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CHAPTER 9 TITLE AND TRANSFER

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					CHAPTER 9  TITLE AND TRANSFER


PRELIMINARY
9.1   The title to securities and the transfer of financial products was addressed in
Chapter 9 of the Consultation Paper.

9.2   It envisaged amendments:

      N   to facilitate the transfer of title to securities (and possibly other financial products)
          by clearing and settlement facilities other than the Securities Clearing House; and

      N   moving many of the procedural provisions which are currently in Part 7.13 of the
          Corporations Law into the Regulations.

9.3   Proposed Part 7.9 will implement these reforms and replace Part 7.13 of the
Corporations Law.




DIVISIONS 1 AND 2  TITLE TO AND TRANSFER OF
CERTAIN SECURITIES
9.4   The provisions currently in Division 1 and 2 of Part 7.13 will be amended:

      N   to refer to prescribed clearing and settlement facilities (and their operating rules)
          rather than to the Securities Clearing House (and its business rules);

      N   to refer to regulations (where the relevant provisions have been moved from the
          Law into the Regulations);

      N   to correct several cross-references; and

      N   to make some minor drafting improvements.

          
 These include shorter sentences and the reordering of provisions so that
             groups of sections will deal with the same types of interests.




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Chapter 9    Title and transfer

9.5        The table below compares the provisions:

 Proposed          Current                                         Subject
 section           section
 Division 1     Title to certain securities
 1010A             1085            Nature of shares and other membership interests in a company
 1010B             1086            Numbering shares
 1010C             1087            Share certificate to be evidence of title
 1010D             1089            Loss or destruction of title documents for certain securities
 Division 2     Transfer of certain securities
 Subdivision A — General provision
 1011A             in part -       Application of the Division
                   section 1090
                                   Proposed section 1011A defines ‘securities’ for the purpose of the
                                   Division, and thus avoids the need to repeat ‘shares, debentures or
                                   interests’ and the need for section 1090.
 1011B             1091            Instrument of transfer
 1011C             1111            Occupation need not appear in transfer document, register etc
 1011D             1092            Registration of transfer at request of transferor
 1011E             1093            Notice of refusal to register transfer
 1011F             1094            Remedy for refusal to register transfer or transmission
 1011G             1095            Certification of transfers
 1011H             1096            Duties of company with respect to issue of certificates
 Subdivision B — Special provisions for shares
 1012A             1091AA          Transmission of shares on death (Replaceable rule)
 1012B             1091AB          Transmission of shares on bankruptcy (Replaceable rule)
 1012C             1091A           Rights of trustee of estate of bankrupt shareholder
 1012D             1091B           Transmission of shares on mental incapacity (Replaceable rule)
 1012E             1091C           Trustee etc may be registered as owner of shares
 1012F             1091D           Registration of transfers (Replaceable rule)
 1012G             1091E           Additional general discretion for directors of proprietary companies to
                                   refuse to register transfers (Replaceable rule)
 1012H             1096A           Notices relating to non-beneficial and beneficial ownership of shares


Definition of ‘Issue’
9.6      While the current provisions refer to ‘allotment’ (for example, section 1096), the
comparable proposed provision refers to ‘issue’. The proposed change is in line with the
CLERP Act and would not appear to alter the obligations in the relevant provisions (although
it is acknowledged that allotment and issue are separate steps).




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                                                                      Chapter 9    Title and transfer

DIVISION 3 — TRANSFER OF CERTAIN SECURITIES EFFECTED
OTHERWISE THAN THROUGH A PRESCRIBED CLEARING AND
SETTLEMENT FACILITY
9.7     The purpose of proposed Division 3 is to replace Subdivision B, Division 3 of
Part 7.13 of the Corporations Law (that is, sections 1099A to 1109) and the relevant
definitions in Subdivision A.

9.8    The major change will be to move the detailed procedural requirements (including
the forms currently found in Schedule 2) into the Regulations.

