Client Update: ASIC changes to share purchase plan regulation
16 March 2010
In brief: The Australian Securities and Investments Commission has expanded custodian entities' ability to apply for shares under a share purchase plan on behalf of their beneficiaries, ensuring that all shareholders who hold through a custodial structure are treated equally. Partner Robert Pick (view CV) and Senior Associate Charlie Harrison report.
The Australian Securities and Investments Commission (ASIC) has expanded the ability of custodian entities to apply for shares under a share purchase plan (SPP) on behalf of their beneficiaries. The changes, released on 15 March, enable participation in SPPs by retail investors holding their securities through multiple-level custodian structures, such as investor-directed portfolio services1 (IDPS) and superannuation master trusts.
Under Class Order 09/425 (previously Class Order 02/831), released last year, a company listed on the ASX can offer up to (but no more than) $15,000 worth of shares to each registered holder of shares in the company in any consecutive 12-month period, without a disclosure document being required.
Where the registered holder is a custodian that holds securities for multiple underlying beneficiaries, the Class Order allows the custodian to apply for more than $15,000 worth of securities under an SPP, provided that the custodian meets certain conditions, including the issue of a certification to the issuer that the custodian has applied for no more than $15,000 worth of securities for each beneficiary in the relevant 12-month period (excluding shares applied for but not issued).
However, the notes contained in the superseded version of ASIC Regulatory Guide 125 (June 2009) stated that this only applied where the custodian (the 'first-level custodian') held the legal title to shares on behalf of a 'first-level client' of the custodian. A 'second-level custodian' (ie a custodian that is a client of the first-level custodian, such as an IDPS operator) could not previously accept SPP offers for each of their beneficiaries.
This position affected any custodian structure other than the simple model where a custodian directly holds the shares on the behalf of a beneficiary without any intermediary entities. Entities with other structures, where there is a chain of custodial entities (as is the case with IDPS and superannuation master trusts), were precluded from applying for the full entitlement of shares for each beneficiary for whom they held shares.
Regulatory Guide 125 has been reissued with the above-mentioned note deleted, and now provides that a beneficiary can be:
- a client of a custodian (including if it is a 'downstream beneficiary' with interposed custodial entities);
- a member of an IDPS-like scheme;
- a member of a self-managed superannuation fund; or
- a member of a superannuation master trust.
The terms 'IDPS-like scheme', 'self-managed superannuation fund' and 'superannuation master trust' are all defined in the revised Class Order 09/425, which implements the changes.
Changes have also been made to this Class Order to clarify that investors (including custodians) who pay for their (and/or their beneficiaries') shares via an electronic payment facility that is referred to in the written offer document can make the required certifications regarding their total beneficial holding via this electronic facility.
The changes are a welcome response by ASIC to the confusion created by Class Order 09/425, and ensure that all shareholders who hold shares through a custodial structure are treated equally.
- An IDPS is defined by ASIC in Regulatory Guide 125, 'a service for acquiring and holding investments that generally involves custody arrangements and consolidated reporting to investors, typically marketed as a master fund or wrap account'.
- Robert PickPartner,
Ph: +61 3 9613 8721
- Steve CliffordPartner,
Ph: +61 3 9613 8997
- Alex DingPartner,
Ph: +61 2 9230 4017
- Andrew KnoxPartner,
Ph: +61 7 3334 3356
- Andrew PascoePartner,
Ph: +61 8 9488 3741