Tradeable water rights and arrangements in relation to tradeable
water rights will be excluded from the definition of a
"derivative" in Chapter 7 of the Corporations Act 2001
(Cth), if the proposal in the exposure draft Corporations Amendment
(Water Trading Exemptions) Regulation 2013 is accepted, giving
greater certainty to the regulatory regime applicable to trading
A "derivative" is an arrangement under which a party
to the arrangement may be required to provide consideration at a
future time, and the amount of the consideration may change by
reference to something else.
The effect of a water right being a derivative is that it would
be regulated under the Corporations Act as a "financial
product", and regulation of services (such as carrying on a
business of advising, broking, dealing, making a market or
operating a market) provided in relation to the water rights as
The tradeable water rights which the amendments will cover
water access licences: a right or permission
granted by the Crown to withdraw a unit of water which is available
in circumstances where the withdrawal or harvesting of the water
would otherwise be prohibited; and
water allocations: a volume of water credited
to a water access licence allocation account for a particular
Currently, careful analysis is needed to determine if the
trading of a water allocation or the water licence to which it
relates is a derivative.
Excluding tradeable water rights, and arrangements in relation
to them, from the definition of a "derivative" will
remove any uncertainty about whether a water right is subject to
regulation under the Corporations Act.
In addition to the issue as to whether a tradeable water right
may be a derivative, it is usually also necessary to consider
whether a tradeable water right constitutes an interest in a
"managed investment scheme", particularly where the water
allocations are managed by a third party for the benefit of the
holder of the tradeable water right.
Clayton Utz will be making a submission to Treasury that the
proposed amendment go further, to exclude tradeable water rights
from the regulation of managed investment schemes. This would
require the making of a further regulation providing, for the
purposes of paragraph (n) of the definition of "managed
investment scheme" in section 9 of the Corporations Act, that
a scheme is not a "managed investment scheme" by reason
of paragraph (a) of its definition in section 9 of the Corporations
Act where the rights acquired to benefits of the scheme are
"tradeable water rights" or arrangements in relation to
If you would like help in drafting a submission, or more
information on water rights and derivatives, please contact a
member of our team.
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.
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