(a) an authorised deposit taking institution under section 5 of the Banking Act 1959 (Cth);
(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).
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).
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.
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 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.
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.
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 Person 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 operating rules of a Market;
(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).
(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.
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.
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.
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.
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:
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.
Non-Standard Risk Requirement means the amount calculated in accordance with Rule S1A.2.9 to cover unusual or non-standard exposures.
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.
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 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.
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.
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.
Risk-Based Capital Requirements means the requirements set out in Schedule 1A.
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.
Underwriting Risk Requirement is the absolute sum of the risk amounts calculated in accordance with Annexure 4 to this Schedule 1A.
Part 9.1 Application of Rules
9.1.1 Principal Traders and Clearing Participants
This Chapter does not apply to:
(a) a Market Participant that is only approved as a Principal Trader; or
(b) a Market Participant that is a Clearing Participant of an Approved Clearing Facility and complies with the capital requirements under the Clearing Rules.
Part 9.2 Risk-Based Capital Requirements—Reporting
9.2.1A Risk-Based Capital Requirements: Forms
In this Part 9.2:
Ad Hoc Risk-Based Return means a return containing the information in, and in the form set out in, Part 1 of Form 1 in Schedule 1C to these Rules.
Annual Audited Risk-Based Return means a return containing the information in, and in the form set out in, Part 1 of Form 3A in Schedule 1C to these Rules, except for the section Credit Facilities & Overdraft (coded “CFO”).
Monthly Risk-Based Return means a return containing the information in, and in the form set out in, Part 1 of Form 3A in Schedule 1C to these Rules.
Risk-Based Return Declaration means a declaration containing the information in, and in the form set out in, Part 2 of Form 2 in Schedule 1C to these Rules.
Summary Risk-Based Return means a return containing the information in, and in the form set out in, Part 1 of Form 3A in Schedule 1C to these Rules, except for the following sections:
(a) Underwriting Risk Requirement (coded “URR”);
(b) Non Standard Risk Requirement (coded “NRR”); and
(c) Credit Facilities & Overdraft (coded “CFO”).
9.2.1 Risk-Based Capital Requirements—Ad hoc or summary return on request by ASIC
A Market Participant must, if requested to do so by ASIC, provide ASIC with:
(a) an Ad Hoc Risk-Based Return; or
(b) a Summary Risk-Based Return and Risk-Based Return Declaration,
authorised by one director or partner of the Market Participant, within the time specified by ASIC in the request.
9.2.2 Core Capital or Liquid Capital below minimum
(1) A Market Participant must notify ASIC immediately if its:
(a) Core Capital is at any time less than the minimum amount required by paragraph S1A.2.1(b); or
(b) Liquid Capital divided by its Total Risk Requirement is equal to or falls below 1.2.
(2) A Market Participant must provide ASIC with at the option of ASIC, an Ad Hoc Risk-Based Return, or a Summary Risk-Based Return and Risk-Based Return Declaration, disclosing the amount of its Liquid Margin:
(a) no later than one Business Day after notifying ASIC under subrule (1); and
(b) from then on, either:
(i) by 10 am on the first Business Day of each week, showing the financial position of the Market Participant on the last Business Day of the prior week, for so long as the amount referred to in paragraph (1)(b) is equal to or less than 1.2 but greater than 1.1; and
(ii) by 10 am on each Business Day, showing the financial position of the Market Participant on the prior Business Day, for so long as the amount referred to in paragraph (1)(b) is 1.1 or less.
(3) The return referred to in subrule (2) must be authorised by one director or partner of the Market Participant.
9.2.3 Monthly Risk-Based Return
A Market Participant must prepare and deliver to ASIC within 10 Business Days of the end of each calendar month, the following documents and information:
(a) if the Market Participant is not a partnership, a Monthly Risk-Based Return, which accurately reflects the Market Participant’s accounts and financial position on the last Business Day of the previous calendar month;
(b) if the Market Participant is not a partnership, a Risk-Based Return Declaration relating to the Monthly Risk-Based Return, authorised by one director of the Market Participant;
(c) if the Market Participant is a partnership, a Monthly Risk-Based Return, which accurately reflects the Market Participant’s accounts and financial position on the last Business Day of the previous calendar month, or such other alternative form of return as ASIC directs under this paragraph; and
(d) if the Market Participant is a partnership, a Risk-Based Return Declaration relating to the Monthly Risk-Based Return, authorised by one partner of the Market Participant, or such other alternative form of declaration as ASIC directs under this paragraph.
