BrisCon instalment mess sparks new ASX ruleApril 6, 2009 - 5:01PM Stockbrokers will be required to warn small investors considering investments in partly paid listed securities to read the company's prospectus under a new Australian Securities Exchange (ASX) rule.
The change comes after some investors bought partly paid staples units on market in toll-road builder BrisConnections for less than 1 cent, not realising that they would be obliged to pay future instalments on the securities potentially totalling millions of dollars.
The ASX said brokers will now be required to obtain from retail clients a signed agreement saying they are aware they have a responsibility to obtain and read a copy of a prospectus, product disclosure statement or information memorandum produced by the product issuer.
The rule will apply when small investors enter transactions to buy a partly paid security for the first time and take effect from May 1.
Client agreement rules of this kind already exist for complex products such as options, futures and warrants.
The Australian Securities and Investments Commission said the new rule for party paid securities is aimed at improving disclosure for retail investors, ensuring they are aware of potential liabilities when making such investments.
"ASIC and ASX have been in direct contact with several market participants to ensure that they have contacted their clients with current orders to buy partly paid Securities,and communicated their potential obligations,'' ASIC said in a statement.
The change to the ASX market rules was approved by federal superannuation and corporate law minister Senator Nick Sherry today.
"The government shares the concerns of ASIC and the ASX that retail investors have not fully understood their potential obligations with regard to partly paid securities,'' Senator Sherry said in a statement.
"A falling share market this year has meant that some securities that looked like a bargain actually had huge liabilities attached to them that were not understood by retail investors who purchased them.''
There are five partly paid securities listed on ASX that will be subject to the new rule.
A number of small investors had bought BrisConnections partly paid stapled units after they fell to a low of 0.1 cents last October.
But some did not understand that there were two instalments to be paid on the securities of $1 and $2, and due on April 29 this year and January 29 2010, respectively.
The $3 securities had been partly paid to $1 upon application and ahead of their float on the stock exchange.
BrisConnections has a concession to build and operation the Airport Link toll road in Brisbane.
The new market rule doest not apply to no liability (NL) companies, because NL companies do not have a contractual right to recover calls on the unpaid issue price of their shares, ASIC said.
In these cases, the shareholder has the option of paying the call or forfeiting the shares.
AAP
Source: smh.com.au
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