Has Treasury changed definition of ‘cash equity’

Until Treasury proposed otherwise, the financial services industry generally considered the term ‘cash equity’ to cover only listed equity and not exchange traded funds (ETFs) or Managed Investment Schemes, according to the Stockbrokers and Investment Advisers Association (SIAA).

That is why the SIAA is asking the Treasury to clarify the situation, arguing that it does not want to see a repeat of some of the confusion which surrounded by the Design and Distribution Obligations (DDO) regime.

Providing feedback to Treasury around the proposed definition of ‘cash equity’, the SIAA said it is important that confusion as to what products are included in the definition is avoided.

“There was confusion in the industry when the DDO legislation was implemented about what financial products were covered by the legislation and what were excluded. This resulted in industry incurring additional compliance and legal costs to ready itself for the introduction of the DDO regime. Therefore, to avoid a repeat of any confusion, the Instrument should be drafted in a way that can be understood as easily as possible and clearly specify what financial products are included in the definition of ‘cash equity’ and what are not,” the SIAA said.

“We raise the following issues about the current definition that we consider requires clarification in the Instrument:

• Is the definition intended to cover unlisted Managed Investment Schemes?
• Is the definition intended to cover other OTC products such as OTC options and warrants?

“Clarification of these issues is particularly important because the current definition does not accord with what the industry generally considers to be a ‘cash equity’. For example, the common usage of the term covers only listed equities. It does not include Exchange Traded Products (including Exchange Traded Funds) nor Managed Investment Schemes more generally. Nor does it cover Exchange Traded Options – these are generally referred to as Derivative Market Products (as opposed to Cash Market products). This means that any definition of ‘cash equity’ must be easy to understand and apply,” the SIAA said.