9.2.4 Annual Audited Risk-Based Return
(1) A Market Participant must prepare and deliver to ASIC:
(a) within three months following the end of the Market Participant’s financial year if the Market Participant is not a partnership; or
(b) within two months following the end of the Market Participant’s financial year if the Market Participant is a partnership,
the following documents and information:
the Market Participant’s statutory accounts, including directors’ declaration and audit report as required under the laws of the Market Participant’s home jurisdiction, which give a true and fair view of the financial position and performance of the Market Participant’s business as at the end of the financial year and which are prepared in accordance with accounting standards and principles which are generally accepted in Australia, unless ASIC determines otherwise;
(d) if the Market Participant is not a partnership, an Annual Audited Risk-Based Return, which accurately reflects the Market Participant’s accounts and its financial position as at the end of the Market Participant’s financial year;
(e) if the Market Participant is not a partnership, a Risk-Based Return Declaration relating to the Annual Audited Risk-Based Return, authorised by two directors of the Market Participant or by one director in accordance with a resolution of the board of directors of the Market Participant;
(f) if the Market Participant is a partnership, an Annual Audited Risk-Based Return, which accurately reflects the Market Participant’s accounts and its financial position as at the end of the Market Participant’s financial year, or such other alternative form of return as ASIC directs under this paragraph;
(g) if the Market Participant is a partnership, a Risk-Based Return Declaration relating to the Annual Audited Risk-Based Return, authorised by two partners of the Market Participant, or such other alternative form of declaration as ASIC directs under this paragraph;
(h) an auditor’s report on the Annual Audited Risk-Based Return or the alternative form of return directed by ASIC under paragraph (f), in the form set out in Form 5 in Schedule 1C to these Rules, dated and signed by the audit firm;
(i) a statement (the Key Risks and Internal Systems Statement) in the form set out in Form 6 in Schedule 1C to these Rules, dated and signed by two directors of the Market Participant or by one director in accordance with a resolution of the board of directors of the Market Participant (the date of the resolution must be specified), or, if the Market Participant is a partnership, by two partners of the Market Participant; and
(j) the Market Participant’s group structure chart showing the Market Participant’s corporate ownership structure starting at the ultimate parent, dropping down to the immediate parent, the Market Participant, any subsidiaries (including nominee companies of the Market Participant) and any related/associated companies of the Market Participant.
(2) If the financial year end of the Market Participant is other than 30 June, the Market Participant must notify ASIC of its financial year end.
9.2.5 Partnership Statutory Declaration
A Market Participant that is a partnership must give ASIC, within 10 Business Days after the end of June and December each year, for each partner of the Market Participant, a declaration (the Partnership Statutory Declaration) in the form set out in Form 7 in Schedule 1C to these Rules, signed by the partner to which the Partnership Statutory Declaration relates and witnessed in accordance with the instructions included on the Partnership Statutory Declaration.
Part 9.4 General
9.4.1 Alternate director
Where a Market Participant has appointed an alternate director in accordance with section 201K of the Corporations Act and the constitution of the Market Participant, the alternate director may authorise or sign the forms referred to in Part 9.2 only if the Market Participant has provided ASIC with:
(a) the details of the appointment of the alternate director; and
(b) a statement that the Market Participant’s constitution permits the appointment of the alternate director.
9.4.2 Use of Return Lodgement and Monitoring System
(1) Unless otherwise directed by ASIC, a Market Participant may comply with the following provisions:
(a) Rule 9.2.1;
(b) subrule 9.2.2(2);
(c) Rule 9.2.3;
(d) paragraphs 9.2.4(1)(d) to (g),
by submitting the information required to be delivered to ASIC under those provisions to the electronic Return Lodgement and Monitoring system maintained by a Market operator.
(2) Where a Risk-Based Return Declaration is submitted to the electronic return lodgement and monitoring system maintained by a Market operator, each reference in that Risk-Based Return Declaration to the ASIC Market Integrity Rules (ASX Market) 2010 is taken to be a reference to these Rules.
Note. 1: Before 26 May 2014, equivalent requirements in these Rules were set out in the ASIC Market Integrity Rules (ASX Market) 2010.
Note 2: There is no penalty for this Rule.
Part 9.5 Scope of audits
9.5.1 Market Participant to assist auditor
(1) A Market Participant must give its auditor access to its premises and Employees and all records, documents, explanations and other information required by the auditor in respect of any audit conducted under Part 9.2.
(2) A Market Participant must:
(a) not impose any limitation on the extent of any audit required under Part 9.2; and
(b) permit and direct the auditor to notify ASIC immediately if any limitation is imposed on the auditor, or if the auditor is hindered or delayed in the performance of the auditor’s duties.
(3) The records of each of the Market Participant’s nominee companies must be included in the audit.