9.9    This will be facilitated by the Regulation-making power in proposed section 1013B.

9.10   In addition the following amendments have been made:

       N   in place of the definition of ‘eligible body’ in subsection 1097(1), proposed
           section 1013A provides that proposed Division 3 applies to certain specified
           bodies as if they were companies;

       N   in place of the definitions of ‘marketable security’, ‘marketable right’ and
           ‘prescribed security’, proposed subsection 1013B(1) describes the kinds of
           securities to which proposed Division 3 applies;

       N   in place of section 1099A, proposed subsection 1013B(1) provides that the
           regulations do not apply to a transfer of a security effected through a prescribed
           clearing and settlement facility; and

       N   in place of section 1113A, proposed section 1013C provides for ASIC’s power to
           extend the regulations to securities otherwise not covered by the regulations.



DIVISION 4 — TRANSFER OF FINANCIAL PRODUCTS EFFECTED
THROUGH A PRESCRIBED CLEARING AND SETTLEMENT FACILITY
9.11   The aim of these provisions is to be facilitative (offering efficiencies to the financial
services industry), rather than requiring that financial products be transferred in a particular
way.


Prescribed clearing and settlement facilities
9.12    The basic purpose of proposed Division 4 is to support transfers effected through
prescribed clearing and settlement facilities, in a manner comparable to the support currently
provided to Securities Clearing House-regulated transfers under Subdivision C, Division 3 of
Part 7.13 of the Corporations Law.

9.13   What is crucial is that the transfers are effected through a prescribed clearing and
settlement facility. It is not relevant whether the transaction was entered into on-market or
off-market.
9.14   Proposed Division 4 therefore creates a new concept        the prescribed clearing and
settlement facility (see proposed section 1014A). This is defined as:

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Chapter 9       Title and transfer

           N      a licensed clearing and settlement facility (or a facility which is licensed under the
                  comparable regulatory regime to be included in the Payment Systems Regulation
                  Act 1998); and

           N      which is prescribed by the regulations for the purpose.

9.15    It is expected that the Minister will have regard to the adequacy of the arrangements
for the transfer of title pursuant to these provisions before recommending that the clearing
and settlement facility be prescribed.

9.16    This consideration will address, among other things, how the difficulties which may
result if more than one clearing and settlement facility is handling the transfer of the
financial products of the one issuer have been resolved. (This may arise in connection with a
number of issues including those currently addressed in sections 1109N and 1109P. )

9.17   There may also need to be links established between clearing and settlement facilities
handling the financial products of the one issuer.
9.18   Ongoing oversight of this issue will be provided through vetting of the operating
rules.
9.19    The Securities Clearing House is expected to receive prescribed status through a
transitional provision.

9.20     The subject matters relating to the transfer of financial products such a prescribed
facility may deal with in its operating rules are described (proposed section 1014B). They
include the financial products that may be transferred through the facility and what amounts
to a proper or sufficient transfer of a financial product through the facility. Amendments to
the operating rules must be lodged and are subject to disallowance under proposed
Subdivision B, Division 3 of Part 7.3.



Ambit

Financial products

9.21   The proposed amendments will widen the potential ambit of the provisions to
financial products.
9.22    This does not mean that all financial products will be able to be transferred in this
manner. For example, benefits under a retirement savings account cannot be assigned;
similarly the transfer of a superannuation interest of a member or beneficiary is generally
prevented. Some other products are unlikely to be traded (and hence their transfer is
unlikely to be effected through a clearing and settlement facility).
9.23    Which financial products will a prescribed clearing and settlement facility be able to
transfer under these provisions? It is proposed that this not be specified, but there will be
limits imposed through:
           N      the conditions on the licence of the clearing and settlement facility which specify
                  the financial products for which it can provide its services;

           N      the vetting (and possible disallowance) of operating rules of the clearing and
                  settlement facility;




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                                                                        Chapter 9    Title and transfer

         N   any need for specific regulations under Division 4 to support the transfer of a
             particular financial product; and
         N   the body of law relating to conflicts of laws, and the rules of statutory
             interpretation as to what Division 4 (see particularly proposed section 1014D(6))
             will override.


 Issue 9.1

 Are the limitation mechanisms appropriate?

 (a)     Should the kinds of financial products which can be transferred by virtue of these
 provisions through particular prescribed clearing and settlement facilities be listed (for
 example, in regulations when the facility is prescribed, or in specific conditions on its
 licence)?

