In this Schedule 1A and in Chapter 9, unless the context otherwise requires:
“Approved Deposit Taking Institution” means:
(a) an authorised deposit taking institution under section 5 of the Banking Act 1959 (Cwlth);
(b) a banking institution which has its activities formally regulated in accordance with the standards of the Basel Committee on Banking Supervision; or
(c) an institution which has been given a risk weighting by the Australian Prudential Regulation Authority equivalent to an authorised deposit taking institution referred to in paragraph (a) above.
“Approved Institution” means:
(a) any of the following institutions whose net assets are greater than $30 million at the date of its last published audited balance sheet:
(i) a life insurance company or general insurance company; or
(ii) an investment company, trust or other similar institution whose ordinary business is to buy and sell Financial Instruments;
(b) any body corporate or partnership whose ordinary business is to buy and sell Financial Instruments and which is regulated by a:
(i) Recognised non-European Union Regulator specified in Table A5.3.1 in Annexure 5 to this Schedule 1A;
(ii) Recognised European Union Regulator specified in Table A5.3.2 in Annexure 5 to this Schedule 1A; or
(c) a Fund Manager and an underlying client that has placed money with, or has securities under the control of, the Fund Manager, where:
(i) the Market Participant has a dealing relationship with the Fund Manager but not the underlying client; and
(ii) the Fund Manager is placing orders on behalf of the underlying client and not as principal,
provided that the Market Participant maintains adequate documentation in support of paragraphs (a), (b) or (c).
“Approved Subordinated Debt” means an amount owing by a Market Participant under a subordination arrangement which is approved by ASIC under Rule S1A.2.4.
“Approved Subordinated Loan Deed” means, in respect of a subordination arrangement, a deed which:
(a) is executed:
(i) by the lender and ASIC under seal or by such equivalent method expressly recognised under the Corporations Act;
(ii) in the case of a Market Participant which is a company, by the Market Participant under seal or by such equivalent method expressly recognised under the Corporations Act; and
(iii) in the case of a Market Participant which is a partnership, by each of its partners;
(b) sets out details of the terms governing any subordinated debt regulated by the subordination arrangement or identifies the document which does so;
(c) contains those provisions required by ASIC including without limitation, provisions to the effect that:
(i) alterations to the subordinated loan deed or the terms or details of any subordinated debt regulated by the subordination arrangement cannot be made unless the agreement of all parties is obtained and the variation is executed in the manner required under paragraph (a);
(ii) ASIC must be satisfied that the Market Participant has made adequate arrangements to ensure that Schedule 1A will be complied with and will continue to be complied with upon the maturity date of any loan for a fixed term;
(iii) ASIC must be given full particulars of any debt to be regulated by the subordination arrangement under the subordinated loan deed prior to such debt being created; and
(iv) prior to the Bankruptcy of the Market Participant, repayment of any subordinated debt regulated by the subordination arrangement can only occur in accordance with subrules S1A.2.4(6) and (7); and
(d) contains specific acknowledgment by the lender of the matters set out in paragraphs S1A.2.4(2)(a) and (b).
“ASX Settlement Operating Rules” means the Operating Rules of ASX Settlement.
“Bankruptcy” means in respect of an entity:
(a) the entity becomes an externally administered body corporate within the meaning of the Corporations Act;
(b) the entity becomes an individual who is an insolvent under administration within the meaning of the Corporations Act;
(c) if the entity is a partnership, the entity is wound up or dissolved or a liquidator is appointed to it;
(d) a person takes control of the entity’s property for the benefit of the entity’s creditors because the entity is, or is likely to become, insolvent;
(e) the entity enters into an arrangement, composition or compromise with, or assignment for the benefit of, all of its creditors or any class of them; or
(f) anything analogous to, or having a substantially similar effect to the events specified in paragraphs (a) to (e) happens to the entity under the laws of any applicable jurisdiction.
“CFD” means contract for difference.
“Chi-X Australia Operating Rules” means the Operating Rules of Chi-X Australia.
“Classical ETF” means a managed fund that meets all of the following criteria:
(a) that is listed and quoted on a stock exchange (and in Australia is registered as a managed investment scheme under the Corporations Act);
(b) where, under an open prospectus, the units in the fund can only be subscribed for and redeemed in kind, on demand and via the exchange of a defined basket of Equity securities;
(c) that has a “passive” investment strategy designed to replicate a stock index at all times and this is evidenced by the holding of physical securities in weightings that predominantly match the stock index the fund has been issued over, and accordingly, any cash or Derivative components must be immaterial and must not be used to gear the fund;
(d) where the underlying assets are known on a daily basis; and
(e) that is subscribed for and redeemed in a “primary” market via either a Market Participant or the fund issuer, and existing units are traded in a “secondary” market provided through a stock exchange.
“Client Balance” means an individual Counterparty’s net debit or credit balance with a Market Participant arising from non margined Financial Instruments.
