Financial Services Reform Act 2001 (122 of 2001)

Schedule 1   Financial Services and Markets

Part 1   Main amendments

Corporations Act 2001

1   Chapter 7 - Part 7.9 - Division 6

Division 6 - Miscellaneous

1020A Offers etc. relating to certain managed investment schemes not to be made in certain circumstances

(1) A person must not engage in conduct of a kind referred to in subsection (2) in relation to a financial product described in paragraph 764A(1)(ba) (which relates to certain managed investment schemes that are not registered schemes) if the managed investment scheme concerned needs to be, or will need to be, registered and has not been registered. This is so even if it is proposed to register the scheme.

Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).

(2) Subject to subsection (3), the kinds of conduct that must not be engaged in in relation to such a managed investment product are as follows:

(a) making a recommendation, as described in subsection 1012A(3), that is received in this jurisdiction;

(b) making an offer, as described in subsection 1012B(3) or 1012C(3), that is received in this jurisdiction;

(c) accepting an offer, made as described in subsection 1012B(3) or (4), that was received in this jurisdiction.

(3) Subsection (2) does not apply to a recommendation or offer made in a situation to which a subsection of section 1012D, other than subsection 1012D(1), applies.

Note: A defendant bears an evidential burden in relation to the matters in this subsection. See subsection 13.3(3) of theCriminal Code.

1020B Short selling of securities, managed investment products and certain other financial products

(1) In this section and section 1020C:

section 1020B products means:

(a) securities; or

(b) managed investment products; or

(c) financial products referred to in paragraph 764A(1)(j); or

(d) financial products of any other kind prescribed by regulations made for the purposes of this definition.

(2) Subject to this section and the regulations, a person must only, in this jurisdiction, sell section 1020B products to a buyer if, at the time of the sale:

(a) the person has or, if the person is selling on behalf of another person, that other person has; or

(b) the person believes on reasonable grounds that the person has, or if the person is selling on behalf of another person, that other person has;

a presently exercisable and unconditional right to vest the products in the buyer.

Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).

(3) For the purposes of subsection (2):

(a) a person who, at a particular time, has a presently exercisable and unconditional right to have section 1020B products vested in the person, or in accordance with the directions of the person, has at that time a presently exercisable and unconditional right to vest the products in another person; and

(b) a right of a person to vest section 1020B products in another person is not conditional merely because the products are charged or pledged in favour of another person to secure the repayment of money.

(4) Subsection (2) does not apply in relation to:

(a) a sale of section 1020B products by a financial services licensee who is a participant in a licensed market and specialises in transactions relating to odd lots of section 1020B products, being a sale made by the licensee on their own behalf solely for the purpose of:

(i) accepting an offer to buy an odd lot of section 1020B products; or

(ii) disposing of a parcel of section 1020B products that is less than one marketable parcel of section 1020B products by means of a sale of one marketable parcel of those products; or

(b) a sale of section 1020B products as part of an arbitrage transaction; or

(c) a sale of section 1020B products by a person who, before the time of sale, has entered into a contract to buy those products and who has a right to have those products vested in the person that is conditional only upon all or any of the following:

(i) payment of the consideration in respect of the purchase;

(ii) the receipt by the person of a proper instrument of transfer in respect of the products;

(iii) the receipt by the person of the documents that are, or are documents of title to, the products; or

(d) a sale of section 1020B products in the following circumstances:

(i) the person who sold the products is not an associate of the body corporate that issued the products; and

(ii) arrangements are made before the time of the sale that will enable delivery of products of the class sold to be made to the buyer within 3 business days after the date of the transaction effecting the sale; and

(iii) if the sale is made on a licensed market:

(A) the price per unit in respect of the sale is not below the price at which the immediately preceding ordinary sale was effected; and

(B) the price per unit is above the price at which the immediately preceding ordinary sale was made, unless the price at which the immediately preceding ordinary sale was made was higher than the next preceding different price at which an ordinary sale had been made;

and the operator of the market is informed as soon as practicable that the sale has been made short in accordance with this subparagraph; or

(e) a sale of section 1020B products in the following circumstances:

(i) the products are included in a class of products in relation to which there is in force a declaration, made by the operator of a licensed market as provided by the operating rules of the market, to the effect that the class is a class of products to which this paragraph applies; and

(ii) the sale is made as provided by the operating rules of the market; and

(iii) at the time of the sale, neither the person who sold the products, nor any person on behalf of whom the first-mentioned person sold the products, was an associate, in relation to the sale, of the body corporate that issued the products.

