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Commonwealth Inscribed Stock Amendment Bill 2002

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1998-1999-2000-2001-2002

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

 

COMMONWEALTH INSCRIBED STOCK AMENDMENT BILL 2002

EXPLANATORY MEMORANDUM

(Circulated by authority of the Treasurer,

the Hon Peter Costello, MP)

 

46527



Table of Contents

 

Contents                                                                                                                                         Page

1.       Outline and financial impact statement...................................................................................... 1

2.       Abbreviations.............................................................................................................................. 2

3.       Summary of key amendments proposed by the Bill................................................................... 3

4.       Formal clauses............................................................................................................................. 4

5.       Amendments to the Commonwealth Inscribed Stock Act......................................................... 5

 



 

1

Outline

1.1   The Commonwealth Inscribed Stock Amendment Bill (the Bill) will amend the Commonwealth Inscribed Stock Act 1911 (the CIS Act) to provide for the issue and transfer of Commonwealth Government Securities (CGS) by electronic means.  This Explanatory Memorandum will use the term ‘CGS’, although the term generally used in both the CIS Act and the Bill is ‘stock’.

1.2   The Bill will provide for regulations to be made under the CIS Act providing for the transfer of legal or equitable interests in CGS in accordance with the provisions of the CIS Act, or by applying provisions of the Corporations Act 2001 (the Corporations Act), with or without modifications, to the transfer of interests in CGS under the CIS Act.

1.3   The Bill will clarify that clearing and settlement facilities regulated under the Corporations Act will be able to be appointed as Registrars of CGS under the CIS Act.

1.4   The Bill will provide that where the operator of a clearing and settlement facility is a Registrar, the operating rules of the facility may govern the transfer of CGS.

1.5   The Bill may provide for regulations to be made under the CIS Act requiring a clearing and settlement facility acting as a Registrar to keep a record of ownership of equitable interests in CGS.

1.6   The Bill will provide for a Registrar, including a clearing and settlement facility, to be protected from notice of trusts in its capacity as Registrar.

1.7   The Bill will enable the Commonwealth to create equitable interests in CGS.  The Bill will also empower the Commonwealth to issue CGS to a person, including to a clearing and settlement facility, on trust for other persons, including where the clearing and settlement facility was acting in the capacity as a Registrar of CGS under the CIS Act.  The Bill will enable the Treasurer to enter into contracts or arrangements or execute deeds of trust for this purpose. 

1.8   The Bill will not preclude the Reserve Bank (RBA) from continuing to have a role as a Registrar in providing for the electronic recording and transfer of the ownership of CGS, in addition to its role in the recording of transfers of ownership of CGS in paper form.

Financial Impact Statement

1.9     There may be some establishment costs associated with providing for an interface between registries conducted by the Reserve Bank and non-government clearing and settlement facilities. 

Regulation Impact Statement

1.10   A Regulatory Impact Statement is not required to be prepared for this Bill.



 

2

Abbreviations

2.1     The following abbreviations are used in this Explanatory Memorandum:

*CGS                                     Commonwealth Government Securities

CIS Act                                  Commonwealth Inscribed Stock Act 1911

Corporations Act                    Corporations Act 2001

FSR Act                                 Financial Services Reform Act 2001

RBA                                       Reserve Bank of Australia

RITS                                        Reserve Bank Information and Transfer System

SCH                                       Securities Clearing House

The Bill                                   Commonwealth Inscribed Stock Amendment Bill

*CGS                                     CGS are debt instruments issued by the Commonwealth Government. CGS include:

                                               Treasury Bonds, namely Treasury Fixed Coupon Bonds and Treasury Indexed Bonds.  These are of various maturities and are issued to the market by way of competitive tender; and

                                               Treasury Notes.  These are short-term discount securities issued by competitive tender.  Institutions wishing to participate in the tenders must be registered with the RBA, or use registered bidders as agents.

 



 

3

Summary of key amendments proposed by the Bill

3.1     The intention of the Bill is to provide a legal framework for the electronic transfer of CGS that is as flexible as possible and that allows the market to operate efficiently and to innovate.  To this end, it is proposed that the CIS Act be amended to provide for:

·          the issue of CGS by electronic means;

·          the Commonwealth to be able to create equitable interests in CGS under the Act;

·          the transfer by electronic means of legal or equitable interests in CGS in accordance with regulations made under the CIS Act, that may apply a provision of the Corporations Act;

·          the recognition under the CIS Act that non-government clearing and settlement facilities regulated under the Corporations Act may be appointed as Registrars under the CIS Act in addition to, or instead of, the RBA; and

·          the operating rules of a clearing and settlement facility appointed as a Registrar to apply to the transfer of CGS.

