Securities
FSR has changed how virtually everyone who participates in the securities industry is regulated in their day to day business.
Updated as at 11 March 2004.
FSR has changed how offers of many types of securities are regulated.
The offer of securities (which has a more limited definition under FSR) is largely governed by the same disclosure document regime in Chapter 6D as existed before FSR started, subject to some minor alterations. All other financial products are governed by the Product Disclosure Statement (PDS) regime introduced by FSR, although there are several slight variations in the requirements for some products such as managed investment products.
The PDS regime largely applies only in relation to dealings with retail clients, although a financial services provider may choose to comply with the PDS regime in relation to dealings with all clients.
What does FSR mean for the securities industry?
FSR affects all those involved in issuing or advising on securities.
In relation to many product offerings, including shares and corporate debentures, while the actual content requirements have not been changed markedly by FSR, the underlying legal analysis of how the products are regulated was changed significantly by FSR.
The most significant change from the pre-FSR system has been that the anti-avoidance provision with respect to on-sales set out in section 707(3) was amended by FSR to reduce the ease with which placements could be effected. However, the operation of this provision in many cases was later modified by an ASIC class order [CO 02/1180] (which took effect from 13 December 2002), meaning that certain product offerings now are not subject to the full product disclosure regime. The class order may apply where an issuer discloses to the ASX information previously withheld under an exception to ASX Listing Rule 3.1 or confirms that it has no such information (disclosure based relief), or where securities are issued under an employee share scheme or share purchase plan (exemptive relief). Proposed amendments under CLERP 9 will, in effect, incorporate the disclosure based relief into the Corporations Act.
FSR also introduced a new definition of "security" which applies for the purposes of regulating the provision of financial services. This definition includes shares and debentures in bodies corporate, but does not include government bonds, interests in registered managed investment schemes or options, other than options over unissued securities. This definition of security applies to the disclosure document regime in Chapter 6D and to Chapter 7, but does not apply for the purposes of Chapters 6 to 6C inclusive, so that the takeover provisions still apply to managed investment schemes and options over securities. Accordingly, as a result of FSR, managed investment scheme offers now must be made under a PDS (rather than a prospectus).
The term "futures contract" was replaced as a result of FSR by the term "derivative". Under FSR, derivatives include options over securities and derivatives, options over tangible property and any other option prescribed by the regulations. Derivatives also include fx (other than spot), equity derivatives and commodity derivatives. However, paramountcy provisions provide that where a derivative is also another type of financial product, it is not a derivative. Options over unissued shares are therefore treated only as securities.
FSR Regulations have also amended the operation of the Corporations Act so that the offer of instalment warrants over securities are not regulated as an offer of securities under Chapter 6D but, like other warrants, as the offer of a financial product under Part 7.9. Class Order relief has also been given by ASIC so that instalment warrants over managed investment products are regulated like other instalment warrants and to provide secondary sales relief.
Based on our experience so far, in addition to compliance issues generally we think the following areas in particular will continue to need attention:
- product development – when structuring new products, how will they be characterised under FSR? Is there a financial product? Is there more than one?
- secondary sales – how CLERP 9 proposes to address this.
Also, especially for international groups, there will continue to be questions about when an entity needs to be licensed under FSR.
Who should I contact at Allens?
 |
|
 |
|
 |
|
 |
|
 |
|
 |
|