“Core Capital” means:
(a) in the case of a Market Participant which is a company, the sum of:
(i) all ordinary issued shares to the extent that those shares are paid-up;
(ii) all non cumulative Preference Shares;
(iii) all reserves, excluding revaluation reserves other than Financial Asset Revaluation Reserves; and
(iv) opening retained profits/losses adjusted for all current year movements; and
(b) in the case of a Market Participant which is a partnership, the sum of the partners’ current and capital accounts.
“Counterparty” means in respect of a transaction to which a Market Participant is a party, another party to that transaction whether that person is a counterparty or a client.
“Counterparty Risk Requirement” means the greater of:
(a) zero; and
(b) the absolute sum of the counterparty risk amounts calculated in accordance with Annexure 1 to this Schedule 1A less any provision raised for doubtful debts.
Note: The provision for doubtful debts must relate to a specific Counterparty receivable for which a counterparty risk amount has been calculated in accordance with Annexure 1 or to cover the possibility of a Counterparty or Client Balance becoming doubtful. A Market Participant must not deduct a provision amount from an individual counterparty risk amount.
“Debt Derivative” includes:
(a) a convertible note (except to the extent that Annexure 3 to this Schedule 1A provides for the treatment of a convertible note as an equity position);
(b) an interest rate Swap;
(c) a Forward Rate Agreement;
(d) a forward contract over a Debt Instrument;
(e) a Future over a Debt Instrument and a Future over an index or basket product based on Debt Instruments;
(f) an index or basket product based on Debt Instruments; and
(g) an Option over a Debt Instrument and an Option over any of the products referred to in paragraphs (a) to (f),
but does not include an instrument that falls within the definition of Equity Derivative or Foreign Exchange Derivative.
“Debt Equivalent” means the value of a position in a Debt Derivative that is equivalent to the value had it been a physical position in the underlying Debt Instrument calculated in accordance with Part A3.16 of Annexure 3 to this Schedule 1A.
“Debt Instrument” includes:
(a) a debt security without call or put provisions;
(b) a discount security without call or put provisions;
(c) a non-convertible preference share;
(d) a redeemable preference share with a fixed and certain date for redemption; and
(e) an interest in a managed investment scheme investing only in Debt Instruments, mortgages or cash, including an interest in a Hybrid ETF or Other Managed Fund that is issued over physical Debt Instruments only (ignoring any immaterial percentage of cash or Derivatives also included in the Hybrid ETF or Other Managed Fund and used only for hedging purposes),
but does not include an instrument that falls within the definition of Equity.
“Debt Net Position” means an amount calculated in accordance with Part A3.17 of Annexure 3 to this Schedule 1A.
“Derivative” includes:
(a) an Equity Derivative;
(b) a Debt Derivative; and
(c) a Foreign Exchange Derivative,
but does not include an instrument that falls within the definition of Equity or Debt Instrument.
“Equity” includes:
(a) a share other than a share referred to in paragraphs (c) and (d) of the definition of Debt Instrument;
(b) a depository receipt;
(c) an instalment receipt;
(d) an interest in a managed investment scheme, including an interest in a Hybrid ETF or an Other Managed Fund that is issued over:
(i) physical Equities only;
(ii) physical Debt Instruments and property;
(iii) physical Equities, physical Debt Instruments and property;
(iv) physical Equities and property; or
(v) physical property only,
(ignoring any immaterial percentage of cash or Derivatives also included in the Hybrid ETF or Other Managed Fund and used only for hedging purposes), other than an interest referred to in paragraph (e) of the definition of Debt Instrument,
but does not include an instrument that falls within the definition of Debt Instrument.
“Equity Derivative” includes:
(a) an equity Swap;
(b) a forward contract over an Equity;
(c) a Future over an Equity and a Future over a basket or index product based on Equities;
(d) an index or basket product based on Equities (including a Classical ETF);
(e) a renounceable or non-renounceable right to subscribe for an equity;
(f) an Option over an Equity (whether issued or unissued) and an Option over any of the products referred to in paragraphs (a) to (d); and
(g) an exchange traded CFD over:
(i) an Equity; or
(ii) a basket or index product based on Equities,
but does not include an instrument that falls within the definition of Debt Derivative or Foreign Exchange Derivative.
“Equity Equivalent” means the value of a position calculated in accordance with Part A3.8 of Annexure 3 to this Schedule 1A.
“Equity Net Position” means an amount calculated in accordance with Part A3.9 of Annexure 3 to this Schedule 1A.
