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Corporations Bill 2001

Part 7.4 Conduct of securities business

Division 1 Regulation of certain activities

841   Certain representations prohibited

             (1)  A person who is the holder of a licence must not represent or imply, or knowingly permit to be represented or implied, in any way to a person that the abilities or qualifications of the holder of the licence have in any respect been approved by ASIC.

             (2)  A statement that a person is the holder of a licence is not a contravention of this section.

842   Issue of contract notes

             (1)  This section applies:

                     (a)  in relation to a dealer (other than an exempt dealer) in relation to a transaction of sale or purchase of securities; or

                     (b)  in relation to an exempt dealer, in relation to a transaction of sale or purchase of securities that is entered into in the course of a securities business that the exempt dealer carries on in the capacity of personal representative of a dead dealer.

             (2)  A dealer must, in respect of a transaction of sale or purchase of securities, immediately give a contract note that complies with subsection (3) to:

                     (a)  where the transaction took place in the ordinary course of business on a stock market and the dealer entered into the transaction otherwise than as principal—the person for whom the dealer entered into the transaction; and

                     (b)  where the transaction did not take place in the ordinary course of business on a stock market and the dealer entered into the transaction otherwise than as principal—the person for whom the dealer entered into the transaction and the person with whom the dealer entered into the transaction; and

                     (c)  where the transaction did not take place in the ordinary course of business on a stock market and the dealer entered into the transaction as principal—the person with whom the dealer entered into the transaction.

             (3)  A contract note given by a dealer under subsection (2) must specify:

                     (a)  the name or style under which the dealer carries on business as a dealer and the address of the principal place at which the dealer so carries on business; and

                     (b)  each securities exchange (if any) of which the dealer is a member; and

                     (c)  if the dealer is dealing as principal with a person who is not the holder of a dealers licence—that the dealer is so dealing; and

                     (d)  the name of the person to whom the dealer gives the contract note; and

                     (e)  the day on which the transaction took place and, if the transaction did not take place in the ordinary course of business on a stock market, a statement to that effect; and

                      (f)  the number, or amount and description, of the securities that are the subject of the contract; and

                     (g)  the price per unit of the securities; and

                     (h)  the amount of the consideration; and

                      (j)  the amount of commission charged; and

                     (k)  the amounts of all stamp duties or other duties and taxes payable in connection with the contract; and

                    (m)  if an amount is to be added to, or deducted from, the settlement amount in respect of the right to a benefit bought or sold together with the securities—the first-mentioned amount and the nature of the benefit.

             (4)  A dealer must not include in a contract note given under subsection (2), as the name of the person with or for whom the dealer has entered into the transaction, a name that the dealer knows, or could reasonably be expected to know, is not the name by which that person is ordinarily known.

             (5)  A reference in this section to a dealer dealing, or entering into a transaction, as principal includes a reference to a person:

                     (a)  dealing or entering into a transaction on behalf of an associate of the dealer; or

                     (b)  dealing in securities on behalf of a body corporate in which the dealer has a controlling interest; or

                     (c)  where the dealer carries on business as a dealer in partnership—dealing in securities on behalf of a body corporate in which the dealer’s interest and the interests of the dealer’s partners together constitute a controlling interest.

             (6)  For the purposes of this section:

                     (a)  a dealer who is a member of a securities exchange is not taken to have entered into a transaction as principal merely because the transaction was entered into with another dealer who is a member of a securities exchange; and

                     (b)  a transaction takes place in the ordinary course of business on a stock market if it takes place in prescribed circumstances or is a transaction that is a prescribed transaction for the purposes of this section.

             (7)  Despite Division 2 of Part 1.2, a person is not an associate of another person for the purposes of this section merely because the first-mentioned person is:

                     (a)  a partner of the other person otherwise than because the first-mentioned person carries on a business of dealing in securities in partnership with the other person; or

                     (b)  a director of a body corporate of which the other person is also a director, whether or not the body corporate carries on a business of dealing in securities.

843   Dealings and transactions on a dealer’s own account

             (2)  Subject to subsection (5), a dealer must not, on the dealer’s own account, deal in securities with a non-dealer without first informing the non-dealer that the dealer is acting in the transaction as principal and not as agent.

             (3)  A dealer who, on the dealer’s own account, enters into a transaction of sale or purchase of securities with a non-dealer must state in the contract note that the dealer is acting in the transaction as principal and not as agent.

             (4)  Subject to subsections (5) and (6), a dealer who, on the dealer’s own account (otherwise than merely because the dealer enters into a transaction on behalf of an associate of the dealer), enters into a transaction of sale or purchase of securities with a non-dealer must not charge the non-dealer brokerage, commission or any other fee in respect of the transaction.

