ASIC Grants Class Waiver Relief To ASX 24 Market Participants

ASIC has today issued class waiver relief to allow market participants of the ASX 24 Market to insert a limitation of liability (LOL) clause in their client agreements with trustees, subject to certain conditions.

The class rule waiver relieves ASX 24 market participants of their obligations under Rule 2.2.5(1)(b)(vi) of the ASIC Market Integrity Rules (ASX 24 Market) 2010, which imposes a requirement that the agreement must contain an acknowledgment by the client that the client is responsible to pay in cash any deficit owing in relation to a margin to the market participant after the closing out of a contract and that, if the client defaults in payment of such a deficit, the market participant may realise any securities held by the market participant and apply the proceeds against that deficiency.

The effect of the class rule waiver is that ASX 24 market participants can include a limitation of liability clause in an agreement with a client who is a trustee of a trust, and/or, an operator of a managed investment scheme.This is consistent with current business practice, and means the client’s liability to pay deficits in margins is limited to the extent that the client has a right to be indemnified for that liability from the assets of the trust or fund operated by the trustee client.

ASX 24 market participants are best equipped to assess the financial stability of the client and their positions, and therefore are able to determine the risks involved when deciding whether to allow a limitation of liability. The class rule waiver also generates a consistency of approach by ASIC for ASX 24 market participants. As the LOL clauses are already standard features for trustees of trusts, the issuing of the class rule waiver ensures that normal business practice can continue to apply.

The waiver is subject to certain conditions. These conditions include that the market participant maintain a written record of all clients for whom the waiver is relied upon, as well as having an agreement that allows the market participant reasonable access to the accounts and records of the client to enable assessment of exposure to the trust or fund.

Background

Since 1 August 2010, ASIC has received and granted a number of applications for waiver of Rule 2.2.5(1)(b)(vi) of the ASIC Market Integrity Rules (ASX 24 Market) 2010 to allow market participants to insert a limitation of liability clause in their client agreements with trustees.

The waiver creates a level of consistency for all ASX 24 market participants, and allows market participants to continue to determine whether they can assume and monitor the risk of default by their clients.

ASIC informally consulted with a number of market participants and AFMA before making the class waiver, with feedback overwhelmingly in support of the proposal.

View the class rule waiver