Commonwealth of Australia Bills Commonwealth of Australia Bills[Index] [Search] [Download] [Related Items] [Help]
This is a Bill, not an Act. For current law, see the Acts databases.
1996-97-98
The Parliament of
the
Commonwealth of
Australia
HOUSE OF
REPRESENTATIVES
Presented and read a first
time
Payment Systems and
Netting Bill 1998
No. ,
1998
(Treasury)
A Bill
for an Act to make provision in relation to payment and settlement systems and
netting contracts, and for related purposes
9804520—747/30.3.1998—(45/98)
Cat. No. 97 2867 8 ISBN 0644 519185
Contents
A Bill for an Act to make provision in relation to
payment and settlement systems and netting contracts, and for related
purposes
The Parliament of Australia enacts:
This Act may be cited as the Payment Systems and Netting Act
1998.
This Act commences on the day on which it receives the Royal
Assent.
This Act binds the Crown in all its capacities, but does not make the
Crown liable to be prosecuted for an offence.
The Criminal Code applies to all offences against this
Act.
In this Act, unless the contrary intention appears:
approved futures clearing house means a clearing house
approved under section 1131 of the Corporations Law.
approved netting arrangement means a netting arrangement
approved under section 12.
approved RTGS system means a payment or settlement system
approved under section 9.
approved special stock market means a stock market approved
under section 770A of the Corporations Law.
close-out netting contract means:
(a) a contract under which, if a particular event happens:
(i) particular obligations of the parties terminate or may be terminated;
and
(ii) the termination values of the obligations are calculated or may be
calculated; and
(iii) the termination values are netted, or may be netted, so that only a
net cash amount (whether in Australian currency or some other currency) is
payable; or
(b) a contract declared by the regulations to be a close-out netting
contract for the purposes of this Act;
but does not include:
(c) a contract that constitutes, or is part of, an approved netting
arrangement; or
(d) a contract in relation to which a declaration under section 15 is in
force; or
(e) a contract declared by the regulations to not be a close-out netting
contract for the purposes of this Act.
Commonwealth constitutional reach: a contract or arrangement
is entered into in circumstances that are within Commonwealth constitutional
reach if:
(a) a constitutional corporation is a party to the contract or
arrangement; or
(b) the contract or agreement has a significant effect on the business
affairs, or an activity, of a constitutional corporation; or
(c) the contract or arrangement is entered into in the course of, for the
purposes of or in relation to one or more of the following:
(i) dealings in currency, bills of exchange or promissory notes;
(ii) money borrowed on the public credit of the Commonwealth;
(iii) trade and commerce between Australia and places outside Australia or
between places outside Australia;
(iv) trade or commerce among the States;
(v) trade or commerce within a Territory, between a State and a Territory
or between 2 Territories;
(vi) banking (other than State banking);
(vii) insurance (other than State insurance); or
(d) the contract or arrangement is entered into by means of or in relation
to, postal, telegraphic, telephonic or other like services.
constitutional corporation means:
(a) a foreign corporation; or
(b) a trading or financial corporation formed within the limits of the
Commonwealth.
external administration: a person goes into external
administration if:
(a) they become a body corporate that is an externally administered body
corporate within the meaning of the Corporations Law; or
(b) they become an individual who is an insolvent under administration
within the meaning of the Corporations Law; or
(c) someone takes control of the person’s property for the benefit
of the person’s creditors because the person is, or is likely to become,
insolvent.
external administrator for a person who goes into external
administration is the person who takes control of the person’s property
under the administration.
general participant in a payment or settlement system means a
participant who cannot, under the operating rules for the system, settle
transactions on their own account through the system.
market netting contract means:
(a) a contract:
(i) entered into in accordance with the rules that govern the operation of
a netting market; and
(ii) under which obligations between parties to the contract are netted;
or
(b) a contract declared by the regulations to be a market netting contract
for the purposes of this Act;
but does not include:
(c) a contract that constitutes, or is part of, an approved netting
arrangement; or
(d) a contract declared by the regulations not to be a market netting
contract for the purposes of this Act.
multilateral netting arrangement means an arrangement that
has more than 2 parties and under which the obligations owed by the parties to
each other are netted.
netting market means:
(a) an arrangement that is:
(i) a stock exchange, approved special stock market, exempt stock market,
securities clearing house, futures exchange, exempt futures market or approved
futures clearing house under the Corporations Law; and
(ii) approved by the Minister for the purposes of this definition;
or
(b) an arrangement declared by the regulations to be a netting market for
the purposes of this Act.
operating rules for a payment or settlement
system means the rules governing the operation of the system.
participant in an approved RTGS system means a person who is
a participant in the system in accordance with the rules governing the
operations of the system.
party to an approved netting arrangement is a person who is a
party to the arrangement in accordance with the rules governing the
arrangement.
provable: an obligation is provable in an external
administration if:
(a) for an external administration that is a winding up under the
Corporations Law—the obligation is a debt or claim that is admissible to
proof against the body being wound up; or
(b) for an external administration that is a bankruptcy under the
Bankruptcy Act 1966—the obligation is a debt or liability provable
in the bankruptcy; or
(c) in any other case—the person to whom the obligation is owed is
entitled to share in any distribution of property to creditors under the
administration on the basis of the obligation if the obligation is properly
established.