“Excluded Asset” means:
(a) a fixed asset;
(b) an intangible asset;
(c) a future income tax benefit;
(d) a non current asset;
(e) a deposit with or loan to a person other than:
(i) a deposit or loan with an Approved Deposit Taking Institution;
(ii) a deposit or loan to the extent the balance is secured by collateral which is Liquid, evidenced in writing and valued at the mark to market value; or
(iii) a deposit of funds as a margin or deposit with a person licensed to trade or clear Futures or Options to the extent that those funds relate to an open position;
(f) a deposit with a third party clearing organisation;
(g) a Related/Associated Persons Balance to the extent the balance is not secured by collateral which is:
(i) Liquid;
(ii) under the control of the Market Participant, able to be accessed by the Market Participant without the approval of a third party and not otherwise encumbered;
(iii) evidenced in writing by a legally binding agreement between the Market Participant and the Related/Associated Person in circumstances where the Market Participant has established that the Related/Associated Person and the persons signing the agreement have the legal capacity to enter into the agreement and provide the nominated collateral; and
(iv) valued at the mark to market value;
(h) a debt which was reported or created more than 30 days previously, other than a debt:
(i) from another Market Participant that is not an Related/Associated Person; or
(ii) which is secured by collateral which is Liquid, evidenced in writing and valued at the mark to market value;
(i) a prepayment (being an expense which has been paid during one accounting period for a term which extends beyond the end of that period) which is not Liquid or which is Liquid but has been made in respect of an item of expenditure that is specifically required to be made by the Market Participant for the Market Participant to comply with the requirements of these Rules or the Market Operating Rules;
(j) an asset which is not Liquid; or
(k) an asset which is Liquid but which has a charge against it (in whole or in part) where the purpose of the charge is to raise funds for use outside the ordinary course of the Market Participant’s securities or derivatives business.
“Excluded Liability” means the maximum liability specified in a guarantee or indemnity under paragraph S1A.2.6(1)(c).
“Family Trust” means a trust in which:
(a) the person or the Immediate Family of the person is the sole or majority beneficiary; or
(b) the person has the ability to remove the trustee of the trust and replace the trustee with his or her own nominee.
“Financial Asset Revaluation Reserves” means revaluation reserves relating to available for sale financial assets as defined in accordance with accounting standards which are generally accepted in Australia or other accounting standards approved by ASIC under subrule S1A.2.7(3).
“Financial Instrument” means:
(a) an Equity;
(b) a Debt Instrument; and
(c) a Derivative.
“Foreign Exchange Derivative” includes:
(a) a forward contract over foreign currency;
(b) a Future over foreign currency;
(c) an Option over foreign currency; and
(d) an exchange traded CFD over an exchange rate or foreign currency,
but does not include an instrument that meets the definition of Equity Derivative or Debt Derivative.
“Foreign Exchange Equivalent” means the value of a position calculated in accordance with Part A3.21 of Annexure 3 to this Schedule 1A.
“Forward Rate Agreement” means an agreement in which two parties agree that:
(a) one party will make payments to the other of an amount of interest based on an agreed interest rate for a specified period from a specified date applied to an agreed principal amount;
(b) no commitment is made by either party to lend or borrow the principal amount; and
(c) the exposure is limited to the interest difference between the agreed and actual market rates at settlement.
“Free Delivery” means a trade where delivery of the Financial Instrument is made to a client or Counterparty without receiving payment or where a payment is made without receiving a Financial Instrument, regardless of whether the client or Counterparty is issuer sponsored or participant sponsored.
“Fund Manager” means any licensed responsible entity, agent of a responsible entity, trustee or manager whose ordinary business it is to buy or sell Financial Instruments and make investment decisions on behalf of an independent third party.
“Future” means a contract which is traded on an exchange, subject to a Primary Margin Requirement and which is:
(a) a contract to make an adjustment between the parties on an agreed future date as to the value on that date of an interest rate, a foreign currency, an Equity, basket or index, or some other agreed factor; or
(b) a deliverable bond futures contract or deliverable share futures contract.
“Government Debt Instrument” means any form of government financial instrument including a bond, treasury note or other short term instrument, and a Debt Derivative of any of those instruments where:
(a) it is issued by, fully guaranteed by, or fully collateralised by a Debt Instrument issued by:
(i) the Australian Commonwealth, State (including Territories) governments; or
(ii) a central government or central bank within the OECD;
(b) it is issued by, or fully guaranteed by, a non-OECD country central government or central bank, has a residual maturity of one year or less and is denominated in local currency and funded by liabilities in the same currency.
“Group of Connected Persons” means two or more persons or entities where:
(a) each person or entity is a Related/Associated Person of each other person or entity; or
(b) the persons who have control of the management of each entity or have been appointed as directors of each entity are substantially the same.
“Hybrid ETF” means a managed fund:
(a) that is listed and quoted on a stock exchange (and in Australia is registered as a managed investment scheme under the Corporations Act); and
(b) where, under an open prospectus, the units can only be subscribed for and redeemed in cash or in kind; and
(c) that is subscribed for and redeemed in a “primary” market and existing units are traded in a “secondary” market; or
(d) that does not satisfy all of the requirements of a Classical ETF but satisfies the three criteria referred to in paragraphs (a), (b) and (c).
“Immediate Family” in relation to a person means that person’s spouse and any non-adult children.
“In the Money” means:
(a) in relation to call Options, that the current market price of the underlying instrument is greater than the exercise price; and
(b) in relation to put Options, that the current market price of the underlying instrument is less than the exercise price.
