The Australian Securities and Investments Commission (ASIC) has provided additional relief from the dollar disclosure requirements to issuers of warrants that are securities. The extension of the relief is provided under ASIC Class Order [CO 05/682].
ASIC had provided relief for disclosure in Product Disclosure Statements (PDSs) for derivatives, foreign exchange contracts, general insurance products and life risk insurance products in [CO 04/1431]. The definition of derivatives includes many types of warrants, but not all types of warrants, such as some covered warrants.
ASIC has received submissions from industry to extend the relief that it provided for warrants that are derivatives, to warrants that are securities. As the economic effect of the two types of financial products is the same, ASIC considers that the relief provided in [CO 04/1431] should apply to those warrants that are defined as securities under the Corporations Act 2001 (the Act). The relief requires that the PDS specify any significant factors that will affect the costs of acquiring the financial product and explain the impact of those factors on acquiring the financial product.
‘One of the objectives of the Financial Services Reform Act is to regulate financial products with the same economic characteristics in a similar way. ASIC has issued this relief to remove any potential for inconsistency in compliance with the dollar disclosure obligations for some types of warrant issuers’, ASIC’s Director of Regulatory Policy, Mr Mark Adams said.
Background
The Act identifies different types of financial products.
A derivative is defined in s761D of the Act as an arrangement where the value of the financial product is derived by reference to the value of some other things, such as the value of stock or an index. A security is defined in s761A of the Act as including shares, a legal or equitable interest in a share or an option to acquire by way of issue a security.
Some types of warrants give the holder the right to take up relevant underlying shares. The warrant in that case, although having the characteristics of a derivative, is considered to be a security. Paragraph 761D(3)(c) provides that where a financial product might be a security and derivative, in such a case the Act will treat the financial product as a security.
Regulation 1.0.02(1) contains a definition of warrant and this definition recognises that a warrant can be either a derivative or a security.
[CO 04/1431] relevantly only provided relief for derivatives from the dollar disclosure provisions. The relief does not apply to any types of securities. The relief in [CO 05/682] is to ensure that warrants that are securities are treated in the same manner as warrants that are derivatives, as far as the dollar disclosure obligations under the Act apply to those financial products.
Copies of [CO 05/682] and [CO 04/1431] are available from the ASIC website at www.asic.gov.au/co.
For further background information, refer to IR 04-67 ASIC issues dollar disclosure policy and Policy Statement 182 Dollar Disclosure.
End of release
Download a copy of: