Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2010-2011-2012
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
COMMONWEALTH GOVERNMENT SECURITIES LEGISLATION
AMENDMENT (RETAIL TRADING) BILL 2012
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments to be moved on Behalf of the Government
(Circulated by the authority of the
Assistant Treasurer, the Hon David Bradbury MP)
Table of contents
Glossary .................................................................................................. v
General outline and financial impact ....................................................... 1
Chapter 1 Explanation of Amendments .......................................... 3
Chapter 2 Statement of Compatibility with Human Rights .............. 7
iii
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
AOFM Australian Office of Financial Management
ASX Australian Securities Exchange
Bill Commonwealth Government Securities
Legislation Amendment (Retail Trading)
Bill 2012
Amending Bill The amendments being moved by the
Government to the Bill.
CGS Commonwealth Government Securities
CIS Act Commonwealth Inscribed Stock Act 1911
Corporations Act Corporations Act 2001
DI Depository interest
DN Depository nominee
Williams case Ronald Williams v The Commonwealth of
Australia & Ors [2012] HCA 23
v
General outline and financial impact
Outline
On 27 June 2012, the Assistant Treasurer, the Hon David Bradbury MP
introduced the Commonwealth Government Securities Legislation
Amendment (Retail Trading) Bill 2012 into Parliament.
The Commonwealth Government Securities Legislation Amendment
(Retail Trading) Bill 2012 (the Bill) amends the Commonwealth Inscribed
Stock Act 1911 (the CIS Act) to facilitate trading of beneficial interests in
Commonwealth Government Securities (CGS) on financial markets in
Australia that are accessible to retail investors. The Bill also contains
amendments to the Corporations Act 2001 (the Corporations Act)
requiring financial advisers to provide a prescribed information statement
to retail clients when they give them personal advice about investing in
CGS. Finally, a number of minor amendments are made to the CIS Act to
facilitate the Australian Office of Financial Management's (AOFM) daily
administrative work and to remove some redundant provisions.
The Amending Bill inserts a provision in the Bill (and therefore in the CIS
Act) authorising the Treasurer to enter into arrangements necessary for the
issue, trading and management of CGS, including depository interests
(DIs) in CGS. This provision addresses the issues raised by the decision
of the High Court in Ronald Williams v the Commonwealth of Australia &
Ors [2012] HCA 23 (the Williams case).
The Amending Bill also corrects an error in the proposed definition in the
Bill of a `depository nominee' to ensure that an entity will not fall outside
of the definition merely as a result of retaining a residual beneficial
interest in CGS subsequent to issuing DIs in relation to those CGS.
Date of effect: The amendments will take effect on the day after the Act
receives the Royal Assent.
Proposal announced: The reforms effected by the Bill were announced
in a media release titled `A competitive and sustainable banking system'
by the Deputy Prime Minister and Treasurer dated 12 December 2010 and
included in the 2011-12 Budget.
1
Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill
Financial impact: The Amending Bill has no financial impact. Total
funding of $11.2 million for implementing the whole measure was
provided to the AOFM in the 2011-12 Budget and the costs have been
included in the forward estimates as follows:
2010-11 2011-12 2012-13 2013-14 2014-15
nil $0.9 million $3.5 million $3.4 million $3.4 million
Human rights implications: The Amending Bill does not raise any
human rights issues. See Statement of Compatibility with Human Rights
-- Chapter 2.
Compliance cost impact: The Bill has a minor compliance cost impact on
financial advisers due to the requirement to provide the prescribed
information statement for retail CGS when giving personal advice. The
Amending Bill is considered to have no impact on business or the
not-for-profit sector.
Summary of regulation impact statement
Regulation impact on business
Impact: The Office of Best Practice Regulation has confirmed that the
Amending Bill does not require a regulation impact statement because it
only has a minor impact on business (Office of Best Practice Regulation
reference ID 13950).
2
Chapter 1
Explanation of Amendments
Outline of chapter
1.1 The Bill amends the CIS Act to facilitate the trading of
beneficial interests in CGS on financial markets in Australia that are
accessible to retail investors.
1.2 The Amending Bill corrects an error in the proposed definition
of `depository nominee' in the Bill. It also inserts a provision authorising
the Treasurer to enter into arrangements necessary for the issue, trading
and management of CGS, including CGS DIs. This provision addresses
issues raised by the decision of the High Court in the Williams case.
Context of amendments
Definition of `depository nominee'
1.3 It is intended that beneficial interests in CGS will be traded and
settled by retail investors in a manner that is different from the practices in
the wholesale market. In particular, CGS traded in the wholesale market
are currently registered and settled through the Austraclear System, which
is the Australian Securities Exchange's (ASX) clearing and settlement
facility for debt securities traded in the over-the-counter market and on
professional financial markets. The Austraclear System is not equipped to
deal with retail investors, and it is therefore necessary to use a different
system for the settlement of trading by retail investors.
1.4 Following consultation with potential market operators, the
Government has decided to consider proposals based on an `indirect' or
`beneficial ownership' type of trading model. Beneficial ownership
models are already in place for trading CGS on wholesale markets, and
are used on retail financial markets for financial products that cannot be
directly traded on a financial market. Examples are bearer securities,
securities held in another settlement and depository system or
foreign-listed shares.
1.5 Under this model, retail investors will not acquire the legal
ownership of the CGS. Instead, a new financial product called a
Depository Interest (DI) will be created which is linked to the CGS.