“Large Exposure Risk Requirement” is the absolute sum of a Market Participant’s:
(a) counterparty large exposure risk amount calculated in accordance with Annexure 2 to this Schedule 1A; and
(b) issuer large exposure risk amount calculated in accordance with Annexure 2 to this Schedule 1A.
“Liquid” means realisable or otherwise convertible to cash within 30 days and in the case of a Financial Instrument, means the Financial Instrument meets the following criteria:
(a) there are genuine independent offers from third parties to the Market Participant;
(b) prices or rates exist that closely approximate the last sale price or rate in the Financial Instrument (whether exchange traded or over-the-counter);
(c) payment/settlement can be effected within the settlement conventions applicable to the Financial Instrument; and
(d) there is sufficient liquidity in the market to ensure a ready sale of the position held.
“Liquid Capital” means the sum of:
(a) Core Capital;
(b) cumulative Preference Shares;
(c) Approved Subordinated Debt; and
(d) revaluation reserves other than Financial Asset Revaluation Reserves;
less the sum of:
(e) Excluded Assets; and
(f) Excluded Liabilities.
“Liquid Margin” means the amount calculated by deducting the Total Risk Requirement amount from the amount of Liquid Capital.
“Market Spot Exchange Rate” means the closing rate of exchange for foreign currencies against Australian dollars on each Business Day, having a settlement period of 2 days.
“Non-Standard Risk Requirement” means the amount calculated in accordance with Rule S1A.2.9 to cover unusual or non-standard exposures.
“OECD” means the Organisation for Economic Co-operation and Development.
“Operational Risk Requirement” means the amount calculated in accordance with subrule S1A.2.3(1) which is required to cover exposures associated with commencing and remaining in business arising separately from exposures covered by other risk requirements.
“Option” means a contract which gives the holder the option or right, exercisable at or before a specified time to:
(a) buy (whether by way of issue or transfer) or sell a quantity of a Financial Instrument or a foreign currency; or
(b) be paid an amount of money calculated by reference to the value of a Financial Instrument, foreign currency or index as specified in the contract.
“OTC Derivative” means a Derivative which is not traded on an exchange.
“Other Managed Fund” means a managed fund:
(a) that is not listed and quoted on a stock exchange (and in Australia is registered as a managed investment scheme under the Corporations Act); or
(b) that is listed and quoted on a stock exchange but does not satisfy all of the requirements of a Classical ETF or Hybrid ETF.
“Position Risk Factors” are the percentages applied to principal positions as specified in Tables A5.1.1, A5.1.2, A5.1.3 and A5.1.7 of Annexure 5 to this Schedule 1A.
“Position Risk Requirement” is the absolute sum of the position risk amounts for a Market Participant’s:
(a) Equity and Equity Derivative positions calculated in accordance with Parts A3.1 to A3.9 of Annexure 3 to this Schedule 1A;
(b) Debt Instrument and Debt Derivative positions calculated in accordance with Parts A3.10 to A3.17 of Annexure 3 to this Schedule 1A; and
(c) foreign exchange and Foreign Exchange Derivative positions calculated in accordance with Parts A3.18 to A3.22 of Annexure 3 to this Schedule 1A.
“Positive Credit Exposure” means an exposure to a Counterparty such that if the Counterparty were to default on its obligations under:
(a) an individual transaction; or
(b) to the extent allowed by Schedule 1A, a group of transactions, contracts, arrangements or agreements,
the Market Participant may incur a financial loss.
“Preference Share” means a preference share that is redeemable solely at the request of the Market Participant.
“Primary Margin Requirement” means the amount which a Market Participant lodges or is notionally required to lodge as a deposit to cover potential daily worse case price movements in the relevant market, lodged in accordance with the rules of an exchange or clearing house against open positions registered in the name of the Market Participant on the exchange or clearing house.
“Qualifying Debt Instruments” means Debt Instruments that are:
(a) rated investment grade by at least two of the credit rating agencies recognised by the Australian Prudential Regulation Authority and specified in Table A5.1.5 in Annexure 5 to this Schedule 1A;
(b) rated investment grade by one credit rating agency recognised by the Australian Prudential Regulation Authority and specified in Table A5.1.5 in Annexure 5 to this Schedule 1A, and the issuer has its ordinary shares included in a Recognised Market Index;
(c) unrated but the Issuer of the Debt Instrument has its ordinary shares included in a Recognised Market Index and the Debt Instruments are reasonably deemed by the Market Participant to be of comparable investment quality to one or more of the categories of Qualifying Debt Instrument as described in this definition;
(d) issued by, or guaranteed by, Australian local governments and Australian public sector entities other than those which have corporate status or operate on a commercial basis;
(e) issued by, or fully guaranteed by, a non-OECD country’s central government and central bank and which have a residual maturity of over one year and are denominated in local currency and funded by liabilities in the same currency;
(f) issued by or collaterised by claims on, an international agency or regional development bank including the International Monetary Fund, the International Bank for Reconstruction and Development, the Bank for International Settlements and the Asian Development Bank;
(g) issued, guaranteed, first endorsed or accepted by an Australian ADI or a bank incorporated within the OECD or a non-OECD bank accorded the same credit risk weight as an OECD bank by the Australian Prudential Regulation Authority provided that such instruments do not qualify as capital of the issuing institution;
(h) issued, guaranteed, endorsed or accepted by a non-OECD bank and which have a residual maturity of one year or less provided that such instruments do not qualify as capital of the issuing institution; or
(i) issued by or guaranteed by OECD country, State and regional governments and OECD public sector entities.
