A Guide to the Law of Securitisation in Australia - Clayton Utz

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12 An overview of the legal aspects ofthe Austraclear System12.1 IntroductionAustraclear settles approximately $16 billion in debt securitiesand other money market transactions on a daily basis and holdson average over $500 billion of securities in its system.Austraclear clearly plays a significant role in the Australianfinancial system. Its significance is particularly evident insecuritisations in the Australian debt capital markets. The role ofAustraclear with respect to the safe custody, electronic tradingand clearing system for debt securities is crucial in thefacilitation of securitisation transactions in Australia.Accordingly, an understanding of its operations and capabilities isessential to an understanding of the practical aspects of asecuritisation in Australia, ie. the issue of debt securities.This section describes the facilities provided by Austraclear, thetypes of securities permitted to be lodged and traded within itssystem and the mechanisms adopted to minimise the credit riskto Members against the clearing system in relation to theirlodged securities.At the time of writing, Austraclear is foreshadowing that it willamend the Austraclear Regulations and the Austraclear SystemOperating Manual to coincide with the introduction of newsoftware for the Austraclear System and to reflect Austraclear’srecent regulation pursuant to Pt 7.3 of the Corporations Act .This will lead to changes in terminology (for example, from“Member” to “Participant”) and to the combination of theAustraclear rules into a single document. Nevertheless, thefundamental nature of the Austraclear System as well as therelationship, rights and obligations of Members will not change.12.2 Austraclear, the Austraclear System and its servicesAustraclear Ltd was established in September 1984. It is alicensed clearing and settlement facility under Pt 7.3 of theCorporations Act. As such, it must comply with the requirementsof that Part, including the Reserve Bank of Australia’s financialstability standards under section 827D.The services provided by Austraclear to its Members occurswithin the “Austraclear System”. The Austraclear Systemprovides four key functions:• the lodgement of securities – Austraclear has a depositoryservice which allows its Members to lodge paper debtsecurities with Austraclear;• the safe custody of paper securities – Austraclear arrangesfor paper securities lodged with it to be kept in a safemanner and deposits those securities in safe-keepingaccommodation;• the entry of transactions – Austraclear provides a facility forthe electronic transfer between Members of the securitieslodged with it; and• the settlement of transactions – Austraclear provides forsettlement of transactions within its system with thesimultaneous payment for securities on a real time grossbasis and the transfer of clear title to those securities.Austraclear Services Ltd, a wholly-owned subsidiary, also offersissuing and paying agent and registry services for issuers of debtsecurities.The Austraclear System is constituted by the Regulations and theOperating Manual. Each Member is bound by and must complywith the Regulations and the Operating Manual. The OperatingManual supplements the Regulations and sets out the day to daydetails for implementing the provisions of the Regulations.12.3 Membership of AustraclearFinancial institutions wishing to use the Austraclear System arerequired to become Members. There are at present over 600Members, who comprise major participants in the debt capitalmarkets, including banks, government and semi-governmentbodies, insurance and superannuation companies, trusteecompanies, non-bank financial institutions and largercorporations. There are four classes of Membership available tosuit a participant’s level of activity or status. These are:• Full Membership – for professional dealers and otherparticipants in the debt capital markets.• Associate Membership – for occasional participants in thefinancial markets. An applicant for an Associate Membershipmust be nominated by a Full Member. An Associate Memberhas all the responsibilities of a Full Member, but is subject toa number of important limitations on its activities in theAustraclear System.• Special Purpose Members – this category has four types ofMembers being clearing houses, exchanges, regulatorybodies and any other kinds of entities approved by theAustraclear Committee. The Austraclear Committeeperiodically determines the rights and obligations of theSpecial Purpose Members.65
• Public Trustee Members – for professional trustees of trustfunds to access the Austraclear System. Regulation 5.3provides that the liability of a Public Trust Member in respectof transactions and acts or omissions is limited and will notexceed the assets of the trust for which that member istrustee and which is available to meet that liability.Regulation 3.5 requires each Member to arrange for aParticipating Bank to make payments in the system on theMember’s behalf. Under regulation 1.1 a “Participating Bank” isa bank or other entity which is a member of the Reserve BankInformation and Transfer System (RITS) and Real Time GrossSettlement System (RTGS) and has an exchange settlementaccount with the Reserve Bank. The RITS/RTGS is the systemowned and operated by the Reserve Bank for the real time grosssettlement of transfers between accounts of Participating Bankswith the Reserve Bank.A Member