             (5)  Subsections (2) and (4) do not apply in relation to a transaction of sale or purchase of an odd lot of securities that is entered into by a dealer who is a member of a securities exchange and specialises in transactions relating to odd lots of securities.

             (7)  Where a dealer contravenes subsection (2), (3) or (4) in relation to a contract, then:

                     (a)  if the contract is for the sale of securities by the dealer to a person—the person may, if the person has not disposed of them; or

                     (b)  if the contract is for the purchase of securities by the dealer from a person—the person may;

rescind the contract by written notice given to the dealer within 14 days after the person receives the contract note.

             (8)  Nothing in subsection (7) affects any right that a person has apart from that subsection.

844   Dealer to give priority to clients’ orders

             (2)  A dealer must not, except as permitted by subsection (3), enter into, as principal or on behalf of an associate of the dealer, a transaction of purchase or sale of securities that are permitted to be traded on a stock market of a securities exchange if a client of the dealer who is not an associate of the dealer has instructed the dealer to buy or sell, as the case may be, securities of the same class and the dealer has not complied with the instruction.

             (3)  Subsection (2) does not apply in relation to the entering into of a transaction by a dealer as principal or on behalf of an associate of the dealer if:

                     (a)  the instructions from the client concerned required the purchase or sale of securities on behalf of the client to be effected only on specified conditions relating to the price at which the securities were to be bought or sold and the dealer has been unable to buy or sell the securities because of those conditions; or

                     (b)  the transaction is entered into in prescribed circumstances.

845   Dealings by employees of holders of licences

             (1)  A person who is a dealer or an investment adviser and an employee of that person must not, as principals, jointly buy or subscribe for, or agree to buy or subscribe for, securities.

             (2)  A person who is a partner in a partnership that carries on a securities business or an investment advice business and an employee of the partnership must not, as principals, jointly buy or subscribe for, or agree to buy or subscribe for, securities.

             (3)  A person who is a dealer or investment adviser, or who is a partner in a partnership that carries on a securities business or an investment advice business, must not give credit to an employee of the person or partnership, as the case may be, or to a person who the first-mentioned person knows is an associate of such an employee if:

                     (a)  the credit is given for the purpose of enabling or assisting the person to whom the credit is given to buy or subscribe for securities; or

                     (b)  the person giving the credit knows or has reason to believe that the credit will be used for the purpose of buying or subscribing for securities.

             (4)  A person who is an employee of a sole trader or member firm in connection with a business of dealing in securities carried on by the sole trader or member firm must not, as principal, buy or agree to buy securities or rights or interests in securities unless the sole trader or member firm acts as the agent of the person in respect of the transaction.

             (5)  A reference in subsection (1) or (3) to an employee of a person who is a dealer or investment adviser includes, in the case of a body corporate that is a dealer or investment adviser, a reference to an officer of the body.

             (6)  The reference in subsection (4) to an employee of a sole trader or member firm includes, in the case of a sole trader that is a body corporate or a member firm a partner in which is a body corporate, a reference to an officer of the body.



 

Division 2 Short selling of securities

846   Short selling

             (1)  Subject to this section and the regulations, a person must not sell securities to a buyer unless, at the time of the sale:

                     (a)  the person has or, where the person is selling as agent, the person’s principal has; or

                     (b)  the person believes on reasonable grounds that the person has, or where the person is selling as agent, the person’s principal has;

a presently exercisable and unconditional right to vest the securities in the buyer.

             (2)  For the purposes of subsection (1):

                     (a)  a person who, at a particular time, has a presently exercisable and unconditional right to have securities vested in the person or in accordance with the directions of the person has at that time a presently exercisable and unconditional right to vest the securities in another person; and

                     (b)  a right of a person to vest securities in another person is not conditional merely because the securities are charged or pledged in favour of another person to secure the repayment of money.

             (3)  Subsection (1) does not apply in relation to:

                     (a)  a sale of securities by the holder of a dealers licence who is a member of a securities exchange and specialises in transactions relating to odd lots of securities, being a sale made by the holder as principal solely for the purpose of:

                              (i)  accepting an offer to buy an odd lot of securities; or

                             (ii)  disposing of a parcel of securities that is less than one marketable parcel of securities by means of a sale of one marketable parcel of those securities; or

                     (b)  a sale of securities as part of an arbitrage transaction; or

                     (c)  a sale of securities by a person who before the time of sale has entered into a contract to buy those securities and who has a right to have those securities vested in the person that is conditional only upon all or any of the following:

                              (i)  payment of the consideration in respect of the purchase;

                             (ii)  the receipt by the person of a proper instrument of transfer in respect of the securities;

                            (iii)  the receipt by the person of the documents that are, or are documents of title to, the securities; or

                     (d)  a sale of securities where:

                              (i)  the person who sold the securities is not an associate of the body corporate that issued or made available the securities; and