“Recognised Market Index” means an index specified in Table A5.1.6 in Annexure 5 to this Schedule 1A.
“Related/Associated Person” means:
(a) a partner, director, employee, officer or consultant of a Market Participant or of a company which is a partner of a Market Participant;
(b) a person who is a member of the Immediate Family of a person referred to in paragraph (a);
(c) the trustee of a Family Trust of a person referred to in paragraph (a);
(d) an entity which is:
(i) controlled by a person referred to in paragraphs (a), (b) or (c) or any of those persons acting together; or
(ii) a corporation in which a person referred to in paragraphs (a) or (b) is beneficially entitled to more than 50% of the issued capital;
(e) an entity which is the holding company, or which is controlled by the holding company, of a Market Participant or of a company which is a partner of a Market Participant;
(f) a person who is a Substantial holder of a Market Participant or of a company which is a partner of a Market Participant;
(g) an associate of a Market Participant (as defined in each section of Part 1.2, Division 2 of the Corporations Act) or of a company which is a partner of a Market Participant; and
(h) a lender who is a party to an Approved Subordinated Loan Deed or a related entity or associate of that lender.
“Related/Associated Person Balance” is an amount owing to the Market Participant by a person who is a Related/Associated Person of the Market Participant and excludes an amount owing as a result of:
(a) the deposit with, loans to or other amounts owing from an Approved Deposit Taking Institution;
(b) the deposit of funds as a margin or deposit with a person licensed to trade or clear Futures or Options to the extent that those funds relate to an open position; or
(c) a transaction in a Financial Instrument under Annexure 1 to this Schedule 1A which is made on terms no more favourable to the Related/Associated Person than those on which it would be reasonable to expect the Market Participant to make if it had entered into the transaction on an arm’s length basis, but not including sundry fees, interest or similar amounts owing on such transactions; or
(d) brokerage or similar amounts owing that were reported or created less than 30 days previously and which arose as a result of a third party clearing arrangement entered in to with a Clearing Participant that is a Related/Associated Person of the Market Participant.
“Securities Lending and Borrowing” means any transaction undertaken by a Market Participant under an Equity or Debt Instrument lending or borrowing agreement, a repurchase or reverse repurchase agreement or an agreement for the sale and buyback of Equity or Debt Instruments.
“Substantial holder” means a person who has or would have a substantial holding if Part 6C of the Corporations Act applied to that corporation.
“Swap” means a transaction in which two counterparties agree to exchange streams of payments over time on a predetermined basis.
“Total Risk Requirement” means the sum of:
(a) Operational Risk Requirement;
(b) Counterparty Risk Requirement;
(c) Large Exposure Risk Requirement;
(d) Position Risk Requirement;
(e) Underwriting Risk Requirement; and
(f) Non-Standard Risk Requirement,
however where an asset or liability is an Excluded Asset or Excluded Liability a risk requirement otherwise applicable under paragraphs (a) to (e) is not included.
“Trading Day” means a day on which a relevant exchange traded or over the counter market has been open for trading.
“Underwriting” means a commitment to take up Equity or Debt Instruments where others do not acquire or retain them under an underwriting agreement, sub underwriting agreement, or other similar agreement calculated using:
(a) the price stated in the Underwriting agreement; or
(b) in the case of new float where the price is not known, the indicative price, until the price is known.
“Underwriting Risk Requirement” is the absolute sum of the risk amounts calculated in accordance with Annexure 4 to this Schedule 1A.
S1A.1.2 Interpretation
(1) Schedule 1A must be interpreted and applied consistently across positions in the same Financial Instruments throughout a period covered by a return required under Part 9.2.
(2) References to dollar amounts are references to Australian dollar amounts.
(3) The Annexures to Schedule 1A form part of Schedule 1A and a reference to Schedule 1A in these Rules includes a reference to those Annexures.
Part S1A.2 Obligations of Market Participants
S1A.2.1 Core Capital, Liquid Capital and Total Risk Requirement
A Market Participant must ensure that its:
(a) Liquid Capital is at all times greater than its Total Risk Requirement; and
(b) Core Capital is at all times not less than $100,000,
provided that in satisfying the requirement in paragraph (b), a Market Participant may satisfy the requirement in accordance with, and subject to, subrule S1A.2.4(8).
S1A.2.3 Risk Requirements and Risk Amounts
(1) A Market Participant must calculate:
(a) its Operational Risk Requirement; and
(b) an operational risk amount, as the sum of:
(i) the amount of $100,000; and
(ii) 8% of the sum of the Market Participant’s:
(A) Counterparty Risk Requirement;
(B) Position Risk Requirement; and
(C) Underwriting Risk Requirement.
