Corporations Amendment Regulations 2002 (No. 1) 2002 No. 15
EXPLANATORY STATEMENT
Statutory Rules 2002 No. 15
Issued by the Parliamentary Secretary to the Treasurer
Corporations Act 2001
Corporations Amendment Regulations 2002 (No. 1)
Section 1364 of the Corporations Act 2001 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed by regulations or necessary or convenient to be prescribed by such regulations for carrying out or giving effect to the Act.
The purpose of the Regulations is to amend Corporations Regulation 7.1.03 of the Corporations Regulations 2001 to prescribe indices (for the purpose of the definition of 'option contract') which are calculated in a slightly different way than the relevant specified indices which were previously prescribed, and to prescribe further share price indices for the same purpose.
The Corporations Agreement, reached by State, Northern Territory and Commonwealth Ministers who had responsibilities in relation to corporate regulation, formed the political compact on which the national companies and securities scheme, which operated from 1 January 1991 to 14 July 2001, was based. That scheme was superseded by a new legislative scheme which commenced on 15 July 2001. The new scheme is based on Commonwealth legislation enacted with the assistance of relevant power referred by the States. It is envisaged that a new Agreement, reflecting the changed constitutional basis of the relevant law, will be signed but meanwhile the Commonwealth, States and the Northern Territory consider themselves bound by the proposed new agreement.
Both the current and proposed new Agreements require that the Commonwealth consult members of the Ministerial Council for Corporations before making amendments to the Corporations Regulations. The responsible Ministers of the States and the Northern Territory on the Ministerial Council for Corporations have been consulted about the draft regulations.
Details of the Regulations are set out in the Attachment.
The Regulations commence on gazettal.
ATTACHMENT
DETAIL OF THE PROPOSED AMENDMENT TO REGULATION 7.1.03
Background
Option contracts are regarded as securities for the purposes of section 92 of the Corporations Act 2001 where those option contracts fall within the definition of "option contract" in section 9 of the Corporations Act 2001.
Under section 9 of the Corporations Act 2001 an "option contract" includes a contract over share price indices where those share price indices have been prescribed by a regulation.
Regulation 7.1.03 sets out the indices which are prescribed for the purposes of this definition.
The proposed amendment
There are two aspects of the proposed amendments:
• the addition of a further 22 share price indices.
- All the prescribed indices are proposed to be moved to Schedule 8B.
• the amendment of Regulation 7.1.03 to prescribe the slightly different calculation of share price indices.
- The settlement values for option contracts over share price indices may be calculated using derivations, such as opening price index calculations, of the share price indices which are listed in Schedule 8B.
- There is some uncertainty as to whether option contracts which are calculated in this way, fall within the definition of 'option contract' in section 9 of the Corporations Act 2001, since the share price indices are derivations of those listed in Schedule 8B.
- To remove this uncertainty, it is proposed that Regulation 7.1.03 be amended to include paragraph 1(b). Regulation 7.1.03, paragraph (1)(b) provides that where share price indices which are listed in Schedule 8B are calculated using different prices (such as opening prices) those share price indices are prescribed for the purposes of the definition of option contract.
Overview
The Corporations Amendment Regulations 2002 (No. 1) were enacted to address the need for updating the prescribed indices under the Corporations Act 2001, specifically for the definition of "option contract." The regulations were introduced to rectify uncertainties regarding the calculation of share price indices used in option contracts, ensuring that these contracts clearly fall within the legal definition provided by the Act. Enacted by the Parliamentary Secretary to the Treasurer under the authority of the Corporations Act 2001, the regulations aim to enhance regulatory clarity and compliance with corporate laws by updating the indices and their calculation methods. This legislative change was necessary to maintain the integrity and effectiveness of the national companies and securities scheme, which operates under the cooperation of the Commonwealth, States, and the Northern Territory. The regulations reflect the ongoing commitment to corporate governance and financial market regulation in Australia.
Scope and Application
The Corporations Amendment Regulations 2002 (No. 1) applies to entities and individuals involved in the trading of option contracts that are considered securities under the Corporations Act 2001. These regulations are necessary to provide clarity and precision in the calculation of share price indices that are used in the definition of an "option contract" as set out in section 9 of the Act. The Regulations are made under the authority of section 1364 of the Corporations Act 2001 and are intended to bring about amendments to Corporations Regulation 7.1.03 to ensure that the settlement values for option contracts over share price indices are calculated in a manner that is consistent with the statutory definitions. The regulations affect the entire Commonwealth of Australia, reflecting the national scope of the corporate regulatory framework established by the Act. It is notable that these regulations do not specify any exclusions or exemptions and apply universally to all entities and individuals subject to the Corporations Act 2001. The Regulations commence on gazettal, and their application may be further extended or refined through subordinate instruments as necessary to align with evolving market practices and legislative intent.
Key Provisions
The Corporations Amendment Regulations 2002 (No. 1) primarily focus on amending Corporations Regulation 7.1.03 (section 1364). This amendment is intended to update the calculation methods for certain indices used in defining 'option contract' under section 9 of the Corporations Act 2001. Specifically, the Regulations add 22 new share price indices and move all prescribed indices to Schedule 8B (Attachment, section 3). Additionally, they modify the calculation of these indices to account for different pricing methods, such as opening price indices. This change is aimed at ensuring that option contracts calculated using these indices remain within the legal definition of 'option contract'. The purpose of these amendments is to provide greater clarity and ensure that the indices prescribed by regulation align with the statutory definitions in the Corporations Act.
The Corporations Amendment Regulations 2002 (No. 1) impose certain obligations on entities and individuals affected by the changes to Corporations Regulation 7.1.03. These entities and individuals must now comply with the updated indices prescribed in Schedule 8B and the amended calculation methods for share price indices. This includes ensuring that any option contracts based on these indices are calculated in accordance with the new regulations. Additionally, any entities that enter into option contracts or rely on these indices for compliance purposes must be aware of the changes and adjust their practices accordingly. This ensures that the legal definitions and regulatory requirements are consistently applied across the board.
Under the Corporations Amendment Regulations 2002 (No. 1), any breach of the updated Corporations Regulation 7.1.03 could potentially lead to civil or criminal consequences, depending on the nature and severity of the violation. The specific penalties for such breaches are not detailed in the Explanatory Statement but would generally align with the penalties outlined in the Corporations Act 2001 for similar infractions. For corporations, penalties can include substantial fines, which can amount to hundreds of thousands of dollars, especially if the breach is deemed to be deliberate or negligent. For individuals, penalties can include fines and, in some cases, imprisonment. It is essential for entities and individuals to comply with the new regulations to avoid these potential legal repercussions.