                             (ii)  arrangements are made before the time of the sale that will enable delivery of securities of the class sold to be made to the buyer within 3 business days after the date of the transaction effecting the sale; and

                            (iii)  if the sale is made on the stock market of a securities exchange:

                                        (A)  the price per unit in respect of the sale is not below the price at which the immediately preceding ordinary sale was effected; and

                                        (B)  the price per unit is above the price at which the immediately preceding ordinary sale was made unless the price at which the immediately preceding ordinary sale was made was higher than the next preceding different price at which an ordinary sale had been made;

                                   and the securities exchange is informed as soon as practicable that the sale has been made short in accordance with this subparagraph; or

                     (e)  a sale of securities where:

                              (i)  the securities are included in a class of securities in relation to which there is in force a declaration, made by the board of a securities exchange as provided by the business rules of the securities exchange, to the effect that the class is a class of securities to which this paragraph applies; and

                             (ii)  the sale is made as provided by the business rules of the securities exchange; and

                            (iii)  at the time of the sale, neither the person who sold the securities, nor any person on behalf of whom the first-mentioned person sold the securities, was an associate, in relation to the sale, of the body corporate that issued or made available the securities.

             (4)  A person who requests a holder of a dealers licence to make a sale of securities that would contravene subsection (1) but for paragraph (3)(b), (d) or (e) must, when making the request, inform the holder of the licence that the sale is a short sale.

             (5)  A person who, on a stock market of a securities exchange, makes, whether as principal or agent, a sale of securities that would contravene subsection (1) but for paragraph (3)(d) must endorse on any document evidencing the sale that is given to the person who, whether as principal or agent, buys the securities a statement that the sale was a short sale.

             (6)  For the purposes of this section, a person who:

                     (a)  purports to sell securities; or

                     (b)  offers to sell securities; or

                     (c)  holds himself, herself or itself out as entitled to sell securities; or

                     (d)  instructs a dealer to sell securities;

is taken to sell the securities.

847   ASIC’s power to prohibit short selling in certain cases

             (1)  Where ASIC forms the opinion that it is necessary to prohibit securities, or a particular class of securities, from being sold on a stock market of a securities exchange in a manner that, but for paragraph 846(3)(e), would contravene subsection 846(1), in order to protect persons who might suffer financial loss if they were to buy or sell those securities in that manner or in order to protect the public interest, ASIC may give written notice to the securities exchange stating that it has formed that opinion and setting out the reasons for that opinion.

             (2)  If, after receiving such a notice:

                     (a)  the securities exchange does not take action to prevent the selling on a stock market of the securities exchange of the securities, or class of securities, specified in the notice in the manner referred to in subsection (1); and

                     (b)  ASIC is still of the opinion that it is necessary to prohibit the selling on that stock market of the securities, or class of securities, in that manner;

ASIC may, by a further written notice given to the securities exchange, prohibit the selling on that stock market of the securities, or class of securities, in that manner during a period of not more than 21 days.

             (3)  As soon as practicable after giving a notice to a securities exchange under subsection (2), ASIC must give to the Minister a written report setting out the reasons for the giving of the notice and send a copy of the report to the securities exchange.

             (4)  On receiving the report, the Minister may direct ASIC to revoke the notice given under subsection (2), and, if such a direction is given, ASIC must immediately revoke the notice.

             (5)  A securities exchange must not permit the selling of securities on a stock market of the securities exchange in a way that contravenes a notice given under subsection (2).



 

Division 3 Recommendations about securities

848   Recommendation made by partner or officer

                   For the purposes of this Division (other than section 851):

                     (a)  a recommendation made by a partner is taken to have been made by each partner in the partnership; and

                     (b)  a recommendation made by a director, executive officer or secretary of a body corporate is taken to have also been made by the body corporate.

849   Client to be told if adviser’s interests may influence recommendation

             (1)  This section applies where a securities adviser makes a securities recommendation to a person (in this section called the client ) who may reasonably be expected to rely on it.

             (2)  The securities adviser must:

                     (a)  if the recommendation is made orally—when making the recommendation, disclose to the client orally; or

                     (b)  if the recommendation is made in writing—set out in that writing, in such a way as to be no less legible than the other material in that writing;

particulars of:

                     (c)  any commission or fee, or any other benefit or advantage, whether pecuniary or not and whether direct or indirect, that the securities adviser or an associate has received, or will or may receive, in connection with the making of the recommendation or a dealing by the client in securities as a result of the recommendation; and

                     (d)  any other pecuniary or other interest, whether direct or indirect, of the securities adviser or an associate, that may reasonably be expected to be capable of influencing the securities adviser in making the recommendation.

             (3)  Subsection (2) does not apply in relation to a commission or fee that the securities adviser has received, or will or may receive, from the client.

