3.3.2 Financial product

  1. Determining “what is” and ‘what is not” a financial product

    As to “what is” and “what is not” a financial product, see section 763A [Definitions], section 764A [specific things that are financial products (subject to Subdivision D)] and section 765A

    An “interest” in a managed investment scheme that falls WITHIN the requirements for registration under section 601ED(1) [i.e. it has more than 20 members or was established by a person (promoter) who is in the business of dealing in interests in such schemes] is a “financial product” and subject to regulation.

    Under section 765A(1)(s), an “interest” in a managed investment scheme that falls OUTSIDE of the requirement for registration under section 601ED(1) [i.e. it DOES NOT have more than 20 members and was established by a person (promoter) who WAS NOT in the business of dealing in such interests], is not a “financial product” and therefore falls outside Chapter 7 [Financial Services and markets] altogether, save for the provisions of section 1010B [Part does not apply to financial products not issued in the course of a business], which effectively deem all “issues” of interests in a managed investment product “is taken to occur in the course of a business of issuing financial products”. The provisions of that section are relevant to section 1012E [“Personal Offers” under the 20/12 Rule].

    Section 1010B states:

    “Part does not apply to financial products not issued in the course of a business

    1. Apart from Division 5A, nothing in this Part applies in relation to a financial product that is not or was not issued, or that will not be issued, in the course of a business of issuing financial products.
    2. For this purpose, the issue of:

      1. any managed investment product; or
      2. any foreign passport fund product; or
      3. any superannuation product;
      is taken to occur in the course of a business of issuing financial products”.

  2. Determining what activity constitutes “dealing in a financial product”

    The term “dealing in a financial product” includes “issuing”, “underwriting”, and “disposing of”, the product.

    The following conduct (whether engaged as principal or agent) constitutes “dealing in a financial product”:

    • “applying for” or “acquiring” a financial product;
    • “issuing” a financial product;
    • in relation to securities or managed investment interests – “underwriting” the securities or interests;
    • “varying” a financial product; and
    • “disposing of” a financial product.

    Arranging for a person to engage in any conduct referred to above is also “dealing”, unless the actions concerned amount to providing financial product advice.

    Section 761E states:

    “Meaning of issued, issuer, acquire and provide in relation to financial products

    General

    1. This Section defines when a financial product is issued to a person. It also defines who the issuer of a financial product is. If a financial product is issued to a person:

      1. the person acquires the product from the issuer; and
      2. the issuer provides the product to the person.

      Note: Some financial products can also be acquired from, or provided by, someone other than the issuer (e.g. on secondary trading in financial products).

      Issuing a financial product

    2. Subject to this section, a financial product is issued to a person when it is first issued, granted or otherwise made available to a person.”

    Section 764A states [that an “interest” in a MIS is a “financial product”] as follows:

    “Specific things that are financial products (subject to subdivision D)

    1. Subject to Subdivision D, the following are financial products for the purposes of this Chapter:

      1. a security:
      2. any of the following in relation to a registered scheme:

        1. an interest in the scheme;
        2. a legal or equitable right or interest in any interest covered by subparagraph;
        3. an option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii);
      3. any of the following in relation to a managed investment scheme that is not a registered scheme, other than a scheme (whether or not operated in this jurisdiction) in relation to which none of paragraphs 601ED(1)(a), (b) and (c) are satisfied:

        1. an interest in the scheme;
        2. a legal or equitable right or interest in an interest covered by subparagraph (i);
        3. an option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii)”.