 



 

4

Formal Clauses

Clause 1 — Short title

4.1     Upon enactment, the Bill will be known as the Commonwealth Inscribed Stock Amendment Act 2002 .

Clause 2 — Commencement

4.2           The covering clauses (Clauses 1, 2 and 3) will commence on Royal Assent (subclause 2(1)).

4.3     However, the operative provisions of the Act (namely, Schedule 1) will commence on Proclamation (subclause 2(2)).  If Schedule 1 is not proclaimed to commence within 6 months of receiving Royal Assent, it will automatically commence on the day after that 6 month period ends (subclause 2(3)). 

Clause 3 — Schedule(s )

4.4     The Commonwealth Inscribed Stock Act is to be amended as set out in Schedule 1 to the Bill.

 



 

5

Amendments to the Commonwealth Inscribed Stock Act

5.1     This Explanatory Memorandum addresses the more significant amendments in Schedule 1 individually, while noting the general approach taken in relation to other amendments of a minor or consequential nature.

Item 1 — New definition of certified copy in section 3

5.2     The definition of ‘certified copy’ in the Bill will replace the current definition in section 3 of the Act and provide a broader definition to include an entry in a Stock Ledger or other document that relates to CGS in the custody of a Registrar. 

Item 2 — Meaning of clearing and settlement facility

5.3     The Bill inserts a new term ‘clearing and settlement facility’ in section 3 of the Act.  The term is given a broad meaning that encompasses a clearing house approved under the Corporations Act in its present form, and also a clearing and settlement facility within the meaning of the Corporations Act, as amended by the Financial Services Reform Act 2001 (FSR Act) (see also Item 6).

Item 3 — New definition of Registrar in section 3

5.4     The Bill inserts a new definition of ‘Registrar’ in section 3 of the Act to make clear that there may be more than one Registrar or Deputy Registrar of Stock.

Item 4 — New definition of stock in section 3

5.5     The Bill inserts a new definition of ‘stock’ in section 3 of the Act to clarify that the term ‘stock’ includes Treasury Bonds and Treasury Notes created under section 4 and issued in the form of inscribed stock.  Treasury Bonds have not been able to be issued under the Act in the form of bearer securities since July 1984.

Item 5 — New definition of Treasury Bond

5.6     The Bill inserts a new definition of ‘Treasury Bond’ to include a reference to the kinds of Treasury Bonds currently on issue.

Item 6 — Insertion of application provision at end of section 3

5.7     The term ‘clearing and settlement facility’ is a new term to be introduced into the Corporations Act by the FSR Act.  Item 6 is to ensure that the amendments made by the Bill can take effect prior to the commencement of the FSR Act.  In that case, a reference to a ‘clearing and settlement facility’ in the Bill will include the operator of a futures clearing house currently approved, or that could be approved, under section 1131 of the Corporations Act in its present form, and also the Securities Clearing House (SCH) approved under section 779B of that Act.

5.8     A reference in the Bill to the operating rules of a clearing and settlement facility will also include a reference to the business rules of a clearing house.

Item 7 — Subsection 4(1) Repealed and replaced

5.9     The Bill will replace subsection 4(1) of the Act with a new subsection (1) to reflect the broader meaning and scope of the term ‘stock’.

Item 8 — New provision at end of section 7

5.10   The Bill will expand section 7 of the Act to enable CGS to be issued by electronic means.

5.11   In addition, proposed subsection 7(2) will remove doubt that the Commonwealth can create equitable interests in relation to CGS.  The Bill will enable the Commonwealth to issue CGS on trust to persons including clearing and settlement facilities, including where a clearing and settlement facility is acting in the capacity as a Registrar of CGS under the CIS Act.  The Bill will enable the Treasurer to enter into contracts or arrangements or execute deeds of trust for this purpose.

Item 9 — Repeal of section 12 (Loan Fund)

5.12   The Bill will repeal section 12 of the Act, as the Loan Fund no longer exists.

Item 10 — Paragraph 14(b)

5.13   The Bill will repeal paragraph (b) of section 14 of the Bill, as the reference to establishing a Registry of Stock in London is now dated.

Item 11 — Removal of sexist language

5.14   The Bill will remove sexist language from section 14.

Item 12 — New provisions at end of section 14 (Appointment as a Registrar)

5.15   The Bill will make it clear that the Treasurer may, under section 14, appoint any person to be a Registrar under the Act, including a clearing and settlement facility regulated under the Corporations Act.