 (b)    Are there any financial products which prescribed clearing and settlement facilities
 should be prohibited, on the face of the Corporations Law, from transferring under these
 provisions?



Credit

9.24  It should be noted that, with the excision of credit from the definition of financial
product, credit instruments will not be able to be transferred under the Division 4 provisions.


 Issue 9.2

 Is there a need to expand the kinds of products which could be transferred under the
 Division 4 provisions to include credit instruments?



Other assets

9.25  These provisions do not apply to a wider class of assets which are not financial
products, such as bullion.
9.26    However, a prescribed clearing and settlement facility may wish to provide services
in relation to a wider class of assets using the infrastructure established to provide services
for financial product transactions.

Equitable interests in financial products

9.27    While it is the intention that these provisions could be used to facilitate the transfer of
equitable interests in financial products (see the proposed definition of ‘transfer’ in proposed
section 761A), there will be no separate set of provisions relating to equitable interests.

Effect on current mechanisms

9.28    The proposed provisions will not affect the current mechanism for transferring
financial products which are not subject to proposed Division 3 and which are not
transferred through a prescribed clearing and settlement facility in accordance with
proposed Division 4.
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Chapter 9       Title and transfer

Use of regulations
9.29   The proposed amendments will move many of the more detailed, procedural
provisions currently in Subdivision C, Division 3 of Part 7.13 into the Regulations (see
proposed section 1014D).

9.30       Other supporting provisions are to be included in the Law:

           N      if a transfer of a financial product is effected through a prescribed clearing and
                  settlement facility and in accordance with the operating rules of the facility, the
                  transfer is valid and effective for the purposes of any law or instrument governing
                  or relating to the way in which the financial product may be transferred
                  (proposed section 1014C(1)); and

           N      substantial compliance is to be determined under the operating rules of the
                  facility (proposed subsection 1014C(2));

                  
 This replaces the approach taken in section 1097D.

9.31   The regulation-making power in proposed section 1014D will cover the subjects
presently addressed in sections 1109A to 1109P.

9.32   Proposed section 1014E, which provides protection from civil liability for a person’s
contravention of prescribed clearing and settlement certificate cancellation rules, follows
current section 1112D.



DIVISION 5 — OPERATION OF DIVISIONS 3 AND 4 AND
REGULATIONS MADE FOR THE PURPOSES OF THOSE DIVISIONS


Operation of Divisions 3 and 4
9.33   Proposed section 1015A, which relates to the operation of the provisions, is based on
current section 1110 (and the definition of ‘legal representative’ in subsection 1097(1)). In
general terms, it addresses the relationship between the provisions of proposed Divisions 3
and 4 and, for example, the terms and conditions on which the financial products are sold
and the use of other forms of transfer.



Offences
9.34     The Corporations Law currently provides (in sections 1112 to 1112B) certain offences
in relation to:

           N      stamping of a broker’s stamp on a sufficient transfer;

           N      inclusion of identification codes in proper Securities Clearing House transfers;
                  and

           N      contravention by a broker of the Securities Clearing House certificate cancellation
                  provisions relating to the use of cancellation stamps.


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                                                                     Chapter 9    Title and transfer

9.35    The current provisions will not be appropriate under the proposed regulatory
framework because the subject matter is to moved into the Regulations and provision is
being made for transfers through prescribed clearing and settlement facilities other than the
Securities Clearing House to be supported by the Law.

9.36    Because the current offence provisions are tied directly to the procedure of the
Securities Clearing House, it is proposed that a Regulation-making power be included which
would allow for comparable offences (with comparable penalties) to be created through the
Regulations (proposed section 1015B).

9.37   This would necessitate an amendment of the Corporations Act 1989 because the
current penalties for breach of the relevant provisions exceeds the maximum penalty which
can be prescribed through the regulations (paragraph 22(w) of the Corporations Act 1989).



Civil liability
9.38   The Corporations Law currently includes provisions which address civil liability:

       N   of a broker when he or she contravenes the Securities Clearing House certificate
           cancellation provisions (section 1112C); and

       N   of an issuer when a broker contravenes the certificate cancellation provisions
           (section 1112D).

