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14-300MR ASIC acts on trading in listed fund units
ASIC has accepted an enforceable undertaking (EU) from Aurora Funds Management Ltd (Aurora), the responsible entity (RE) of a number of ASX-listed managed investment schemes. This follows an ASIC surveillance which identified a number of failings in Aurora's practice of making on-market acquisitions and disposals of units in those schemes.
ASIC's surveillance of Aurora was part of a wider surveillance of the hedge fund sector conducted by ASIC.
ASIC identified numerous instances of Aurora acquiring units on market between 2007 and 2013 in four Aurora-badged managed investment schemes. Between 2007 and 2013 there were more than 3,000 such trades. At all times Aurora was subject to:
- disclosure requirements for 'substantial holdings' in listed schemes (where shareholdings exceed 5%), and
- the prohibition against the acquisition of more than 20% of the voting power in a listed scheme.
ASIC is concerned that Aurora did not comply with multiple 'substantial holdings' disclosure obligations and, in 2013, it breached the 20% prohibition in respect of one of its listed funds.
In 2007, we issued ASIC Class Order [CO 07/422] On-market buy-backs by ASX-limited schemes to regulate on-market buy-backs by REs of units in their listed schemes. [CO 07/422] was limited to schemes with a single class of units and imposed a number of conditions, including full disclosure and immediate cancellation of bought-back units.
As Aurora issued a single partly-paid preference unit in each of the listed schemes, [CO 07/422] did not apply to it. The ASX Listing Rules also require REs of listed funds to consult with the ASX before commencing a buy-back of units in those funds. Aurora's funds' constitutions required it to comply with those rules.
In the EU provided to ASIC, Aurora has agreed:
- to cancel or redeem all relevant units (and provide evidence of this to ASIC)
- to ensure that its listed schemes have no more than one class of unit and therefore have to comply with [CO 07/422]
- that in future, it will only acquire or dispose of units in accordance with [CO 07/422], and
- to provide such information or documents as ASIC requires to assess Aurora's ongoing compliance with this EU.
Commissioner Greg Tanzer said, 'ASIC established a regime in [CO 07/422] to facilitate on-market buy-backs of units in listed funds by their REs. This regime is intended to protect members' interests and provide greater liquidity while facilitating an informed market. If Aurora had followed the class order regime, these issues are unlikely to have arisen.
'ASIC expects responsible entities to scrupulously comply with their funds' constitutions and their obligations under the Corporations Act 2001 (Corporations Act) more generally. In particular, buy-backs of units in listed funds which are not immediately cancelled will give rise to relevant interests and engage specific obligations in the Corporations Act. ASIC takes very seriously any prejudice to the fair and efficient operation of the markets and will act to ensure that responsible entities comply with those obligations.'
ASIC acknowledges Aurora's co-operation with ASIC's enquiries.