ASIC has issued a new regulatory guide which outlines the circumstances under which relief will be given to investment funds from the prohibition against indirect self-acquisitions.

Indirect self-acquisition occurs where shares in a company are issued or transferred to an entity it controls. The Corporations Act 2001 voids such an issue or transfer of shares unless certain exceptions apply (refer to s259C).

Regulatory Guide 233 Indirect self-acquisition: Relief for investment funds (RG 233) provides that ASIC may grant conditional relief for investment funds and similar entities to acquire shares in their listed parent company for the benefit of investors. This relief, for example, may assist a subsidiary of a listed company that is also the responsible entity of an investment fund acquiring shares in the listed parent company on behalf of the fund under its investment mandate. ASIC may also grant conditional relief to controlled entities of listed companies engaged in index arbitrage and client-driven activities involving baskets of securities.

The guidance outlines that ASIC’s relief will be subject to conditions to address the risks associated with self-acquisitions. For instance, conditions might include a 5% limit on the total interest in a parent company that may be held by its controlled entities (subject to certain limited exclusions) and a prohibition on the voting of such shares. We will also require as a condition of relief regular reporting to the market of a controlled entity’s interests in its parent’s shares.

ASIC’s relief is likely to be used by subsidiaries of a small number of listed companies in the financial services sector who may also be subject to regulation by the Australian Prudential Regulation Authority. ASIC has previously provided relief on a case-by-case basis to these entities and has now finalised its policy after seeking feedback from industry on some issues (refer: CP 137Indirect self-acquisition by investment funds: Further consultation (CP 137); and CP 162 Indirect self-acquisition by investment funds: Further consultation – Employee share schemes (CP 162))