EXPLANATORY STATEMENT
STATUTORY RULES 1987 NO. 48
ISSUED BY AUTHORITY OF THE ATTORNEY-GENERAL SECURITIES INDUSTRY REGULATIONS (AMENDMENT)
Section 150 of the Securities Industry Act 1980 (‘the Act’) provides in sub-section (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. Paragraph 150(2)(d) of the Act provides that the regulations may provide that the provisions of the Act or any of those 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. Sub-section 150(5) 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. The Northern Territory became a party to the agreement in 1986.
3. Under sub-clause 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 sub-clause 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 regulation be made under the Act.
5. The purpose of the regulation is to insert a new regulation, Regulation 46A, into the Securities Industry Regulations. Sub-section 131(1) of the Act prohibits a securities dealer entering into securities transactions as a principal or on behalf of an associate, if that dealer has been given buy or sell instructions from a client in respect of the same class of securities and those instructions have not been complied with. Regulation 46A provides that sub-section 131(1) of the Act does not have effect in relation to transactions entered into by a member of a stock exchange which accord with the business rules of the stock exchange. The proposed business rules of the Australian Stock Exchange Ltd, which has been created under the Australian Stock Exchange and National Guarantee Fund Act 1987, provide that a member of the exchange must give priority to client orders over its own principal transactions (in accordance with the requirements of sub-section 131(1) of the Act) except where the member deals exclusively in professional investor business, as defined in the business rules, and where each transaction is executed to the best advantage of the professional investor. Examples of professional investors included in this category are banks, merchant banks, investment companies, insurance companies and superannuation funds.
6. The rationale for the regulation is that it is often in the interests of a professional investor client of a securities dealer for the dealer to enter into securities transactions as a principal. This can enable immediate consummation of a transaction involving the securities between the securities dealer and the professional investor. Sub-section 131(1) of the Act, by requiring the securities dealer to give effect to smaller agency orders before engaging in principal trades, can prejudice this process which is of potential benefit to all professional investors. The regulation, in effect, exempts members of a stock exchange who deal exclusively in professional investor business and execute each transaction to the best advantage of the professional investor from the requirements of sub-section 131(1) of the Act.