(2) A Market Participant must calculate in accordance with Annexure 1 to this Schedule 1A:
(a) its Counterparty Risk Requirement; and
(b) a counterparty risk amount for each of its Positive Credit Exposures to a Counterparty for transactions in Financial Instruments referred in Annexure 1 to this Schedule 1A, except those transactions which relate to Excluded Assets.
(3) A Market Participant must calculate in accordance with Annexure 2 to this Schedule 1A:
(a) its Large Exposure Risk Requirement; and
(b) its large exposure risk amount for each:
(i) Counterparty; and
(ii) Equity Net Position and Debt Net Position relative to:
(A) Liquid Capital; and
(B) an issue or issuer.
(4) A Market Participant must calculate in accordance with Annexure 3 to this Schedule 1A:
(a) its Position Risk Requirement;
(b) a position risk amount for all positions in Financial Instruments, except those positions which are Excluded Assets; and
(c) a position risk amount for other assets and liabilities which are denominated in a currency other than Australian dollars except for those assets which are Excluded Assets.
(5) A Market Participant must calculate in accordance with Annexure 4 to this Schedule 1A:
(a) its Underwriting Risk Requirement; and
(b) an underwriting risk amount for each Underwriting.
(6) A Market Participant must calculate a Non-Standard Risk Requirement in accordance with Rule S1A.2.9.
S1A.2.3A Authorisation
(1) A Market Participant must be authorised by ASIC in writing for each of the risk calculation methods it uses for the purposes of Rule S1A.2.3.
(2) An authorisation given by ASIC under subrule (1) will specify which risk calculation methods the Market Participant is authorised to use.
(3) A Market Participant must obtain an authorisation from ASIC under subrule (1) prior to the use of a particular risk calculation method.
(4) A Market Participant will only be authorised to use a particular risk calculation method under subrule (1) after having satisfactorily demonstrated its ability to calculate risk amounts under that method.
S1A.2.4 Approved Subordinated Debt
(1) A Market Participant entering into a subordination arrangement may only include an amount owing under such an arrangement in its Liquid Capital if:
(a) the subordination arrangement has the prior approval of ASIC under subrules (2) and (3); and
(b) the amount is notified to and approved by ASIC prior to being drawn down under the subordination arrangement and complies with subrule (4) where relevant.
(2) ASIC will not approve a subordination arrangement unless in the opinion of ASIC:
(a) subject to subrule (6), the amount owing to the lender under the subordination arrangement will not be repaid until all other debts which the Market Participant owes to any other persons are repaid in full; and
(b) the obligation to pay any amount owing under the subordination arrangement is suspended if Rule S1A.2.1 is no longer complied with.
(3) ASIC will not approve a subordination arrangement unless the Market Participant has executed an Approved Subordinated Loan Deed in respect of the subordination arrangement.
(4) If a Market Participant is a partnership which has entered into an approved subordination arrangement under subrules (2) and (3) and there is a change in the composition of the Market Participant, then an amount owing under the previously approved subordination arrangement must not be included in its Liquid Capital unless ASIC is of the opinion that this arrangement has been renewed or amended so as to ensure that all partners after the change in composition are bound by it.
(5) A Market Participant must comply with the terms of the Approved Subordinated Loan Deed and any associated agreement to which it, ASIC, and the lender are parties and must ensure the lender’s compliance with these documents.
(6) Prior to its Bankruptcy, a Market Participant may repay an amount owing under an approved subordination arrangement only with the prior approval of ASIC.
(7) ASIC will not withhold its approval under subrule (6) if in the opinion of ASIC:
(a) the Market Participant’s Liquid Capital divided by its Total Risk Requirement is capable of continuing to be greater than 1.2 on repayment; and
(b) the Market Participant’s Core Capital is capable of continuing to be equal to or greater than the amount required under Rule S1A.2.1 when Approved Subordinated Debt is included under subrule (8).
(8) If a Market Participant does not hold sufficient Core Capital under paragraph S1A.2.1(b), then it may with the prior approval of ASIC include amounts owing under an approved subordination arrangement in calculating Core Capital for a 6 month period commencing on the date that the Market Participant first does not hold sufficient Core Capital.
(9) In forming an opinion as to whether a Market Participant is capable of continuing to meet the requirements in paragraphs (7)(a) and (b), ASIC may consider matters such as:
(a) the state of the overall market and the trend of the individual Market Participant’s share of that market;
(b) the ability of the Market Participant to continue as a going concern for a period that may exceed 30 days;
(c) any waivers that exist at the time of the request; and
(d) the existence of any outstanding litigation.
S1A.2.4A Excluded Assets
(1) Subject to subrule (2), where a Market Participant has an asset due from one entity (which would ordinarily be treated as an Excluded Asset) which is linked to an offsetting liability payable to another entity, the Market Participant may net the asset and liability so that only the net amount (if positive) is reported as an Excluded Asset.
