EXPLANATORY STATEMENT
STATUTORY RULES 1988 NO.264
ISSUED BY AUTHORITY OF THE MINISTER OF STATE FOR JUSTICE FOR AND ON BEHALF OF THE ATTORNEY-GENERAL
SECURITIES INDUSTRY REGULATIONS (AMENDMENT)
Section 150 of the Securities Industry Act 1980 (the Act) provides in subsection 150(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. Paragraphs 150(1)(a) and (e) of the Act provide that the forms to be used and directions for their preparation may be prescribed by regulation. 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).
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. The Council resolved that regulations be made under the Act to insert new regulations into the Securities Industry Regulations to facilitate the proper administration of the National Guarantee Fund.
4. The National Guarantee Fund was established by the Australian Stock Exchange and National Guarantee Fund Act 1987 (which inserted Part IXA into the Securities Industry Act 1980). Previously each capital city exchange had operated a separate fidelity fund. The assets of these funds were then pooled to create the National Guarantee Fund when the stock exchanges were reorganised to establish a single national exchange, the Australian Stock Exchange Ltd (ASX), with the previous capital city exchanges as its subsidiaries.
5. The National Guarantee Fund is administered by the National Securities Exchanges Guarantee Corporation Limited (the Corporation). The draft regulations were prepared in consultation with the Corporation. The Fund provides investor protection by guaranteeing the performance of all reportable transactions in securities quoted on ASX exchanges and compensates investors for pecuniary and property loss as a result of the insolvency of a broker member of the ASX.
6. The accompanying regulations:
(i) prescribe the form of the notice to be published in a daily newspaper, in accordance with subsection 122X(1), calling for claims against the Corporation. This notice nominates a date at least 3 months after its publication before which claims arising from a dealer’s insolvency must be made. (Regulation 45B and Form 25).
(ii) prescribe, for the purposes of subsection 122YC(2) of the Act, the rate of interest which successful
claimants against the National Guarantee Fund under the provisions relating to contract guarantees and insolvent members will receive (subject to subsection 122YC(1)) as 5% per annum (Regulation 45C).
(iii) prescribe the form of the notice which the Corporation is required to serve, pursuant to section 122YF of the Act, on the claimant or his solicitor after disallowing a claim. The claimant then has 3 months after service of this notice to commence court proceedings to establish the claim (Regulation 45D and Form 26).
7. Any excess in the National Guarantee Fund over the required minimum amount may, if the purpose has been approved by the Council, be used for the national development of the securities industry. If a payment is made to a participating exchange (the ASX is the only such exchange at present) for development purposes, it must be kept in a separate securities industry development account. An annual statement of payments from such accounts must be lodged with the National Companies and Securities Commission.
8. The accompanying regulations prescribe, pursuant to subsection 122GE(1) of the Act, the information to be contained in the annual statement of payments (Regulation 45A and Form 24).
Overview
The Securities Industry Regulations (Amendment) Statutory Rules 1988 No. 264 were enacted to facilitate the proper administration of the National Guarantee Fund, a key component established under the Australian Stock Exchange and National Guarantee Fund Act 1987. The National Guarantee Fund was created to consolidate the fidelity funds of the former capital city exchanges into a single fund managed by the National Securities Exchanges Guarantee Corporation Limited, providing protection to investors against the insolvency of broker members of the Australian Stock Exchange (ASX). The regulations were made under the authority of the Minister of State for Justice on behalf of the Attorney-General, in accordance with the Securities Industry Act 1980, and following resolutions of the Ministerial Council for Companies and Securities. The policy objective of these regulations is to ensure the effective administration of the Fund, including setting out the procedures for claims, the rate of interest for successful claimants, and the reporting requirements for payments from securities industry development accounts.
Scope and Application
The Securities Industry Regulations (Amendment) under Section 150 of the Securities Industry Act 1980 apply to the administration of the National Guarantee Fund, which was established by the Australian Stock Exchange and National Guarantee Fund Act 1987 and is managed by the National Securities Exchanges Guarantee Corporation Limited. These regulations are designed to ensure the proper administration of the Fund, which provides investor protection by guaranteeing the performance of all reportable transactions in securities quoted on the Australian Stock Exchange and compensates investors for pecuniary and property loss due to the insolvency of a broker member of the ASX. The regulations prescribe various forms and rates, including the form of the notice to be published in a daily newspaper for claims against the Corporation, the interest rate for successful claimants against the National Guarantee Fund, and the form of the notice served on claimants after their claims are disallowed. The application of these regulations extends across the Commonwealth, in alignment with the co-operative Commonwealth-State scheme established by the Ministerial Council for Companies and Securities. The regulations are issued in accordance with resolutions of the Council and are intended to facilitate the administration of the National Guarantee Fund and the protection of investors in the securities industry.
Key Provisions
The main operative sections of the Securities Industry Regulations (Amendment) provide for the prescribed forms and rates associated with the National Guarantee Fund, which is designed to protect investors from losses due to the insolvency of brokers. Regulation 45B and Form 25 detail the form of the notice to be published in a daily newspaper calling for claims against the Corporation. This notice must nominate a date at least three months after publication before which claims arising from a dealer's insolvency must be made. Regulation 45C sets the rate of interest that successful claimants against the National Guarantee Fund will receive at 5% per annum. Regulation 45D and Form 26 prescribe the form of the notice the Corporation is required to serve on a claimant or their solicitor after a claim has been disallowed, giving the claimant three months to commence court proceedings.
These regulations impose specific obligations on the National Securities Exchanges Guarantee Corporation Limited, which administers the National Guarantee Fund. The Corporation must publish a notice in a daily newspaper in the prescribed form, ensuring claimants are aware of the deadline to submit their claims. Furthermore, the Corporation must serve a prescribed form of notice on claimants whose claims have been disallowed, providing them with an opportunity to pursue their claims in court. The Corporation is also required to pay interest to successful claimants at the rate specified in the regulations.
Breaches of these regulatory requirements can result in legal consequences. While the regulations themselves do not explicitly state penalties for non-compliance, failure to adhere to the prescribed forms and timelines could potentially lead to legal challenges or administrative actions under the Securities Industry Act 1980. Additionally, the Corporation's failure to properly administer the Fund could result in liability for any losses incurred by investors due to such non-compliance.
In summary, the regulations set forth clear directives for the National Securities Exchanges Guarantee Corporation Limited in managing the National Guarantee Fund, ensuring that investor claims are handled in a transparent and timely manner. Compliance with these regulations is crucial for the effective administration of the Fund and the protection of investors against losses from broker insolvencies.