process is considered a prescribed interest. This amendment is temporary and ceases to have effect on 1 July 1992, which means any shares in excess of the 5 per cent limit acquired by underwriters under this regulation would have to be sold by that date.

Key Provisions

The Banks (Shareholdings) Regulations (Amendment) 1991 No. 225 introduces amendments to the existing regulations under the Banks (Shareholdings) Act 1972. The primary objective of these amendments is to allow underwriters to underwrite more than the 5 per cent limit of the aggregate nominal amount of all voting shares of the Commonwealth Bank of Australia (CBA) (section 7). This change is specifically tailored to facilitate the underwriting of CBA shares in a manner consistent with traditional practices, which typically involve major brokers taking the underwriting role and arranging sub-underwriting (paragraph 8(9)(d)). This amendment is necessitated by the impracticality of alternative underwriting structures that comply with the 5 per cent limit. The Banks (Shareholdings) Act 1972 imposes a prohibition on any individual or entity holding more than 5 per cent of the aggregate nominal amount of all voting shares of CBA (subsection 10A(3)). Underwriters, who commit to purchase CBA shares if they are not subscribed to by investors, are considered to have an interest in these shares, thereby falling afoul of this subsection. The proposed regulation amendment allows underwriters to exceed this 5 per cent limit but only for the purpose of underwriting shares under the CBA's first registered prospectus. This amendment ensures that any interest held by underwriters in relation to this underwriting process is classified as a 'prescribed interest' (regulation 6). Entities and individuals governed by these regulations must adhere to the stipulated conditions to avoid breaching the provisions of the Act. Underwriters involved in the underwriting of CBA shares must ensure that any interest they hold does not exceed the 5 per cent limit unless they are underwriting under the terms of the proposed regulations. They must also ensure that any shares acquired in excess of the 5 per cent limit are sold by 1 July 1992, the date when the new regulations cease to have effect. Failure to comply with the provisions of the Banks (Shareholdings) Act 1972 and the proposed regulations may result in civil or criminal consequences. While the specific penalties are not detailed in the explanatory statement, breaches of financial regulations in Australia can typically result in substantial fines and, in more severe cases, imprisonment. The exact penalties would depend on the nature and severity of the breach, as well as any applicable guidelines or precedents set by relevant authorities.