Austraclear Proposes Amendment Process for Wholesale Notes

17/06/2021

On 7 June 2021, Austraclear Limited (Austraclear) announced that it will introduce a number of amendments to the Austraclear Regulations (Regulations) and the Austraclear Procedures, Determinations and Practice Notes (Procedures).

The amendments will be effective from 1 July 2021 and, among other changes, will introduce a new procedure for issuers to follow when amending the terms of non-paper securities deposited in the Austraclear system.

Securities affected by the changes to the amendment process

The new amendment process will be relevant to all notes lodged in the Austraclear system as non-paper securities, which includes almost all notes issued in Australia to wholesale investors. Under the Regulations, Austraclear holds legal title in such non-paper securities as nominee for the relevant Austraclear participants, who in turn hold beneficial title to the extent such non-paper securities are recorded in their accounts in the Austraclear system. In parallel to this, the register established under the constituent documents for the non-paper securities will typically record Austraclear as the sole registered holder of such securities.

Impact of the changes on the process for amending non-paper securities

The practical effect of the above arrangements is that amendments to the terms of non-paper securities that require noteholder approval will also require the approval of Austraclear in its capacity as the sole legal and registered holder of such securities. Under the current Regulations and Procedures, Austraclear will vote on such amendments by executing a circulating resolution and proxy form.

Once the updated Regulations and the Procedures take effect, Austraclear will distinguish between two types of amendments: first, amendments that require information held in the Austraclear system in respect of the relevant non-paper securities to be changed, and second, amendments that do not require any changes to be made to such information.

With regard to amendments to the terms of non-paper securities that fall within the first category, an issuer will be required to:

provide 5 business days advance notice to Austraclear using a prescribed form (see form entitled “Notification of Proposed Change to terms”). This will enable Austraclear to identify in advance any operational issues created by the proposed amendment; and
notify Austraclear of such amendments at least 5 business days after their effective date using another prescribed form (see form entitled “Post-change Notification and Certification”).

With regard to amendments that fall within the second category, an issuer will not be required to notify these changes to Austraclear.

Regardless of the category that an amendment falls into, where the amendment requires noteholder approval, Austraclear will grant a power of attorney to the issuer to execute any resolution or proxy form on behalf of Austraclear in accordance with voting instructions obtained by the issuer. This will enable the issuer to undertake a noteholder consent process for an amendment without the need to involve Austraclear directly in the process. In addition, under new Regulation 8.9, an issuer will be able to delegate any action it is able to perform under the power of attorney granted by Austraclear to a representative acting on its behalf. A new Regulation 8.7 also requires issuers to follow all applicable consent and voting procedures under the terms of the non-paper securities when amending their terms.

Other changes

In conjunction with the introduction of the new amendment process for non-paper securities described above, Austraclear has also introduced:

an indemnity under which issuers indemnify Austraclear for any loss or claim suffered or incurred by Austraclear in connection with the issuer acting outside the scope of the power of attorney granted by Austraclear in connection with the new amendment process;
a representation and warranty under which Austraclear participants confirm that the terms of all non-paper securities lodged by them in the Austraclear system are correctly reflected in the system at the time of their lodgement; and

a requirement for issuers to notify Austraclear of any incorrect information in respect of non-paper securities reflected in the Austraclear system, within 5 business days of the issuer becoming aware of the relevant error (see form entitled “Notification to Correct Erroneous Information”).

What do these changes mean for issuers?

The new amendment procedures for non-paper securities offer an improved and more operationally efficient process for issuers to amend the terms of wholesale notes lodged in the Austraclear system.

Given most wholesale notes lodged in the Austraclear system are expressed to be subject to the rules and requirements of the Austraclear system, issuers will also welcome the fact that these changes should not necessitate amendments to the terms of any existing notes they have on issue.