9.39   Again, this issue is to be addressed in regulations (proposed section 1015C) so that
the procedure of other prescribed clearing and settlement facilities can be taken into account.



ASIC’s power to exempt and modify
9.40   ASIC will be given extensive powers to grant an exemption from Part 7.9 (and the
relevant regulations) or modify provisions (proposed section 1016A).

9.41   Such an exemption or declaration must be gazetted (proposed subsection 1016A(5)).



OTHER MATTERS

Provisions which are not replicated
9.42   The following provisions have not been replicated:

       N   section 1099 stamping of documents; and
       N   section 1109M  trustees and legal representatives may be Securities Clearing
           House participants.




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Chapter 9    Title and transfer


 Issue 9.3

 (a)        Is the omission of sections 1099 and 1109M appropriate?

 (b)        Are there other proposed provisions which are no longer needed (for example,
            proposed section 1010B)?




Other relevant amendments
9.43   The Commonwealth Inscribed Stock Act 1911 (CIS Act) will continue to be the principal
law governing the issue and handling of Commonwealth Government Stock (CGS).
However, the revised definitions relating to the types of financial products which may be
cleared and settled through licensed clearing and settlement facilities regulated under the
Corporations Law will facilitate the handling of CGS by such facilities. Complementary
amendments to the CIS Act, which will facilitate the electronic clearance and settlement of
CGS by such facilities, are expected to be introduced at the same time as the Financial
Services Reform Bill.

9.44       Proposals for an electronic bill of exchange are also under consideration.



Equitable mortgages over uncertificated securities
9.45   Several submissions confirmed that there had been what was referred to as
‘inadequate arrangements’ in respect of security interests in uncertificated securities.

9.46   However, the submissions received and the material already held on this issue
indicate no consensus on a solution to this issue.

9.47   As there is no consensus on an amendment which would address the problems
experienced, no proposed amendment is included in the draft provisions.

9.48  The issue has, however, been referred to the Companies and Securities Advisory
Committee (CASAC) for its consideration and it is hoped that CASAC will report to the
Government by the end of the consultation period.

9.49   A related issue, which was brought forward in several submissions, is the scope of
the exception in paragraphs 262(1)(g)(i) and (ii) and 262(2)(b) (which relate to the registration
of charges).

9.50   The argument was put that charges created through devices used in substitution for
deposit of a share certificate should also be excluded from Chapter 2K.

9.51       This issue has also been referred to CASAC.




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                                                                      Chapter 9    Title and transfer

Dematerialising all share certificates
9.52   One submission received in response to the Consultation Paper proposed that credit
unions be exempted from the legislative requirement to issue share certificates in relation to
the permanent share capital of credit unions.

9.53   While it has been decided not to pursue this proposal in legislative form, those who
favour it may wish to pursue it in more detail with ASIC which will have the power to
modify the relevant provisions.



Stamp duty
9.54   It appears that:

       N     the rate of stamp duty payable on transfers following transactions on the ASX is
             not the same as the duty which would be payable if the same transaction took
             place on, for example, the Newcastle Stock Exchange; and

       N     that the mechanisms for payment vary depending on whether the transfer is
             under the rules of the Australian Stock Exchange’s Securities Clearing House or
             through other means.

9.55   This arrangement is inconsistent with the notion of a ‘level playing field’ embodied in
these reforms and may obstruct the competitive aim of the amendments in proposed
Division 4 which are described above.

9.56  This is an issue which would be appropriately dealt with through the Ministerial
Council for Corporations.

9.57    The Corporations Agreement provides that the Commonwealth will not stand in the
way of the continued collection of State stamp duty and will, if necessary, facilitate as far as
practicable the removal of any perceived impediments to the continued levying of State
stamp duty on relevant transactions as a result of the passage of the national scheme laws.



Transfer of life insurance policies
9.58    Several submissions suggested that the requirements to transfer life insurance
policies is currently excessively cumbersome.

9.59    The Government urges those parties interested in this issue to make submissions, in
the light of proposed Part 7.9, as to what mechanisms they consider would be appropriate.


 Issue 9.4

 Submissions are sought on the appropriate mechanism for the transfer of life insurance
 policies, in the light of proposed Part 7.9.




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