Reserve Bank means the Reserve Bank of Australia.
settling participant in a payment or settlement system means
a participant who, under the operating rules for the system, can settle
transactions through the system on their own behalf and for other
participants.
specified provisions means:
(a) section 11F and subsection 13A(3) of the Banking Act 1959;
and
(b) section 187 of the Life Insurance Act 1995; and
(c) section 86 of the Reserve Bank Act 1959; and
(d) sections 437D and 468 and Division 2 of Part 5.7B of the Corporations
Law; and
(e) sections 120, 121 and 122 of the Bankruptcy Act 1966;
and
(f) section 142 of the Superannuation Industry (Supervision) Act
1993; and
(g) a law prescribed by the regulations for the purposes of this
definition.
voidable: a payment is voidable in an external administration
if it is:
(a) for an external administration that is a winding up under the
Corporations Law—voidable under Division 2 of Part 5.7B of the
Corporations Law; or
(b) for an external administration that is a bankruptcy under the
Bankruptcy Act 1966—void as against the trustee in bankruptcy;
or
(c) in any other case—void as against the external administrator or
voidable under the law governing the external administration.
(1) If:
(a) a participant in an approved RTGS system goes into external
administration; and
(b) a payment or settlement transaction is executed through the system at
any time on the day on which the external administrator is appointed;
and
(c) the transaction involves the payment of money, or the transfer of an
asset, by the participant;
the payment or transfer has the same effect it would have had if the
participant had gone into external administration on the next day.
(2) This section has effect despite any other law.
(1) A participant in an approved RTGS system must notify the system
administrator if:
(a) the participant; or
(b) another participant whose transactions the participant settles through
the system;
goes into external administration. The participant must give the notice as
soon as practicable after the participant becomes aware of the external
administration.
(2) A person does not contravene subsection (1) if:
(a) they took reasonable steps to comply with that subsection;
or
(b) the system administrator was already aware of the external
administration by the time the person was required to notify the administrator
under subsection (1).
(3) A person must not contravene subsection (1).
Penalty: Imprisonment for 5 years.
(1) A person may apply to the Reserve Bank for approval of a payment or
settlement system.
(2) The application must:
(a) be in the prescribed form; and
(b) be accompanied by the documents:
(i) specified in the regulations; or
(ii) required by the Reserve Bank.
(1) The Reserve Bank may approve the system if it is satisfied
that:
(a) systemic disruption in the financial system could result if a
participant went into external administration and the system were not approved
under this section; and
(b) the system is supported by a legally enforceable arrangement between
participants in the system for the irrevocable settlement of transactions in
real time; and
(c) the rules governing the system establish a system administrator for
the arrangement; and
(d) the system administrator has the resources, competency and integrity
needed to administer the system; and
(e) the system rules provide that if a settling participant goes into
external administration, the system administrator may suspend from the
system:
(i) the participant; and
(ii) any general participant for whom that participant is the sole
sponsor; and
(f) the system rules provide that if a general participant goes into
external administration, the system administrator may suspend that participant
from the system; and
(g) the system rules require a settling participant to assume the
obligations of any participant whose transactions they settle through the system
if the participant fails to fulfil those obligations;
and of any other matters specified in the regulations.
(2) In deciding whether to approve a system, the Reserve Bank must have
regard to the following:
(a) whether the system rules:
(i) allow all participants to settle transactions on their own account;
or
(ii) provide both for participants who can settle transactions on their
own account and for other participants (settling participants) and
for participants who cannot settle transactions on their own account
(general participants);
(b) whether the system rules provide for different obligations for
settling participants and general participants and, if they do, whether
they:
(i) require a general participant to have a settling participant to settle
their transactions through the system; and
(ii) require a participant who goes into external administration to notify
its settling participant (if any) of the external administration as soon as
practicable; and
(iii) require a settling participant to notify the system administrator as
soon as practicable if it becomes aware that a participant whose transactions it
settles through the system has gone into external administration;
(c) whether the system rules require participants to notify the system
administrator as soon as practicable if they go into external
administration;
(d) any other matters specified in the regulations;
(e) any other matters the Reserve Bank considers relevant.
(3) An approval:
(a) must be given in writing; and
(b) may be given subject to the terms and conditions specified in the
approval; and
(c) is a disallowable instrument for the purposes of section 46A of the
Acts Interpretation Act 1901.