must maintain a Nominated Account with itsParticipating Bank. Pursuant to regulation 3.6(b), a ParticipatingBank is liable for the obligations of its client Member under theRegulations if the Member becomes insolvent and has failed tofulfil its outstanding obligations in relation to any transactionwhich has been settled by the Member through its ParticipatingBank. Although a Participating Bank does not guarantee its clientMember’s obligations generally, it does in effect underwrite theircreditworthiness to other counterparty Members in relation tosettled transactions.12.4 The relationship between Austraclear and its MembersThe Regulations seek to create a multilateral contract betweenAustraclear, its Members and Participating Banks. Regulation23.3 provides that:“(d) [the] Regulations are a valid, binding and enforceablecontract between each and every Member, Participating Bankand Austraclear; and(e) in contracting pursuant to the preceding paragraph with eachMember and each Participating Bank, Austraclear contractsas agent and trustee for each other Member and each otherParticipating Bank as well as on its own behalf, so that therights which Austraclear thereby has to enforce theseRegulations as a contract against any person will be rightsexercisable on its own behalf as well as on behalf of and forthe benefit of all other members which are Members orParticipating Banks from time to time.”Regulation 23.4 also provides that “unless expressly agreed,neither Austraclear nor another person, by reason of [the]Regulations, the Operating Manual or any other documentrelating to the System has a fiduciary relationship with, or istrustee for a Member, a Participating Bank or another person”.12.5 What types of securities can be lodged in Austraclear?Four types of securities can be lodged and traded within theAustraclear System:• Paper Securities;• Non-Paper Securities;• Euroentitlements; and• Dematerialised Securities.12.5.1 Paper SecuritiesParagraph 1.1(g) of the Operating Manual specifies the kinds ofsecurities acceptable for lodgement in the Austraclear System asPaper Securities. The Paper Securities which are accepted byAustraclear are set out in regulation 1.1 and include bank andnon-bank negotiable certificates of deposit, promissory notes andbills of exchange which, in each case, meet certain criteria.Representations and warrantiesA Member lodging a Paper Security in the Austraclear Systemprovides the representations and warranties in regulation 7.5.These include that the Paper Security and the signaturesappearing on it are genuine and not forged or fraudulent; thatthe Member has, or has a right to pass, good and unencumberedtitle to the Paper Securities; that it is duly drawn, accepted orendorsed as appears on it; and that the Member will be liable forany apparent or concealed defects concerning the Paper Security.Paper Securities are physically lodged with Austraclear.Regulation 7.8 provides that Austraclear must arrange for allPaper Securities to be kept in a secure manner and forAustraclear to deposit Paper Securities in the safe-keepingaccommodation provided by it.Lodgement, transfers and Bills of Exchange ActWhen a Paper Security is lodged by a Member, Austraclearrecords the Paper Security in the Member’s Security Record. Thelegal title to the Paper Security remains with the lodgingMember. Austraclear holds the Paper Security as bailee for thelodging Member and each subsequent Member in whoseSecurity Record it appears from time to time.66
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12.7.3 Euroentitlements............
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1 General overview of the nature of
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An interest in a managed investment
Page 15 and 16: 142.3.4 Provision of a financial se
Page 17 and 18: 3 The disclosure and civil liabilit
Page 19 and 20: 18The statutory source for this ste
Page 21 and 22: The implication of this approach in
Page 23 and 24: Interestingly, the majority then we
Page 25 and 26: 4 Stamp duty and securitisation244.
Page 27 and 28: 264.8 Relief for mortgage-backed se
Page 29 and 30: 4.10 ConclusionStamp duty is a very
Page 31 and 32: Despite the absence of an express a
Page 33 and 34: 32share of the profits of the compa
Page 35 and 36: (d) before the issue:(i) the compan
Page 37 and 38: 365.4 Debt/equity rulesDivision 974
Page 39 and 40: Entities that make GST-free supplie
Page 41 and 42: • “ enterprise” is defined in
Page 43 and 44: 6 The Consumer Credit Code andsecur
Page 45 and 46: 7 The regulation of the participati
Page 47 and 48: inclusion within the ELE depends on
Page 49 and 50: 8 Set-off and securitisation8.1 Int
Page 51 and 52: 50However, this result and the prin
Page 53 and 54: 9 Insolvency and securitisation529.
Page 55 and 56: 54• if the trustee has not limite
Page 57 and 58: Section 588FG provides a measure of
Page 59 and 60: 10 Issues relating to debt securiti
Page 61 and 62: 60indemnity existed) and had no han
Page 63 and 64: The effect of the decision has been
Page 65: the ASX has discretion to ask the e
Page 69 and 70: When Austraclear receives notificat
Page 71 and 72: have been completed in relation to
Page 73 and 74: Some CMBS transactions allow the is
Page 75 and 76: 14.3 GamingIn the past, another con
Page 77 and 78: 16 Clayton UtzOur securitisation te
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A Guide to the Law of Securitisation in Australia - Clayton Utz

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