(2) The Market Participant may only net an asset with a liability and report the net amount as an Excluded Asset under subrule (1) if the Market Participant:
(a) has obtained written authorisation from ASIC for the purposes of this Rule;
(b) has a documented, legally binding contract or agreement with the Counterparty to the liability that specifies that the liability cannot be enforced unless the asset is realised;
(c) continues to report the asset and liability on a gross basis in the balance sheet section of the Monthly Risk-Based Return or alternative form of return required by Rule 9.2.3;
(d) reports the net amount as an “Other Prescribed Asset” in the “Core Capital, Liquid Capital, Liquid Margin and Ratio” section of the Monthly Risk-Based Return or alternative form of return required by Rule 9.2.3; and
(e) includes the following details in the “Additional Comments” section of the Monthly Risk-Based Return or alternative form of return required by Rule 9.2.3:
The following assets and liabilities have been netted for the purpose of calculating the amount included in the Excluded Asset “other prescribed asset” line of the “Core Capital, Liquid Capital, Liquid Margin and Ratio” section of the capital liquidity return.
Asset—describe the nature of the asset/s $
less Liability—describe the nature of the liability/s $( )
Excluded Asset—other prescribed asset $ net amount
(3) A Market Participant must treat the following amounts as Excluded Assets if they remain outstanding for greater than 30 calendar days:
(a) Underwriting fees;
(b) fees due for managing a client portfolio;
(c) corporate advisory fees; and
(d) other sundry debtors.
S1A.2.5 Redeemable Preference Shares
(1) A Market Participant must not redeem any redeemable Preference Shares issued by it in whole or in part without the prior written approval of ASIC.
(2) ASIC will not withhold its approval under subrule (1) if in the opinion of ASIC the Market Participant’s Liquid Capital divided by its Total Risk Requirement is capable of continuing to be greater than 1.2 on redemption.
(3) In forming an opinion as to whether a Market Participant is capable of continuing to meet the requirement in subrule (2), ASIC may consider matters such as:
(a) the state of the overall market and the trend of the individual Market Participant’s share of that market;
(b) the ability of the Market Participant to continue as a going concern for a period that may exceed 30 days;
(c) any waivers that exist at the time of the request; and
(d) the existence of any outstanding litigation.
S1A.2.6 Guarantees and Indemnities
(1) A Market Participant may only give a guarantee or indemnity:
(a) for the purposes of these Rules, the ASX Market Integrity Rules, the Market Operating Rules, the Chi-X Australia Operating Rules, the ASX Operating Rules, the ASX Clear Operating Rules or the ASX Settlement Operating Rules;
(b) in the ordinary course of the conduct of its securities or derivatives business;
(c) outside the ordinary course of its securities or derivatives business if a maximum liability is specified in the guarantee or indemnity at the time it is entered into; or
(d) to settle legal proceedings that have been threatened or issued against it,
and must not give a cross-guarantee.
(2) For the purposes of paragraphs (1)(b) and (c), the expression “ordinary course of the conduct of its securities or derivatives business” includes, but is not limited to, a guarantee or indemnity given by a Market Participant to:
(a) a lessor for lease rental commitments on premises, computer equipment and other property, plant and equipment by the service company of the Market Participant where those premises and equipment are for use exclusively or predominantly by the Market Participant;
(b) financial institutions for withdrawal of funds by the Market Participant against uncleared cheques;
(c) ASIC to support the issuance of an Australian financial services licence to the Market Participant; and
(d) a lessor for lease rental payments on a residence for a member of staff, normally based overseas, who is temporarily located in Australia to perform their duties,
but would not normally include:
(e) charges, guarantees or indemnities given over the financial performance of a subsidiary or Related/Associated Person of the Market Participant such as a separately incorporated futures broker; and
(f) charges, guarantees or indemnities given to support Underwriting activities that are not booked in the Market Participant.
(3) A Market Participant that is a member of a consolidated group within the meaning of section 703-5 of the Income Tax Assessment Act 1997 (Cwlth) must, when it first becomes a member of that group, report in the “Additional Comments” section of the next Monthly Risk-Based Return required by Rule 9.2.3:
(a) the date its group elected to become a consolidated group;
(b) the date it entered into a tax sharing agreement (if applicable);
(c) the date it entered into a tax funding agreement (if applicable); and
(d) any other information that may be relevant in assessing the Market Participant’s financial position as a result of it being part of a consolidated group,
and any changes to these details must be reported in the “Additional Comments” section of subsequent Monthly Risk-Based Returns required by Rule 9.2.3.
S1A.2.7 Records and Accounts
(1) A Market Participant must maintain records and working papers in sufficient detail to show continuous compliance with Rule S1A.2.1 for seven years.