(1) If an approved netting arrangement is entered into in circumstances
that are within Commonwealth constitutional reach:
(a) obligations may be terminated, termination values may be calculated
and a net amount become payable in accordance with the arrangement;
and
(b) paragraph (a) applies despite:
(i) any disposal of rights that may be netted under the arrangement;
or
(ii) the creation of any encumbrance, or any other interest, in relation
to those rights; or
(iii) the operation of any encumbrance, or any other interest, in relation
to those rights that is created after the commencement of this
section;
in contravention of a prohibition in the arrangement; and
(c) for the purposes of any law, the assets and liabilities of a party to
the arrangement are taken:
(i) to include any net obligation owed to a party under the arrangement;
and
(ii) not to include obligations terminated under the
arrangement.
(2) If a party to an approved netting arrangement goes into external
administration:
(a) the party may do anything permitted or required by the arrangement in
order to net:
(i) obligations incurred before or on the day on which the party goes into
external administration; and
(ii) net obligations if the obligations that are directly or indirectly
netted are incurred before or on the day on which the party goes into external
administration; and
(b) the obligations that are, or have been, netted under the arrangement
are to be disregarded in the external administration (but see subsection (4));
and
(c) any net obligation owed by the party under the arrangement that has
not been discharged is provable in the external administration; and
(d) any net obligation owed to the party under the arrangement that has
not been discharged may be recovered by the external administrator for the
benefit of creditors; and
(e) the netting and any payment made by the party under the arrangement to
discharge a net obligation is not to be voidable in the external
administration.
Note 1: Paragraph (a)—This paragraph only authorises
the party to take any action to arrive at a net obligation; it does not
authorise the party to settle the net obligation by payment.
Note 2: By giving express recognition to approved netting
arrangements, subsections (1) and (2) remove the basis for arguing that the
arrangements are void as contrary to public policy embodied in the laws dealing
with insolvency.
(3) Subsections (1) and (2) have effect despite any other law (including
the specified provisions).
Note: Section 5 defines specified
provisions.
(4) If:
(a) a party to an approved netting arrangement goes into external
administration; and
(b) an obligation owed by the party to another party to the arrangement
has been netted under the arrangement; and
(c) a direct payment by the party owing the obligation to the other party
would have been voidable in the external administration if it had been made to
settle the obligation on the day on which the netting occurred;
the external administrator may recover from the other party for the benefit
of creditors an amount equal to the amount of the obligation.
(1) A person may apply to the Reserve Bank for approval of a multilateral
netting arrangement.
(2) The application must:
(a) be in the prescribed form; and
(b) be accompanied by the documents specified in the regulations or
required by the Reserve Bank.
(1) The Reserve Bank may approve the arrangement if it is satisfied
that:
(a) systemic disruption in the financial system could result if a
participant went into external administration and the arrangement were not
approved under this section; and
(b) the arrangement provides for netting to occur at least once on each
business day; and
(c) the rules governing the arrangement establish a coordinator for the
arrangement; and
(d) the coordinator of the arrangement has the resources, competency and
integrity needed to administer the arrangement; and
(e) the rules governing the arrangement provide that if a party to the
arrangement goes into external administration:
(i) the party must notify the coordinator as soon as practicable;
and
(ii) the coordinator may exclude the party from the arrangement;
and
(f) the rules governing the arrangement require a party to the arrangement
to notify the coordinator as soon as practicable if they have reasonable grounds
to suspect that another party to the arrangement is insolvent;
and of any other matters specified in the regulations.
(2) An approval:
(a) must be given in writing; and
(b) may be given subject to the terms and conditions specified in the
approval.
A party to an approved netting arrangement has qualified privilege for a
notice they give the coordinator under the rules governing the arrangement that
they have reasonable grounds to suspect that another party to the arrangement is
insolvent.
(a) Australian law governs a close-out netting contract; and
(b) the contract is entered into in circumstances that are within
Commonwealth constitutional reach;
the following provisions apply:
(c) obligations may be terminated, termination values may be calculated
and a net amount become payable in accordance with the contract;
(d) paragraph (c) applies despite:
(i) any disposal of rights that may be netted under the contract;
or
(ii) the creation of any encumbrance, or any other interest, in relation
to those rights; or
(iii) the operation of any encumbrance, or any other interest, in relation
to those rights that is created after the commencement of this
section;
in contravention of a prohibition in the contract;
(e) for the purposes of any law, the assets of a party to the contract are
taken:
(i) to include any net obligation owed to the party under the contract;
and
(ii) not to include obligations terminated under the contract.
