EXPLANATORY STATEMENT
Subject - Securities Industry Act 1980
Securities Industry Regulations (Amendment) 1990 No. 138
Subsection 150(1) of the Securities Industry Act 1980 (the Act) provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters that are necessary or convenient to be prescribed for carrying out or giving effect to the Act. Subsection 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).
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 and futures industries in the six States, the Australian Capital Territory and the Northern Territory of Australia.
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 purposes 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 regulations to the Federal Executive Council for making by the Governor-General.
The proposed Regulation is in accordance with a resolution of the Council.
The purpose of the proposed Regulation is to prescribe three named indexes so that the Act will apply to option contracts based on these indexes.
Subsection 4(8A) of the Act defines the option contracts to which the Act applies. Paragraph 4(8A)(b) includes in this definition contracts (entered into on a stock market) under which one of the parties acquires a right or option to be paid an amount determined by reference to a specified index, being the Australian Stock Exchanges All Ordinaries Price Index or a prescribed index.
The three named indexes in the proposed Regulation are:
1. Nikkei Stock Average, which measures the aggregate price performance of 225 well known stocks trading on the Tokyo Exchange;
2. S and P 500 Composite Stock Price Index, which is based on 500 stocks traded on the New York Exchange;
3. FT-SE 100, which is an index of the market value of the shares of 100 leading UK companies on the International Stock Exchange of the United Kingdom and the Republic of Ireland.
Prescription of these indexes means that any organisation which gained approval from the Australian Stock Exchange Limited and publishers of ‘the indexes would be able to sponsor options contracts based on one of the indexes.
Overview
The Securities Industry Act 1980, enacted by the Parliament of Australia, established a regulatory framework for the securities industry across the nation, facilitating a uniform approach to securities and futures regulation among the states and territories. The 1990 amendment to the Securities Industry Regulations was introduced to address the need for the Act to encompass option contracts based on specific financial indexes, thereby extending its applicability and regulatory scope. The Ministerial Council for Companies and Securities, established under the Agreement between the Commonwealth and the States, played a pivotal role in approving the draft amending regulation, ensuring alignment with the co-operative scheme's objectives. The primary policy objective of these amendments was to enhance the comprehensiveness of the securities regulation by incorporating international financial indexes, thereby ensuring that the Act remains relevant and effective in a global financial context.
Scope and Application
The Securities Industry Act 1980, as amended by the Securities Industry Regulations (Amendment) 1990 No. 138, applies to financial entities and individuals involved in securities trading, particularly those dealing with option contracts. This Act operates across the Commonwealth of Australia and aims to provide a uniform regulatory framework for the securities industry in collaboration with state and territory governments. The regulation specifies that the Act will govern option contracts based on three named indexes: the Nikkei Stock Average, S&P 500 Composite Stock Price Index, and FT-SE 100. These indexes represent significant global markets, thereby extending the jurisdictional reach of the Act to encompass international financial instruments traded within Australia. The Act's application is contingent upon obtaining approval from the Australian Stock Exchange Limited and the respective publishers of these indexes. The regulation is subject to the framework established by the Ministerial Council for Companies and Securities, ensuring consistency and uniformity in securities regulation across the participating jurisdictions.
Key Provisions
The Securities Industry Regulations (Amendment) 1990 No. 138 amends the Securities Industry Regulations under the Securities Industry Act 1980 (the Act) by prescribing three new indexes (sections 1-3). These are the Nikkei Stock Average, the S&P 500 Composite Stock Price Index, and the FT-SE 100. The amendment aims to ensure that the Act applies to option contracts based on these indexes. This change is necessary to extend the regulatory scope of the Act to include option contracts that reference these particular financial indexes.
The entities affected by this amendment are those that intend to sponsor option contracts based on the newly prescribed indexes. These entities must now obtain approval from the Australian Stock Exchange Limited and be publishers of the specified indexes to engage in the trading of such options. The primary obligation for these entities is to ensure compliance with the Act and the newly amended regulations, which includes adhering to the standards set forth for the sponsorship and trading of options based on these indexes. This may involve meeting specific criteria for financial stability, operational standards, and transparency in their publication and trading activities.
Failure to comply with the regulations could result in legal consequences for the entities involved. The Act stipulates that breaches may lead to civil or criminal penalties, although the specific penalties are not detailed in the explanatory statement. However, given the nature of securities regulation, penalties for non-compliance could include substantial fines, legal action, or even revocation of the entity's licence to operate within the securities market. The exact penalties would be determined by the courts or regulatory authorities based on the severity and intent of the breach.