Corporations (Low Volume Financial Markets) Instrument 2016/888

Overview

The Corporations (Low Volume Financial Markets) Instrument 2016/888, made under section 791C of the Corporations Act 2001, was introduced to address the need to exempt low volume financial markets from the requirement to hold an Australian market licence. This exemption was deemed necessary to align with the original intent of the market licence regulatory regime, which would be inconsistent with the practicalities of low volume markets. The instrument, issued by the delegate of the Minister, not only reissues the relief that was initially provided by the Corporations (Low Volume Financial Markets) Exemption Notice 2003 but also adjusts the transaction value threshold to account for inflation and clarifies the definition of a low volume financial market. The policy objective behind this instrument is to ensure that low volume markets, which are inherently smaller and less complex, do not need to be subjected to the stringent requirements of the Australian markets licensing regime, thereby balancing the need for financial market regulation with the practicality for small-scale operators. The instrument exempts low volume financial markets from Part 7.2 of the Act, provided that certain conditions are met, such as limiting the number of markets an operator can run under this exemption, ensuring the financial products traded are of a specific kind and issued by a single issuer, and prohibiting automatic execution of orders. Additionally, the instrument imposes requirements on operators to notify ASIC of significant changes and to report annually on market activity. The instrument was the subject of public consultation through Consultation Paper 262, and no opposition to its making was received. It is also compatible with human rights as it does not engage any applicable rights or freedoms.

Scope and Application

The Corporations (Low Volume Financial Markets) Instrument 2016/888 applies to financial markets that meet specific criteria, allowing them to be exempt from certain requirements under the Corporations Act 2001. This exemption is limited to low volume financial markets, defined as markets where no more than 100 completed transactions occur and the total value of these transactions does not exceed $1.5 million within any 12-month period. The exemption is granted to entities named on the Australian Securities and Investments Commission (ASIC) register for low volume financial markets. The exemption applies across Australia and encompasses the geographic jurisdiction of the Commonwealth. The exemption does not apply to markets that exceed the defined thresholds or operate in a manner inconsistent with the specified conditions, which include limitations on the number of markets an operator can run, restrictions on the types of financial products that can be traded, and obligations to notify ASIC of significant changes or compliance failures. The legislative instrument extends its application through subordinate instruments, which may further refine or specify the conditions of the exemption.

Key Provisions

The main operative sections of the Corporations (Low Volume Financial Markets) Instrument 2016/888 (subsection 791C(1) of the Corporations Act 2001) provide that the Minister may exempt a particular financial market or type of financial market from the operation of Part 7.2 of the Act, which includes the requirement to hold an Australian market licence. This exemption is granted by publishing a notice in the Gazette. Section 33(3) of the Acts Interpretation Act 1901 allows the power to make such an instrument to include powers to repeal, rescind, revoke, amend, or vary it. The instrument defines a low volume financial market as one where no more than 100 completed transactions are entered into and the total value of these transactions does not exceed $1.5 million over a 12-month period. To benefit from this exemption, the operator of such a market must comply with several conditions, including ensuring that they do not operate more than two such markets or a licensed market, that financial products are issued by a single issuer, and that the market does not facilitate automatic execution of orders or contracts. The obligations imposed on the parties governed by this Act include ensuring that the financial market they operate does not exceed the specified transaction limits and adheres to the outlined conditions. These conditions require the operator to limit the number of markets they operate, ensure the financial products traded are from a single issuer and of specified types, and that the market lacks mechanisms for automatic order execution or contract formation. Additionally, the operator must notify users that they are not licensed under Part 7.2 of the Act and are not subject to the legal obligations applicable to licensed markets. The operator must also notify the Australian Securities and Investments Commission (ASIC) of any significant changes to the market's operation and inform ASIC promptly if they fail to comply with the conditions. They must further comply with requests from ASIC to assist in monitoring and supervising compliance with the conditions and provide a written report to ASIC within 45 days after each anniversary of the date they were named in the register. Failure to comply with the conditions set out in the Corporations (Low Volume Financial Markets) Instrument 2016/888 can lead to civil or criminal consequences. Although the specific penalties are not detailed in the text provided, breaches of conditions under similar legislative instruments typically result in fines, enforcement actions, or other regulatory sanctions. The exact penalties would depend on the nature and severity of the breach and could potentially include administrative penalties or legal action under the Corporations Act 2001 or other relevant legislation. Additionally, ongoing non-compliance could lead to the revocation of the exemption, thereby subjecting the financial market to the licensing requirements of Part 7.2 of the Act.