Ownership of DIs will provide retail investors with beneficial ownership
3
Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill
of the underlying CGS which will provide them with the right to receive
periodic interest and principal payments due on the underlying CGS. DIs
will be governed by the financial market operator operating rules and not
the CIS Act.
1.6 Legal ownership of the underlying CGS will remain with the
wholesale securities depository. In a second step, DIs will be created by a
depository nominee (see below) and issued over some of the underlying
CGS. The DIs will be able to be traded by retail investors on a financial
market in a manner similar to shares, with the trades settled through
clearance and settlement facilities. There will be a Registry showing
ownership of DIs which will be updated whenever a transfer of DIs
occurs.
1.7 The DIs will be issued by a legal entity known as a depository
nominee (DN). The DN is a nominee company with the function of
issuing the DIs to the beneficial owners, that is, the retail investors.
1.8 Item 3 in Schedule 1 of the Bill inserts a new definition of
`depository nominee' into subsection 3(1) of the CIS Act. The Amending
Bill seeks to correct an error in this definition.
1.9 As originally contained in the Bill, the definition of `depository
nominee' limits the DN to an entity that either:
· is the holder of the legal title to CGS and had transferred the entirety
of the beneficial interest to the DI holders; or
· was the holder of a beneficial interest in CGS (with a third party
holding the legal title), but had issued the entirety of that beneficial
interest to the DI holders.
1.10 This does not account for circumstances where an entity
transfers most but not all of its beneficial interest to DI holders. In such
circumstances a DN retaining certain residual beneficial interests in CGS,
for example to assert payment of coupon and interest amounts on behalf
of the DI holders, would fall outside the definition. The Amending Bill
expands the definition of `depository nominee' in the Bill to account for
circumstances where a DN retains residual beneficial interests in CGS.
Williams case and consequences
1.11 In the Williams case a majority of the High Court held that
legislative authority is necessary for certain spending. The authority
previously sought in the Bill extends mainly to the making of payments in
relation to CGS DIs. It has become clear that in order to commence retail
4
Explanation of Amendments
CGS trading, the Commonwealth will have to enter into a range of
arrangements with the ASX, registry operators and other parties.
1.12 The Amending Bill ensures that expenditure in connection with
arrangements entered into by the Commonwealth in relation to the issue,
trading and management of CGS, including CGS DIs, is legislatively
authorised.
Detailed explanation of new law
Commonwealth Government Securities Legislation Amendment (Retail
Trading) Bill 2012
1.13 The definition of `depository nominee' in Item 3 of the Bill is
amended to include persons who retain a beneficial interest in CGS in
which they have issued other beneficial interests. This allows a DN to
issue beneficial interests in CGS in the form of DIs to retail investors,
while still retaining certain residual beneficial interests in the same CGS.
[Item 1]
1.14 The Treasurer acting on behalf of the Commonwealth is given
the authority to enter into arrangements that relate to a range of matters,
including the issue, management or transfer of CGS and CGS DIs, trading
of CGS and CGS DIs on financial markets, and a number of necessary
support services such as registry or clearing and settlement services.
[Item 2]
1.15 It is desirable as a practical matter that the Treasurer should be
able to delegate this authority to officials in the Department to facilitate
the day-to-day handling of the work arising in relation to these
arrangements.
1.16 Section 51JA in the CIS Act, as amended by the Bill, allows the
Treasurer to delegate certain powers as specifically listed to designated
classes of persons within the Department. The power to enter into the
arrangements described in paragraph 1.14 is inserted into the list of
powers the Treasurer can delegate under amended section 51JA. [Item 3]
5
Chapter 2
Statement of Compatibility with Human
Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Commonwealth Government Securities Legislation Amendment (Retail
Trading) Bill 2012
2.1 The Bill and the Amending Bill are compatible with the human
rights and freedoms recognised or declared in the international
instruments listed in section 3 of the Human Rights (Parliamentary
Scrutiny) Act 2011.
Overview
2.2 The Commonwealth Government Securities Legislation
Amendment (Retail Trading) Bill 2012 (the Bill) amends the
Commonwealth Inscribed Stock Act 1911 (the CIS Act) to facilitate
trading of beneficial interests in Commonwealth Government Securities
(CGS) on financial markets in Australia that are accessible to financial
investors. The Bill also contains amendments to the Corporations
Act 2001 requiring financial advisers to provide a prescribed information
statement to retail clients when they give them personal advice about
investing in CGS. Finally, a number of minor amendments are made to
the CIS Act to facilitate the Australian Office of Financial Management's
daily administrative work and to remove some redundant provisions.
2.3 The Amending Bill inserts a provision in the Bill (and therefore
in the CIS Act) authorising the Treasurer to enter into arrangements
necessary for the issue, trading and management of CGS. This provision
addresses the issues raised by the decision of the High Court in the
Williams case. The Amending Bill also corrects an error in the definition
of `depository nominee' in the Bill to ensure that an entity will not fall
outside the definition merely due to retaining some residual beneficial
interest subsequent to issuing DIs in relation to CGS.
7
Commonwealth Government Securities Legislation Amendment (Retail Trading) Bill
Human rights implications
2.4 The Bill may raise human rights issues because it contains a
number of offences where the evidentiary burden is reversed. However,
to the extent that it may limit those rights, those limitations are reasonable,
necessary and proportionate. The Amending Bill does not affect these
provisions.
Conclusion
2.5 The Amending Bill is compatible with human rights as it does
not affect any provisions in the Bill that may affect human rights.
8
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