Explanatory Memorandum
(Circulated by the authority of the Minister for Revenue and Assistant Treasurer, the Hon Peter Dutton MP)Chapter 4 Capping of Levies - National Guarantee Fund
Outline of Chapter
4.1 Item 1 in Schedule 1 of the NGF Bill and Item 1 in Schedule 3 of the Bill impose a cap on levies payable, per financial year, for the benefit of the NGF.
4.2 Schedule 1 in the NGF Bill amends the Corporations (National Guarantee Fund Levies) Act 2001 to impose the cap on levies. Schedule 3 of the Bill amends the Corporations Act to inform readers of the cap on levies.
Context of amendments
4.3 The Corporations Act requires operators of financial markets to have adequate compensation arrangements, generally for the protection of retail clients. For the ASX, the NGF provides this compensation arrangement. Claims may be made under the terms of the Corporations Regulations 2001 .
4.4 The NGF is administered by the Securities Exchanges Guarantee Corporation (SEGC), a subsidiary of the ASX. The NGF was formed when the state stock exchanges merged 20 years ago and was funded by pooling part of the assets of those exchanges. As at 30 June 2006, the NGF holds $96.8 million with the major source of funding being investment income. The NGF is not government-funded.
4.5 Section 889J of the Corporations Act allows the SEGC to levy participants and the market operator, the ASX, in the event that the amount of the NGF falls below the minimum amount set under section 889I of the Corporations Act (the minimum amount is currently set at $76 million). These levying abilities are uncapped.
4.6 Section 889K of the Corporations Act allows the ASX, as market operator, to pass on a contributory levy to participants where the operator has been levied under section 889J but only to the extent of the levy imposed on the ASX.
4.7 The NGF Act deals with the imposition and amount of levies imposed by sections 889J and 889K of the Corporations Act. It is a separate enactment for constitutional reasons.
4.8 While levies have not been imposed since the inception of the NGF currently the ASX and market participants have uncapped liabilities to refill the NGF.
4.9 The amendment provides greater certainty about the global liability of the ASX and participants to refill the NGF and removes this potential for unlimited liability to refill the NGF.
Summary of new law
4.10 Schedule 1 in the NGF Bill amends section 5 of the Corporations (National Guarantee Fund Levies) Act 2001 to cap the amount of levies that could become payable in a financial year. The Schedule 3 amendments to the Corporations Act, in the Bill, direct readers to the cap on levies.
Comparison of key features of new law and current law
| New law | Current law |
|---|---|
| There will be a cap on the amount of levies that could become payable in a financial year.
However if the imposed levy was insufficient to meet claims or refill the NGF, the SEGC could impose further levies in succeeding years provided the levy did not exceed the minimum amount each year. The existing SEGC discretion to decide who and how levies are calculated will not change except for the maximum cap on levies. |
SEGC has the discretion to decide who is levied (the ASX and/or market participants) and how the amount of a levy is calculated.
There is no cap on the amount of levies payable for the benefit of the NGF. |
Detailed explanation of new law
4.11 The measure imposes a cap on levies payable in a financial year. The cap on levies per financial year is determined by the minimum amount that is in force at the date a levy determination is made by SEGC. It is possible that more than one levy determination can be made in a financial year but the total of the levies, in a financial year, cannot exceed the minimum amount that is in force at the date a levy determination is made by SEGC. This is a limit on the ability of SEGC to determine a levy under section 5 of the Corporations (National Guarantee Fund Levies) Act 2001 .
4.12 The cap applies to levies imposed under subsection 889(J)(1) of the Corporations Act. It does not apply to levies imposed under subsection 889(K)(1) of the Corporations Act as any levy the market operator imposes on participants is already limited to the amount imposed on the market operator under subsection 889(J)(1). This means any levy by the market operator, the ASX, on market participants cannot exceed the primary levy imposed on the ASX under section 889(J).
4.13 The cap on levies payable is linked to the minimum amount of the NGF. The minimum amount is set under section 889I of the Corporations Act at $80 million or another amount set by SEGC. However any amount set by SEGC must be approved by the Minister and notified in the Gazette.
4.14 SEGC determined the current minimum amount ($76 million) in March 2005. The link to the minimum amount is appropriate as this amount reflects the needs of the NGF in light of prevailing circumstances.
4.15 As is currently the case, levies may only be imposed if the NGF falls below the minimum amount. The existing SEGC discretion to decide who is levied (that is, the market operator, the ASX and/or market participants) and how the amount of a levy is calculated has not changed, except for the cap on levies.
4.16 However if the imposed levy was insufficient to meet claims or refill the NGF, the SEGC could impose further levies in succeeding years provided the levy did not exceed the minimum amount each financial year.