ASIC today published Consultation Paper CP 319 on securities lending by agents, and subsequent disclosure of a substantial holding in a listed entity.
CP 319 explains how the relevant interest provisions in s608 and 609 apply to agent lending and therefore ASIC’s expectations for compliance with s671B. CP 319 also seeks feedback on proposed legislative relief that aims to improve substantial holding disclosure by these intermediaries, while also reducing red tape. The proposed relief is consistent with ASIC’s policy in Regulatory Guide 222 Substantial holding disclosure: securities lending and prime broking (RG 222) and Class Order [CO 11/272].
ASIC Commissioner Danielle Press said, ‘Our focus is on ensuring the market has adequate information on substantial holdings in listed entities, including substantial holdings that are derived from securities lending transactions.’
ASIC is consulting on the role played by agent lenders in securities lending and the market’s view of any exemption from substantial holding disclosure. We are seeking comments by 9 September 2019.
Background
Securities lending is a transaction where securities are transferred from the owner (the ‘lender’) to another party (the ‘borrower’), who has an obligation to return the securities or equivalent securities to the lender. Intermediaries such as prime brokers and agents may facilitate securities lending transactions.
The Corporations Act 2001 has a broad concept of ‘relevant interest’ and a securities lending transaction will usually result in the lender, intermediary and the borrower having a relevant interest in the securities. In turn, these relevant interests may trigger disclosure of a substantial holding in a listed entity (or a change in such a holding) under s671B of the Act.
[CO 11/272] defers a prime broker’s relevant interest in the client’s securities to when the prime broker exercises their borrowing right. We have also reduced red tape by providing relief from the need to attach standard securities lending agreements.
ASIC has received applications for relief in relation to s671B from agent lenders. Some intermediaries have queried whether there should be a complete exemption from s671B for any relevant interest acquired through agent lending. This is because agent lenders primarily act on client’s instructions.
At present we do not consider this would be consistent with the principles underlying s671B and s602 so as to provide a broad exemption to agent lenders if they have discretion over securities, even if they mainly act on instructions. As a result, ASIC is consulting on proposed legislative relief for agent lenders that is consistent with the relief that [CO 11/272] but we are also seeking feedback on a broader exemption.