Note: A defendant bears an evidential burden in relation to the matters in this subsection. See subsection 13.3(3) of theCriminal Code.

(5) A person who requests a financial services licensee to make a sale of section 1020B products that would contravene subsection (2) but for paragraph (4)(b), (d) or (e) must, when making the request, inform the licensee that the sale is a short sale.

Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).

(6) If:

(a) a person who, through a licensed market, makes a sale of section 1020B products (whether or not on the person’s own behalf); and

(b) the sale would contravene subsection (2) but for paragraph (4)(d);

the person must endorse a statement that the sale was a short sale on any document evidencing the sale that is given to the person who buys the products (whether or not on that person’s own behalf).

Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).

(7) For the purposes of this section, a person who:

(a) purports to sell section 1020B products; or

(b) offers to sell section 1020B products; or

(c) holds himself, herself or itself out as entitled to sell section 1020B products; or

(d) instructs a financial services licensee to sell section 1020B products;

is taken to sell the products.

1020C ASIC’s power to prohibit short selling in certain cases

(1) If ASIC forms the opinion that it is necessary to prohibit section 1020B products (as defined in subsection 1020B(1)), or a particular class of section 1020B products, from being sold on a licensed market in a manner that, but for paragraph 1020B(4)(e), would contravene subsection 1020B(2), in order to:

(a) protect persons who might suffer financial loss if they were to buy or sell those products in that manner; or

(b) protect the public interest;

ASIC may give written notice (the preliminary notice ) to the operator of the market stating that it has formed that opinion and setting out the reasons for that opinion.

(2) If, after receiving the preliminary notice:

(a) the operator does not take action to prevent the selling on the market of the products, or class of products, specified in the preliminary notice in the manner referred to in subsection (1); and

(b) ASIC is still of the opinion that it is necessary to prohibit the selling on that market of the products, or class of products, in that manner;

ASIC may, by a further written notice (the prohibition notice ) given to the operator, prohibit the selling on the market of the products, or class of products, in that manner during a period of not more than 21 days.

(3) As soon as practicable after giving the prohibition notice to the operator, ASIC must give to the Minister a written report setting out the reasons for the giving of the prohibition notice and send a copy of the report to the operator.

(4) On receiving the report, the Minister may direct ASIC to revoke the prohibition notice and, if such a direction is given, ASIC must immediately revoke the prohibition notice.

(5) While the prohibition notice is in force, the operator must not permit the selling of section 1020B products on the market in a way that contravenes the prohibition notice.

Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).

1020D Part cannot be contracted out of

A condition of a contract for the acquisition of a financial product is void if it provides that a party to the contract is:

(a) required or bound to waive compliance with any requirement of this Part (or of regulations made for the purposes of this Part); or

(b) if the acquisition occurs in circumstances in which the party is required by a provision of this Part to have been given a Product Disclosure Statement for the product - taken to have notice of any contract, document or matter not specifically referred to in a Product Disclosure Statement or Supplementary Product Disclosure Statement given to the party.

1020E Stop orders by ASIC

(1) This section applies if:

(a) either:

(i) a disclosure document or statement is defective (see subsection (11)); or

(ii) an advertisement or statement of a kind referred to in subsection 1018A(1) or (2) that relates to financial products is defective (see subsection (11)); or

(b) an issuer of financial products is in breach of section 1017G.

(2) ASIC may order that:

(a) if paragraph (1)(a) applies - specified conduct in respect of the financial products to which the document, advertisement or statement relates; or

(b) if paragraph (1)(b) applies - specified conduct in respect of financial products issued by that issuer;

must not be engaged in while the order is in force.

(3) The order may include a statement that specified conduct engaged in contrary to the order will be regarded as not complying with the requirements of a specified provision of this Part.

(4) Before making an order under subsection (2), ASIC must:

(a) hold a hearing; and

(b) give a reasonable opportunity to any interested people to make oral or written submissions to ASIC on whether an order should be made.

(5) If ASIC considers that any delay in making an order under subsection (2) pending the holding of a hearing would be prejudicial to the public interest, ASIC may make an interim order under that subsection. The interim order may be made without holding a hearing and lasts for 21 days after the day on which it is made unless revoked before then.

(6) At any time during the hearing, ASIC may make an interim order under subsection (2). The interim order lasts until:

(a) ASIC makes an order under subsection (2) after the conclusion of the hearing; or

(b) the interim order is revoked;

whichever happens first.

(7) The order under subsection (2) must be in writing and must be served on:

(a) unless paragraph (b) applies - the issuer of the financial products concerned; or

(b) if paragraph (1)(a) applies and the document, advertisement or statement relates to a sale or proposed sale of the financial products - the seller of the financial products.

(8) The person on whom the order is served must take reasonable steps to ensure that other people who engage in conduct to which the order applies are aware of the order.

Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).

(9) The person on whom the order is served, or a person who is aware of the order, must not engage in conduct contrary to the order.

Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).

(10) If the person on whom the order is served, or a person who is aware of the order, engages in conduct contrary to the order, any relevant statement included in the order under subsection (3) has effect accordingly. This applies in addition to any other consequence that is provided for by this Act.

(11) In this section:

defective :

(a) in relation to a disclosure document or statement - has the same meaning as in Subdivision A of Division 7; and

(b) in relation to an advertisement or statement of a kind referred to in subsection 1018A(1) or (2) that relates to financial products - means:

(i) there is a misleading or deceptive statement in the advertisement or statement; or

(ii) there is an omission from the advertisement or statement of material required by paragraph 1018A(1)(c), (d) or (e), or paragraph 1018A(2)(c), (d), (e) or (f), to be included in the advertisement or statement;

being a statement, or an omission, that is or would be material from the point of view of a reasonable person considering whether to proceed to acquire any of those financial products.

disclosure document or statement has the same meaning as it has in Subdivision A of Division 7.

1020F Exemptions and modifications by ASIC

(1) ASIC may, subject to subsection (3):

(a) exempt a person or class of persons from all or specified provisions of this Part; or

(b) exempt a financial product or a class of financial products from all or specified provisions of this Part; or

(c) declare that this Part applies in relation to a person or a financial product, or a class of persons or financial products, as if specified provisions were omitted, modified or varied as specified in the declaration.

(2) Without limiting subsection (1), ASIC may, under this section, declare that provisions of this Part are modified so that they apply (whether with or without further modifications) in a way that changes the person to whom a document or information is required to be given by a provision of this Part.

(3) However, except as mentioned in subsection (2), ASIC cannot declare that provisions of this Part are modified so that they apply in relation to persons or financial products to which they would not otherwise apply.

(4) An exemption may apply unconditionally or subject to specified conditions. A person to whom a condition specified in an exemption applies must comply with the condition. The Court may order the person to comply with the condition in a specified way. Only ASIC may apply to the Court for the order.

(5) An exemption or declaration must be in writing and ASIC must publish notice of it in theGazette.

(6) If conduct (including an omission) of a person would not have constituted an offence if a particular declaration under paragraph (1)(c) had not been made, that conduct does not constitute an offence unless, before the conduct occurred (in addition to complying with the gazettal requirement of subsection (5)):

(a) the text of the declaration was made available by ASIC on the Internet; or

(b) ASIC gave written notice setting out the text of the declaration to the person.

In a prosecution for an offence to which this subsection applies, the prosecution must prove that paragraph (a) or (b) was complied with before the conduct occurred.

(7) For the purpose of this section, the provisions of this Part include:

(a) definitions in this Act, or in the regulations, as they apply to references in this Part; and

(b) any provisions of Part 10.2 (transitional provisions) that relate to provisions of this Part.

1020G Exemptions and modifications by regulations

(1) The regulations may:

(a) exempt a person or class of persons from all or specified provisions of this Part; or

(b) exempt a financial product or a class of financial products from all or specified provisions of this Part; or

(c) provide that this Part applies as if specified provisions were omitted, modified or varied as specified in the regulations.

(2) Without limiting subsection (1), regulations made for the purposes of this section may:

(a) declare that provisions of this Part are modified so that they apply (with or without further modifications) in relation to persons, financial products or situations to which they would not otherwise apply; or

(b) declare that provisions of this Part are modified so that they apply (whether with or without further modifications) in a way that changes the person by whom or to whom a document or information is required to be given by a provision of this Part.

(3) For the purpose of this section, the provisions of this Part include:

(a) definitions in this Act, or in the regulations, as they apply to references in this Part; and

(b) any provisions of Part 10.2 (transitional provisions) that relates to provisions of this Part.