Item 13 — Section 15 (Stock Ledger to record legal interests in CGS)

5.16   The Bill will provide for legal interests only in CGS to be recorded in a Stock Ledger.

Item 14 — New subsection 15(2) (Stock Ledger in electronic form)

5.17   The Bill will provide that a Stock Ledger may be kept in electronic form.  A Stock Ledger will still be able to be kept in paper form under the Act.

Item 15 — Sections 17 and 18 Repealed and replaced

5.18   By replacing existing section 17 (Stock certificates) and existing section 18 (Owner of stock), the Bill clarifies that certificates of stock only relate to legal interests in CGS and that the person whose name is inscribed as the owner of CGS in a Stock Ledger is the owner of the legal interest in the CGS.

Item 16 — Section 19 (Consequential amendment)

5.19   The amendment is made consequent upon the amendment to subsection 19(2).

Item 17 — Subsection 19(2) (Protection of Registrar in relation to trusts)

5.20   The Bill will amend subsection 19(2) to provide that the Registrar is only protected from notice of trusts in the capacity as Registrar.  The purpose of this amendment is so that Registrars who hold legal title to CGS on their own register (Stock Ledger) are only protected by subsection 19(2) in their capacity as Registrars, and not as legal owner of the CGS.  This arises from proposed new subsection 7(4) that provides that CGS may be issued to a Registrar (see also Item 8).

Item 18 — Sections 20 and 21 Repealed and replaced

5.21   Proposed new section 20 refers specifically to legal interests in CGS as well as to equitable interests.

5.22   Proposed new section 21 provides that in future CGS may not be held by persons under 16 years of age, jointly with another person under 16 years of age, or otherwise.

Item 19 — Subsection 24(1) Repealed and replaced

5.23   In addition to providing for regulations to be made under the Act to provide for the transfer of legal or equitable interests in CGS by electronic means (or otherwise) under the Act, the Bill will provide for regulations to be made under the Act that could provide for the transfer of legal or equitable interests in CGS by applying the provisions of the Corporations Act 2001 , with or without modifications.

Item 20 — New section 24A (Transfer of certain interests in stock)

5.24   In addition to providing that transfers of legal and any equitable interests in CGS will be able to be transferred in accordance with regulations made under the Act, the Bill will provide that where a clearing and settlement facility is appointed as a Registrar under the CIS Act, legal and equitable interests in CGS inscribed in a Stock Ledger kept by the facility could be transferred pursuant to the operating rules of the facility in accordance with the Corporations Act.  This could include electronic transfers.

5.25   The Bill will empower the Treasurer to declare that particular operating rules of a clearing and settlement facility will not apply with respect to the transfer of legal or equitable interests in CGS.

New section 24B (Record of equitable interests in CGS)

5.26   The Bill will provide that regulations made under the Act may be made to require a Registrar to keep a record of ownership of equitable interests (that may be kept in electronic form).

New section 24C (Inscription in Stock Ledger of names of transferees of legal interests in stock)

5.27   The Bill will provide for regulations to be made making provision for the inscription in a Stock Ledger of legal interests in CGS, including in electronic form. 

Item 21 — Section 28 Repealed and replaced

5.28   Proposed new section 28 makes specific reference to the transmission of the legal interest in CGS.

Item 22 — Removal of sexist language

5.29   The Bill will remove sexist language from subsection 29(2).

Item 23 — Section 30 Repealed and replaced

5.30   Proposed new section 30 makes specific reference to the transmission of the legal interest in CGS.

Items 24 to 29

5.31   The Bill makes a number of minor amendments to the Act in these items consequent upon the proposed insertion of specific references to legal interests in various provisions of the Act and the provision for the appointment of more than one Registrar of Stock.  Minor amendments also provide for the replacement of outdated forms of expression.  The Bill will also provide for the Governor-General to delegate to the Treasurer his or her powers under section 4 of the Act to create CGS.

Item 30 — Section 52A(1)

5.32   The Bill will insert a reference to Treasury Notes in subsection 52A(1).

Item 31 — New Section 52A (Stamp duty)

5.33   The Bill will provide that stamp duty will not be payable on the transfer by electronic means of any interests in CGS.  This is in line with the existing practice for stamp duty not to be payable on transfers of CGS effected by current means, including by electronic means in the RBA’s RITS System.

Item 32 — Section 54 Repealed and replaced

5.34   The Bill will provide that a record of unclaimed interest kept by a Registrar in relation to legal interests in CGS may be kept by electronic means.