(2) The records and working papers referred to in subrule (1) must, at a minimum:
(a) show the nature of the outstanding transactions and commitments for which the Market Participant was liable;
(b) disclose the financial position of the Market Participant at any point in time;
(c) detail and support the calculations required to quantify the Total Risk Requirement and demonstrate that the Market Participant was complying with the Risk Based Capital Requirements;
(d) permit the Market Participant to prepare a return required by these Rules using those records if so requested; and
(e) permit the Market Participant to reproduce a calculation of its Liquid Capital or Total Risk Requirement at the close of business on each day in the seven year period.
(3) A Market Participant must prepare its accounts and returns in accordance with accounting standards which are generally accepted in Australia, unless ASIC approves otherwise.
(4) A Market Participant must take any amounts arising from the marking-to-market of principal positions in Financial Instruments to the Market Participant’s profit and loss account immediately and include those amounts in the Market Participant’s overall accounting for taxation.
(5) A Market Participant must record a transaction in its accounts on the date on which it enters into an irrevocable commitment to carry out the transaction.
S1A.2.8 Valuations and Foreign Currencies
(1) A Market Participant must mark to market each of its principal positions in Financial Instruments unless Schedule 1A provides otherwise:
(a) at least once every Business Day; and
(b) in the following manner:
(i) subject to subparagraphs (ii) to (v), a position must be valued at its closing market price:
(A) which is the current bid price for a long position; and
(B) which is the current offer price for a short position;
or at last price, closing price or mid price;
(ii) an Option or rights position may be valued using a value derived from an option pricing model approved by ASIC for use in the contingent loss matrix method;
(iii) an exchange traded Option position may be valued using the “fair value” published by a reputable independent information source, where the “fair value” source is used consistently across all exchange traded Option positions of the Market Participant at all times;
(iv) an Option or rights position which does not have a published market price under subparagraph (i) or which cannot be valued using an options pricing model under subparagraph (ii) or the “fair value” under subparagraph (iii) must be valued as follows:
(A) for a purchased Option or right, the In the Money amount multiplied by the quantity underlying the Option; and
(B) for a written Option, the sum of the In the Money amount multiplied by the quantity underlying the Option and the initial premium received for the Option;
(v) a Swap or a Forward Rate Agreement must be valued:
(A) having regard to the net present value of the future cash flows of the contract; and
(B) using current interest rates relevant to the periods in which the cash flows will arise.
(2) For the purposes of sub-subparagraph (1)(b)(iv)(B), if a written Option was In the Money at the time the contract was written, the In the Money amount for the purposes of this Rule may be taken to be the current In the Money amount less the In the Money amount at the time the contract was written.
(3) If a Market Participant holds a Financial Instrument denominated in a foreign currency then it:
(a) must calculate a risk amount for each risk type in that foreign currency; and
(b) convert the risk amount in paragraph (a) to Australian dollars at the Market Spot Exchange Rate,
in all cases other than where the Market Participant is calculating risk amounts for the purposes of Parts A3.18 to A3.22 of Annexure 3 to this Schedule 1A or where this Schedule 1A expressly provides otherwise.
S1A.2.9 Unusual or Non-Standard Exposures
If a Market Participant has an exposure arising from a transaction which is not:
(a) specifically described in this Schedule 1A; or
(b) is not in a form which readily fits within this Schedule 1A,
the risk requirement of a Market Participant in relation to that exposure is the full market value of the transaction unless ASIC approves otherwise.
Note: There is penalty for this Rule.
S1A.2.9A Margin lending facilities
Where a Market Participant offers margin lending facilities to clients:
(a) the risk requirement for the exposure with respect to margin calls is:
(i) equal to 100% of the margin call that the Market Participant makes on a client, where that margin call has either not been paid by the client, or sufficient of the underlying securities have not been sold by the Market Participant to cover the margin call; and
(ii) applies from the time the margin payment was due; and
(b) where the client’s actual gearing level exceeds the maximum permitted gearing level by more than 5%, the full amount needed to bring the loan balance back to the maximum permitted gearing level must be taken as the risk requirement for the exposure immediately, regardless of whether the Market Participant has made a margin call on the client.
S1A.2.9B Hybrid ETFs
Where a Market Participant holds a principal position in a Hybrid ETF that contains a material percentage of assets other than physical Equity securities, physical Debt Instruments or property, the Market Participant must treat the position as a non-standard exposure and the risk requirement must be the full market value of the Hybrid ETF, unless ASIC approves otherwise.
S1A.2.9C Other Managed Funds
Where a Market Participant has a principal position in an Other Managed Fund that contains a material percentage of assets other than physical Equity securities, physical Debt Instruments or property, the Market Participant must treat the principal position as a non-standard exposure and the risk requirement must be the full market value of the Other Managed Fund, unless ASIC approves otherwise.
S1A.2.10 Underwriting Register
A Market Participant must maintain a register of its Underwritings which records:
(a) the date of commencement, crystallisation and termination of each Underwriting and the parties to each Underwriting;
(b) the identity, number and price of the Equities or Debt Instruments the subject of each Underwriting;
(c) the amount underwritten by the Market Participant under each Underwriting; and
(d) any reduction in the amount underwritten under each Underwriting due to an amount being: