EXPLANATORY STATEMENT
Select Legislative Instrument 2009 No. 327
Issued by authority of the Minister for Financial Services, Superannuation and Corporate Law
Corporations Act 2001
Corporations Amendment Regulations 2009 (No. 8)
Subsection 1364(1) 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 Regulations amend the Corporations Regulations 2001 (the Principal Regulations) to specify the detailed aspects of the disclosure regime for short-sale transactions, in support of amendments made to the Act by Schedule 3 of the Corporations Amendment (Short Selling) Act 2008 (the Amendment Act). Schedule 3 of the Amendment Act contains amendments to establish a framework for the disclosure of short-sale transactions on Australian financial markets.
The Regulations have staggered commencement dates. Schedule 1 to the proposed regulations, dealing with the reporting of transactional (gross) short-selling information, commences on the commencement of Schedule 3 to the Amendment Act. This will be a day to be fixed by proclamation or 12 months after the Amending Act received the Royal Assent (11 December 2009).
Schedule 2 to the Regulations, dealing with the reporting of positional (net) information, commences on a date to be specified by the Minister by instrument, but no later than 1 April 2010. The delayed commencement of the positional reporting requirements is to provide ASIC and industry with the time to make the necessary preparations for the reporting of positional information.
Schedule 1 – Transactional Reporting
Schedule 1 inserts a new Division 15, including new regulations 7.9.100 to 7.9.102, into the Corporations Regulations 2001. New Division 15 effectively replicates the existing reporting requirements for transactional information contained in ASIC Class Order 08/751.
Subregulation 7.9.100(1) specifies the particulars that a seller entering into a covered short sale must disclose for the purposes of paragraph 1020AB(3)(a) of the Act. These particulars are:
• the number of section 1020B products in the sale that are covered by the securities lending arrangement;
• a description of the product. This is intended to differentiate the type of product if the entity that issued the product has multiple products on issue (for example, the entity has both ordinary and preference shares on issue); and
• the name of the entity that issued the product.
Subregulation 7.9.100(2) specifies the timing for disclosure of the particulars in accordance with paragraph 1020AB(3)(b) of the Act. It requires a seller selling through a financial services licensee (usually a broker) to disclose the particulars to the financial services licensee at the time of entering into the agreement to sell. This is consistent with section 1020AE of the Act that requires the financial services licensees to ask whether a sale is a covered short sale before making a sale.
Subregulation 7.9.100(2) also specifies that a financial services licensee selling on their own behalf must disclose the particulars relating to their own covered short sales to the market operator by 9am on the next trading day after entering into the agreement to sell if the sale occurs before 7pm. If the sale occurs after 7pm, it must be disclosed to the market operator on the second trading day after entering into the agreement. This is consistent with the ASIC Class Order and provides licensees with additional time to report trades that occur late on a trading day. All references to time in the Regulations refer to legal time in Sydney, New South Wales. Under subregulation 7.9.100(3), trading day in subregulation 7.9.100(2) refers to a trading day of the market where the sale is executed or reported.
Subregulation 7.9.101(1) specifies that the particulars that a financial services licensee must disclose in relation to their clients’ covered short sales are the particulars disclosed to the financial services licensee specified in subregulation 7.9.100(1). These are listed in the three bullets above. Subregulation 7.9.101(2) specifies that the timing for disclosure of these particulars is by 9am on the next trading day after entering into the agreement to sell if the information is provided to the licensee by 7pm. If the information is provided after 7pm, it must be disclosed to the market operator by 9am on the second trading day after the information was provided. This is consistent with the timing specified in ASIC Class Order. Under subregulation 7.9.101(3), trading day in subregulation 7.9.101(2) refers to a trading day of the market where the information is given.
Subregulation 7.9.102(1) specifies that the particulars that a market operator must publicly disclose for the purposes of paragraph 1020AD(2)(a) of the Act are the total number of each kind of section 1020B product that have been sold on a particular day and disclosed to the market operator.
Subregulation 7.9.102(2) specifies that the market operator must disclose these particulars on the trading day after the agreements to sell were entered into. This is consistent with the current timing for the release of transactional short selling information under the ASIC Class Order.
Subregulation 7.9.102(4) specifies that the manner of disclosure of the particulars is the market operator’s website or any source easily accessible by the public. It is envisaged that the market operator’s website will be the primary manner of disclosing the particulars with another publicly accessible source only being utilised when the website is not functioning.