             (4)  If by making the recommendation the securities adviser does an act as a representative of another person, then:

                     (a)  without limiting the generality of Division 2 of Part 1.2, the other person is an associate for the purposes of subsection (2); and

                     (b)  subsection (2) does not apply in relation to a commission or fee that the other person has received, or will or may receive, from the client.

             (5)  For the purposes of Division 2 of Part 1.2, the making of securities recommendations is the matter to which a reference to an associate in subsection (2) relates.

             (6)  Despite Division 2 of Part 1.2 and subsection (5), a person (in this subsection called the alleged associate ) is not an associate for the purposes of subsection (2) merely because of being:

                     (a)  a partner of the securities adviser otherwise than because of carrying on a securities business in partnership with the securities adviser; or

                     (b)  a director of a body corporate of which the securities adviser is also a director, whether or not the body carries on a securities business;

unless the securities adviser and the alleged associate act jointly, or otherwise act together, or under an arrangement between them, in relation to making securities recommendations.

850   Defences to alleged breach of subsection 849(2)

             (1)  Where:

                     (a)  a person:

                              (i)  when making a recommendation orally, fails to disclose; or

                             (ii)  when making a recommendation in writing, fails to set out in that writing;

                            as required by subsection 849(2), particulars of a matter; and

                     (b)  it is proved that the person was not, and could not reasonably be expected to have been, aware of that matter when making the recommendation;

the failure is not a contravention of that subsection.

             (2)  Where:

                     (a)  a dealer or investment adviser, or a representative of a dealer or investment adviser:

                              (i)  when making a recommendation orally, fails to disclose; or

                             (ii)  when making a recommendation in writing, fails to set out in that writing;

                            as required by subsection 849(2), particulars of a matter; and

                     (b)  in the case of a representative of a dealer or investment adviser—by making the recommendation, the representative does an act as a representative of the dealer or investment adviser; and

                     (c)  it is proved that the dealer or investment adviser had in operation, throughout a period beginning before the decision to make the recommendation was made and ending after the recommendation was made, arrangements to ensure that:

                              (i)  the natural person who made the decision knew nothing about that matter before the end of that period; and

                             (ii)  no advice with respect to the making of the recommendation was given to the person by anyone who knew anything about that matter; and

                     (d)  it is also proved that:

                              (i)  the person in fact knew nothing about that matter before the end of that period; and

                             (ii)  no such advice was so given;

the failure is not a contravention of that subsection.

             (3)  Neither of subsections (1) and (2) limits the generality of the other.

851   Adviser must have reasonable basis for recommendation

             (1)  A securities adviser who:

                     (a)  makes a securities recommendation to a person who may reasonably be expected to rely on it; and

                     (b)  does not have a reasonable basis for making the recommendation to the person;

contravenes this section.

             (2)  For the purposes of subsection (1), a securities adviser does not have a reasonable basis for making a securities recommendation to a person unless:

                     (a)  in order to ascertain that the recommendation is appropriate having regard to the information the securities adviser has about the person’s investment objectives, financial situation and particular needs, the securities adviser has given such consideration to, and conducted such investigation of, the subject matter of the recommendation as is reasonable in all the circumstances; and

                     (b)  the recommendation is based on that consideration and investigation.

             (3)  A person who contravenes subsection (1) is not guilty of an offence.

852   Adviser who breaches this Division liable to compensate client

             (1)  This section applies where:

                     (a)  a securities adviser contravenes section 849 or 851 in relation to a securities recommendation to a person (in this section called the client ); and

                     (b)  the client, in reliance on the recommendation, does, or omits to do, a particular act; and

                     (c)  it is reasonable, having regard to the recommendation and all other relevant circumstances, for the client to do, or omit to do, as the case may be, that act in reliance on the recommendation; and

                     (d)  the client suffers loss or damage as a result of that act or omission.

             (2)  Subject to subsections (3) and (4), the securities adviser is liable to pay damages to the client in respect of that loss or damage.

             (3)  In the case of a contravention of section 849, the securities adviser is not so liable if it is proved that a reasonable person in the client’s circumstances could be expected to have done, or omitted to do, as the case may be, that act in reliance on the recommendation even if the securities adviser had complied with that section in relation to the recommendation.

             (4)  In the case of a contravention of section 851, the securities adviser is not so liable if it is proved that the recommendation was, in all the circumstances, appropriate having regard to the information that, when making the recommendation, the securities adviser had about the client’s investment objectives, financial situation and particular needs.

853   Qualified privilege for adviser when complying with this Division

                   A securities adviser who:

                     (a)  makes a securities recommendation in relation to securities to a person who may reasonably be expected to rely on it; and

                     (b)  in so making the recommendation, contravenes neither of subsections 849(2) and 851(1);

has qualified privilege in respect of a statement the securities adviser makes to the person, whether orally or in writing, in the course of, or in connection with, so making the recommendation.