(2) If:
(a) a person who is, or has been, a party to a close-out netting contract
goes into external administration; and
(b) Australian law governs either:
(i) the external administration; or
(ii) the contract;
the following provisions apply:
(c) obligations may be terminated, termination values may be calculated
and a net amount become payable in accordance with the contract;
(d) obligations that are, or have been, terminated under the contract are
to be disregarded in the external administration (but see subsection
(5));
(e) any net obligation owed by the party under the contract that has not
been discharged is provable in the external administration;
(f) any net obligation owed to the party under the contract that has not
been discharged may be recovered by the external administrator for the benefit
of creditors;
(g) the termination of obligations, the netting of obligations and any
payment made by the party under the contract to discharge a net obligation are
not to be void or voidable in the external administration.
Note: By giving express recognition to close-out netting
contracts, subsections (1) and (2) remove the basis for arguing that the
contracts are void as contrary to public policy embodied in the laws dealing
with insolvency.
(3) A person may not rely on the application of subsection (2) to a right
or obligation under a close-out netting contract if the person acquired the
right or obligation from another person with notice that that other person was
at that time unable to pay their debts as and when they became due and
payable.
(4) Subsections (1) and (2) have effect despite any other law (including
the specified provisions).
Note: Section 5 defines specified
provisions.
(5) Subsection (1) or (2) does not apply to an obligation owed by a party
to a close-out netting contract to another person if:
(a) the party goes into external administration; and
(b) the obligation is, or has been, terminated under the contract;
and
(c) either:
(i) the other person did not act in good faith in entering into the
transaction that created the terminated obligation; or
(ii) when the transaction that created the terminated obligation was
entered into, the other person had reasonable grounds for suspecting that the
party was insolvent at that time or would become insolvent because of, or
because of matters including:
(A) entering into the transaction; or
(B) a person doing an act, or making an omission, for the purposes of
giving effect to the transaction; or
(iii) the other person neither provided valuable consideration under, nor
changed their position in reliance on, the transaction.
(1) The Reserve Bank may declare in writing that section 14 does not apply
to a close-out netting contract if it is satisfied that systemic disruption in
the financial system could result if a party to the contract went into external
administration.
Note: This section is intended to allow the Reserve Bank to
require an economically significant multilateral netting arrangement to meet the
standards in Part 3 of this Act. It may be necessary to amend the rules
governing the arrangement before it can be approved under that
Part.
(2) A declaration under subsection (1):
(a) may only relate to a contract entered into after the declaration is
made; and
(b) is to be made by notice published in the Gazette; and
(c) ceases to have effect 6 months after it is made.
(1) If:
(a) Australian law governs a market netting contract; and
(b) the contract is entered into in circumstances that are within
Commonwealth constitutional reach;
the following provisions apply:
(c) obligations may be terminated, termination values may be calculated
and a net amount become payable in accordance with the contract;
(d) paragraph (c) applies despite:
(i) any disposal of rights that may be netted under the contract;
or
(ii) the creation of any encumbrance, or any other interest, in relation
to those rights; or
(iii) the operation of any encumbrance, or any other interest, in relation
to those rights that is created after the commencement of this
section;
in contravention of a prohibition in the contract;
(e) for the purposes of any law, the assets of a party to the contract are
taken:
(i) to include any net obligation owed to the party under the contract;
and
(ii) not to include obligations terminated under the contract.
(2) If:
(a) a party to a market netting contract goes into external
administration; and
(b) Australian law governs either:
(i) the external administration; or
(ii) the contract;
the following provisions apply:
(c) obligations may be netted or terminated, termination values may be
calculated and a net amount become payable in accordance with the
contract;
(d) obligations that are, or have been, netted or terminated under the
contract are to be disregarded in the external administration;
(e) any net obligation owed by the party under the contract that has not
been discharged is provable in the external administration;
(f) any net obligation owed to the party under the contract that has not
been discharged may be recovered by the external administrator for the benefit
of creditors;
(g) none of the following is to be void or voidable in the external
administration:
(i) the netting or termination of obligations under the
contract;
(ii) a payment by the party to discharge a net obligation under the
contract;
(iii) a payment, or a transfer of property (whether absolutely or by way
of security), by the party to meet an obligation under the contract to pay a
deposit or margin call.
Note: By giving express recognition to market netting
contracts, subsections (1) and (2) remove the basis for arguing that the
contracts are void as contrary to public policy embodied in the laws dealing
with insolvency.
(3) Subsections (1) and (2) have effect despite any other law (including
the specified provisions).
Note: Section 5 defines specified
provisions.
A document that this Act requires to be in a prescribed form must
be:
(a) if a form for the document is prescribed in the regulations—in
the prescribed form; or
(b) if a form for the document is not prescribed in regulations but the
Reserve Bank has approved a form for the document—in the approved
form.
The Governor-General may make regulations prescribing matters:
(a) required or permitted to be prescribed by this Act; or
(b) necessary or convenient to be prescribed for carrying out or giving
effect to this Act.