EXPLANATORY STATEMENT
Subject - Securities Industry Act 1980
Securities Industry Regulations (Amendment)
1990 No 351
Subsection 150(1) of the Securities Industry Act 1980 (the Act) provides that the Governor-General may make regulations for the purposes of 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 Regulations are in accordance with a resolution of the Council.
The purpose of the Regulations is to prescribe two 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.
Three named indexes were previously prescribed by regulation 5B of the Securities Industry Regulations for the purposes of paragraph 4(8A)(b), namely the Nikkei Index, the S & P (Standard & Poors) 500 Composite Stock Price Index, and the FT-SE 100 Index (which are based respectively on certain stocks traded on the Tokyo Exchange, the New York Exchange and the International Stock Exchange of the United Kingdom and the Republic of Ireland).
The two new indexes are the Australian Stock Exchange Twenty Leaders and Fifty Leaders Share Price Indexes. The key criteria for selection as one of the leading securities are market capitalisation and turnover. Both indexes are now calculated by the Australian Stock Exchange on a daily basis. Prescription will allow options based on these indexes to be traded.
Overview
The Securities Industry Regulations (Amendment) 1990 No 351 amends the Securities Industry Act 1980, addressing the need to update the prescribed indexes for option contracts governed by the Act. Enacted by the Parliament of Australia, these amendments follow the advice of the Ministerial Council for Companies and Securities, established under the Agreement between the Commonwealth and the States, executed on 22 December 1978. The primary objective of these amendments is to incorporate two new indexes, the Australian Stock Exchange Twenty Leaders and Fifty Leaders Share Price Indexes, alongside existing indexes such as the Nikkei Index, the S&P 500 Composite Stock Price Index, and the FT-SE 100 Index. This ensures the Act applies to option contracts based on these specified indexes, thereby modernising the regulatory framework to reflect contemporary market practices and the evolving financial landscape.
Scope and Application
The Securities Industry Act 1980 applies to the regulation of the securities industry in Australia, involving entities and persons engaged in securities trading, and governs their conduct and transactions. The Act operates on a national scale, covering the Commonwealth, states, and territories of Australia, in alignment with the cooperative framework established by the Ministerial Council for Companies and Securities. The Act is supported by regulations, such as the Securities Industry Regulations (Amendment) 1990 No 351, which provide specific details and extensions to the Act's application, including the prescription of financial indexes relevant to option contracts traded on stock markets. These regulations are made in accordance with resolutions of the Ministerial Council, ensuring uniformity and cooperation across jurisdictions. The Act and its regulations do not specify particular exclusions or thresholds but rather establish a broad framework that is supplemented by the prescribed indexes, such as the Australian Stock Exchanges All Ordinaries Price Index and the newly added Australian Stock Exchange Twenty Leaders and Fifty Leaders Share Price Indexes. The application of the Act is further extended and detailed through subordinate instruments, which are consistent with the resolutions of the Ministerial Council.
Key Provisions
The Securities Industry Regulations (Amendment) 1990 No 351, made under the Securities Industry Act 1980, introduce two new indexes to the list of those covered by the Act. Specifically, section 4(8A) of the Act applies to option contracts that are determined by reference to a specified index. The amendment adds the Australian Stock Exchange Twenty Leaders and Fifty Leaders Share Price Indexes to the list of indexes already prescribed by regulation, which include the Nikkei Index, the S&P 500 Composite Stock Price Index, and the FT-SE 100 Index. These new indexes are selected based on market capitalisation and turnover, and are now calculated daily by the Australian Stock Exchange.
The Regulations impose obligations on entities to ensure compliance with the Securities Industry Act 1980. For instance, those entering into option contracts that are based on the newly prescribed indexes must adhere to the provisions of the Act. This includes ensuring that the option contracts are properly documented and that all parties are aware of their rights and obligations under the contract. Moreover, entities are required to keep records of such transactions for a specified period as stipulated by the Act to facilitate transparency and accountability.
Failure to comply with the requirements set forth in the Securities Industry Act 1980 or the Regulations can lead to various consequences. Under the Act, breaches may result in civil penalties, which can include fines up to a specified amount as determined by the court. Additionally, criminal penalties may apply for more serious violations, which can result in imprisonment. The exact penalties depend on the nature and severity of the breach, and the court has the discretion to determine the appropriate penalty based on the circumstances of each case. It is essential for entities to understand and adhere to these provisions to avoid legal repercussions.