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

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12.6 Encumbrances over lodged securitiesThe Austraclear System permits a Member (an encumbrancer) togrant an encumbrance over a security in its Security Record infavour of another Member (an encumbrancee). The encumbrancerand encumbrancee must enter into the Austraclear System thedetails of the encumbrance. Austraclear must then amend theSecurity Record of the encumbrancer so that the encumberedsecurity and its encumbrancee are identified. The effect of this is thatAustraclear thereafter will recognise the encumbrancee as theonly Member entitled to transfer or uplift the encumbered security.Regulation 9.5(b) provides that as between the encumbrancerand encumbrancee the terms of the encumbrance may be asagreed between them. If, though, the only evidence of theagreement is the entry into the Austraclear System of thenotification of the encumbrance, then:• in the case of a Paper Security, the encumbrance operates asa pledge of the security where the encumbrancee is taken tohave constructive possession of it;• in the case of a Non-Paper Security, the encumbranceoperates as an equitable mortgage with Austraclear beingregistered on the issuer’s register as “nominee” of both theencumbrancee and the encumbrancer; and• in the case of a Euroentitlement or a Dematerialised Security,the encumbrance operates as an equitable mortgage.12.7 Uplift of securitiesThe Regulations permit an owner of a security to uplift it out ofthe Austraclear System. The following uplift mechanisms are inplace for the different forms of securities lodged withAustraclear.12.7.1 Paper SecuritiesWhere a Paper Security is to be uplifted, Austraclear willwithdraw it from safekeeping, remove its details from itsOwner’s Security Record and release it to the Owner or as itdirects. If the Paper Security has been the subject ofindorsements, Austraclear must prepare and sign an allongebearing the name of each indorsing Member and attach it to thePaper Security.12.7.2 Non-Paper SecuritiesIn order to uplift a Non-Paper Security, a Transfer andAcceptance Form must be executed by Austraclear as transferorand the Uplifting Member as transferee and lodged with theissuer’s registry so as to transfer the legal title from Austraclearto the uplifting Member.12.7.3 EuroentitlementsUplifts of Euroentitlements occur by reversing their lodgementprocedure. This means that a Member must either be aparticipant in Euroclear or Clearstream or have an arrangementwith such a participant in order to uplift its Euroentitlements. TheRegulations also allow for Austraclear to require a Member touplift its Euroentitlements in certain circumstances.12.7.4 Dematerialised SecuritiesIn the case of a Dematerialised Security, a physical version of theDematerialised Security must be prepared replicating all aspectsof it, namely, the date of issue and acceptance and the payee’sindorsement (if applicable). The physical form must be presentedto the maker, issuer or drawer, and to any acceptor, for signatureby them in their respective capacities. Under regulation 10.5,Austraclear is appointed to sign any Dematerialised Security inphysical form as attorney of the Member upon uplift for whichthe Member is issuer, maker, drawer or acceptor. Once it hasbeen so signed, the physical version must be delivered toAustraclear in order for an uplift to be effected. The physicalsecurity then replaces the Dematerialised Security. However, ifthe physical security is not enforceable or is void or voidable, theDematerialised Security is “resuscitated”.12.8 The settlement of transactions through AustraclearThe settlement of the transfer of securities within theAustraclear System occurs on what is known as a “delivery -versus - payment” model. That is, ownership of securities doesnot change in Austraclear’s records until the system receivesadvice that the funds payable in respect of that transfer havebeen cleared.12.8.1 Cash Account and Security RecordAustraclear maintains a Cash Account and Security Record foreach Member. When a transaction occurs between Members,the details are entered by both of them into the AustraclearSystem. Once the transaction is “matched” in the System, itproceeds to settlement testing. A Member’s obligation to deliversecurities or to make payment is calculated on a gross basis. Ifthe relevant securities are available in the transferor Member’sSecurity Record and the necessary credit and liquidity checks69
have been completed in relation to the transferee Member, thetransfer of funds for the transaction takes place in Reserve Bankfunds across exchange settlement accounts of the correspondingParticipating Banks held with the Reserve Bank. A ParticipatingBank can control its credit exposure to a client Member bysetting a limit on the maximum debit balance of the Member’sCash Account within the Austraclear System. The system doesnot allow transactions to be settled which breach the limit.Simultaneously, the Cash Accounts and the Security Records ofthe relevant Members are updated to reflect the settlement ofthe transaction.12.8.2 PaymentThe settlement of transactions in the Austraclear System isgoverned by regulations 14, 15 and 16. Under regulation 15,payment obligations are usually settled through RITS/RTGS. ThePayments System Board of the Reserve Bank has approved theAustraclear System as an “approved RTGS system” pursuant tosection 9 of the Payment Systems and Netting Act 1998 (PSNAct). Accordingly, pursuant to section 6(1), if a Member goes into“external administration” and a payment or settlementtransaction is executed through the Austraclear System at anytime on the day on which the external administrator is appointedand the transaction involves the payment of money or thetransfer of an asset by the Member, that payment or transfer hasthe same effect it would have had if the Member had gone intoexternal administration on the next day. The PSN Act alsoprovides that section 6 has effect despite any other law.This ensures the irrevocability of completed Austracleartransactions by removing the application of the “zero hour rule”in the event of a Member’s insolvency. This rule provides that ajudicial act is taken to date from the earliest point on the day onwhich it occurs. Accordingly, any disposition of property of theMember after this time on the day of the commencement of itswinding up is void under section 468 of the Corporations Act.Without the PSN Act, any RTGS payment between midnight andthe time that a winding up order is made would be void. Thiswould result in no payment in Austraclear being presumed finaluntil the end of the day on which it was made. Accordingly, theAct ensures a completed RTGS transaction cannot be laterunwound if a Member is declared insolvent. Importantly,however, the PSN Act does not preclude the operation of section588FE of the Corporations Ac to permit a liquidator to reclaimcertain payments.12.8.3 Back-up settlement facilityIf for any reason RITS/RTGS is not operating, there is a back-upfacility for settlement in place under regulation 16. This involvesmultilateral netting between Austraclear, the Members andParticipating Banks. The Payments System Board of the ReserveBank has approved the Austraclear System as a multilateralnetting system under the PSN Act where real time settlement isnot available. Pursuant to section 10(2), a party to an approvednetting arrangement may do anything permitted or required bythe arrangement in order to net obligations incurred before or onthe day on which it goes into external administration. Section10(2)(e) provides that the netting and any payment made by theparty under the arrangement to discharge a net obligation is notvoidable in the external administration.12.9 ConclusionAustraclear plays a pivotal role in the issuance of debt securitiesand the clearance and settlement of securitisation transactions inAustralia. It provides an electronic trading and clearingenvironment, as well as custody services, for debt securities.It encourages liquidity in the market, which is an essentialprecondition to participation by many investors.The Regulations and the Operating Manual provide the legalframework for the operations of Austraclear. The next section ofthis publication reviews the position of commercial mortgage–backed securities in the Australian context.70
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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
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142.3.4 Provision of a financial se
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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 and 66: the ASX has discretion to ask the e
Page 67 and 68: • Public Trustee Members - for pr
Page 69: When Austraclear receives notificat
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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