No action position for trading during deferred settlement periods

To clarify any uncertainty in the market, we have adopted a limited no-action position for arguable breaches of section 1020B(2) of the Corporations Act for trading in products, that are yet to be issued, during deferred settlement periods.

The no-action position applies to the sale of unissued section 1020B products during a deferred settlement period, including the on-sale of those products.

Various corporate actions can result in the issue of products, including securities, by way of a disclosure document or PDS, via a compromise or arrangement under Part 5.1 of the Corporations Act, a rights issue, a dividend or distribution reinvestment plan, or a bonus issue.

These products may already be trading on an exchange – or commence trading for the first time – before the actual issue date.

Under section 1020B a person can only sell these products if they have a 'presently exercisable and unconditional right' to vest them in the buyer at the time of the sale. Where the sale occurs before the products have been issued, this could be in breach of section 1020B(2).

This no-action position is subject to the seller only selling unissued products if they – or the person selling on their behalf – believe on reasonable grounds that they have an unconditional entitlement to the products. It does not apply where the market operator has declared a ‘conditional market’ for trading in the products. In those circumstances, the seller will need to consider whether individual relief is required.

The no-action position applies until withdrawn and includes the sale of products that have already taken place.

We have decided to adopt this position while we consider whether a legislative instrument should be granted. We expect to consult on the terms of a legislative instrument in early 2018.

Our approach to this no-action position is generally consistent with Regulatory Guide 108 No-action letters, see in particular RG 108.12–19.

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Last updated: 12/12/2017 09:37