Schedule 2 – Positional Reporting
Schedule 2 amends the Principal Regulations to facilitate reporting of positional information in addition to transactional information.
Item [1] of Schedule 2 would insert a new Regulation 7.9.99 into the Principal Regulations. Regulation 7.9.99 defines a reporting day as a day on which the Sydney office of ASIC is open for business. It also specifies that a short position is a position in a section 1020B product where the amount of the product that a person has is less than the amount of the product that the person has an obligation to deliver.
The amount of a product that a person has includes the amount that a person is holding on their own behalf or another person (for example, a nominee company) is holding on their behalf, has entered into an agreement to buy but not yet received or has lent under a securities lending arrangement.
The amount of a product that a person has an obligation to deliver includes an obligation to deliver resulting from an unsettled sale transaction, a securities lending arrangement (under which the person is a borrower) and any other non-contingent legal obligation to deliver to the product.
Item [2] makes a grammatical amendment to paragraph 7.9.100(1)(c) necessary to incorporate the positional disclosure requirements (see item [3] below).
Item [3] inserts a new paragraph 7.9.100(1)(d) to include an additional particular that the seller must disclose. This is the seller’s short position calculated as at 3 reporting days before the day that the regulations require the position to be disclosed by the seller.
Item [4] inserts a new subregulations 7.9.100(4) to 7.9.100(7), which provides that the seller must disclose to ASIC their short position in the form specified by ASIC on or before 9am on the third reporting day after entering into the agreement to sell that causes the short position to occur and on each subsequent reporting day. The seller is required to re-disclose that short position on each subsequent reporting day even if that short position has not changed from the previous reporting day.
It is envisaged that ASIC will use its powers under the Corporations Act to specify a threshold that will exclude small short positions from being reported. ASIC will be responsible for setting this threshold.
Item [5] inserts a new regulation 7.9.100A into the Principal Regulations. Regulation 7.9.100A sets up transitional requirements relating to the disclosure of short positions in place before the commencement of the regulations. It provides that if a person has a short position that results from an agreement to sell entered into before the commencement of the regulations, the seller must disclose that short position to ASIC on or before the third reporting day after the commencement of the regulations and re-disclose on each subsequent reporting day. This is consistent with the requirements for short positions entered into after the commencement of the regulations. These transitional requirements are necessary to ensure that comprehensive information on short positions is reported to ASIC.
Item [6] inserts a new subregulation 7.9.102(1A) into the Principal Regulations to provide that the particulars that ASIC must publicly disclose in relation to the information provided to it under section 1020AB of the Act are the total of short positions in a product issued by a listed entity that were disclosed to ASIC on the previous reporting day. The market operator will remain responsible for the disclosure of transactional information even after Schedule 2 commences.
Item [7] inserts a new subregulation 7.9.102(2A) into the Principal Regulations to provide that ASIC must disclose the particulars mentioned in item [6] one reporting day after the information is received. This means the information will be released publicly on the fourth reporting day after the position is entered into.
Item [8] inserts a new subregulation 7.9.102(3A) into the Principal Regulations to specify that the manner that ASIC must publicly disclose the information is by publication on the ASIC website or any source easily accessible by the public. It is envisaged that ASIC’s website will be the primary manner of disclosing the particulars with another publicly accessible source only being utilised when the website is not functioning.
The Regulations have been subject to extensive consultations. In March 2009, Treasury released a consultation paper for public comment on issues associated with the disclosure of short-sales following the passage of the Amendment Act in 2008. Following the close of submissions on the consultation paper, Treasury and the Government engaged in targeted consultations with industry and ASIC as part of finalising consideration of policy issues. In addition, a Regulation Impact Statement was prepared and cleared by the Office of Best Practice Regulation. Draft regulations were then prepared implementing this policy and released for public consultation for three weeks on 2 October 2009. This consultation period focused on the technical aspects of implementing the policy rather than the policy itself.
Under the Corporations Agreement 2002, the Commonwealth must consult with the Ministerial Council for Corporations (the Council) before making amendments to certain provisions of the Principal Regulations. The Council was consulted about these amendments, and notified of the Minister’s decision for the Regulations to be subject to a three-week public consultation period in light of the high level of consultation that had already taken place on this issue.
The Regulations are legislative instrument for the purposes of the Legislative Instruments Act 2003.