Retail trading of CGS is seen as a crucial first step to open
the retail corporate bond market as it provides a visible pricing
benchmark for investments in corporate bonds. CGS trading also
provides a low risk way for retail investors to familiarise
themselves with fixed-interest securities as an asset class.
The Government sees the development of a retail corporate bond
market as important for a number of reasons, including giving
Australian companies greater access to more diversified funding
sources, potentially reducing their reliance on offshore wholesale
funding markets and increasing competitive pressure on bank lending
The development of a retail corporate bond market will also
diversify and reduce volatility in Australia's savings pool by
allowing Australian retail investors to broaden their investments
How does the CGS framework operate?
The legislation amends the Commonwealth Inscribed Stock Act 1911
(CIS Act) to allow the trading of CGS on financial
markets accessible to retail investors.
Under the CIS Act retail investors will not acquire legal
ownership of the CGS (which will remain with Austraclear). Instead
a new financial product called a Depository Interest
(DI) will be created which will provide retail
investors with beneficial ownership of the underlying CGS (which
confers investors with the right to receive interest and principal
payments on the underlying CGS).
The DIs will be issued by nominee entities known as a Depository
Nominee and will be able to be traded by retail investors in a
manner similar to shares, with trades settled through clearance and
The legislation amends the Corporations Act to ensure that most
of the investor protection provisions in Chapter 7 of the
Corporations Act will apply to retail investors in CGS DIs. The
amendments make it clear that CGS DIs are securities under Chapter
7. However, Depository Nominees as issuers of CGS DIs will be
exempt from the product disclosure statement requirements in Part
7.9 of the Corporations Act.
Moreover, the legislation exempts CGS DIs from the scope of the
prospectus requirements in Chapter 6 of the Corporations Act.
Instead, the Australian Office of Financial Management will be
required to produce a tailored information statement which
summarises the key information necessary for retail investors to
understand the proposed investment in CGS as well as the terms of a
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
Persons listed may not be admitted in all states and
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).