EXPLANATORY STATEMENT
STATUTORY RULES 1988 NO. 341
ISSUED BY THE AUTHORITY OF THE ATTORNEY-GENERAL
FUTURES INDUSTRY REGULATIONS (AMENDMENT)
Section 160 of the Futures Industry Act 1986 (the Act) provides in subsection (1) that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act. Subsection 160(8) of the Act provides that the power of the Governor-General to make regulations shall be exercised only in accordance with advice that is consistent with resolutions of the Ministerial Council for Companies and Securities (the Council).
2. The Council was established under an agreement between the Commonwealth and the States, executed on 22 December 1978, (the agreement) that provides the framework for a co-operative Commonwealth-State scheme for a uniform system of law and administration in relation to company law and the regulation of the securities industry in the six States and the Australian Capital Territory. In 1986 the Northern Territory became a party to the agreement and the agreement was amended to provide for the regulation of the futures industry.
3. Under subclause 45(1) of the agreement, the Council may consider a proposal for the amendment of regulations made under the Commonwealth Acts enacted for the purpose of the co-operative companies and securities scheme. Should the Council approve any draft amending regulation which gives effect to such a proposal, the Commonwealth is then required, under subclause 45(2) of the agreement, to submit the draft regulation to the Federal Executive Council for making by the Governor-General.
4. The Council has resolved that the accompanying regulations should be made under the Act.
5. The purpose of the accompanying regulations is to amend the Futures Industry Regulations (FIRs) by:
(a) exempting certain minor dealings in futures contracts entered into by a management company or a trustee of an approved deposit fund or superannuation fund from the licensing provisions of the Act; and
(b) modifying the list of recognised futures exchanges at Schedule 1 to the FIRs.
Regulation 1: Commencement
6. Regulation 1 of the accompanying regulations states that they will commence on 1 February 1989. This date was chosen to give the States and the Northern Territory time to make their ‘translator’ regulations. It will be necessary for the States and the Northern Territory to add the words ‘of the Commonwealth’ after the reference in the accompanying regulations to ‘the Occupational Superannuation Standards Act 1987’ and to replace the reference to the ‘Securities Industry Act 1980’ by a reference to the Securities Industry Code that operates in the particular State in question or in the Northern Territory. (References in the FIRs to ‘the Companies Act 1981’ have already been translated).
Regulation 2: Exemptions from the provisions of Part IV of the Act
7. In general, Part IV of the Act requires a person who deals in futures contracts on behalf of others to hold a futures broker’s licence. However, paragraph 160(5)(f) of the Act states that the regulations may provide that subject to any prescribed terms and conditions, the provisions of the Act or any of its provisions do not have effect in relation to a specified transaction or class of transactions entered into by a specified person or class of persons.
8. At present the following persons (among others) are required to be licensed under the Act when they arrange a purchase or sale of futures contracts on behalf of investors or depositors:
(a) a management company licensed to deal in securities under the Securities Industry Act 1980 which manages a collective investment scheme such as an equity, property or cash management trust pursuant to covenants contained in a deed approved under Division 6 of Part IV of the Companies Act 1981;
(b) a trustee of an approved deposit fund (i.e. a fund which satisfies conditions enabling it to receive taxation concessions under the Income Tax Assessment Act 1936); and
(c) a trustee of a superannuation fund.
9. Where such persons wish to engage in a low level of futures trading activity (such as for the purpose of hedging) they are effectively barred from so doing because the costs associated with holding a futures broker’s licence are so high compared with the amount of funds proposed to be committed to futures trading. To address this problem accompanying regulation 2 exempts dealings in futures contracts entered into by such persons provided the value of such contracts does not exceed 15% of the total value of assets held by such persons on behalf of investors or depositors.
Regulation 3: Schedule 1
10. Schedule 1 to the FIRs lists those overseas futures exchanges that are designated as recognised futures exchanges for the purposes of the Act. The term ‘recognised futures exchange’ is used in a number of provisions of the Act, the most important of which is section 128 which prohibits a futures broker dealing in futures contracts on behalf of others unless, inter alia, the dealing is effected on a futures market of an Australian futures exchange or of an overseas recognised futures exchange.
11. Accompanying regulation 3 amends the list of recognised futures exchanges in the following ways:
(a) Marché à Terme D’Instruments Financiers (The Paris Financial Futures Exchange) is added to the list.
(b) As a result of a name change the London Futures and Options Exchange is added to the list and the London Commodity Exchange Co. Ltd is omitted from the list.
(c) The Baltic Futures Exchange is added to the list. This exchange results from the merger of the London Meat Futures Exchange, the Baltic International Freight Futures Exchange Ltd, GAFTA Soya Bean Meal Futures Association Ltd and the London Potato Futures Association Ltd. These exchanges are omitted from the list.