Quotation of products under the AQUA Rules
Products that can be quoted under the AQUA Rules can be described as third-party issued products that give investors exposure to an underlying asset or set of assets, but where the value of the assets is not under the control of the issuer. That is, the value of the product is linked to the performance of the underlying assets rather than the financial performance of the issuer itself. These products will be products for which the capital value or distributions of the product are linked to liquid underlying instruments which have a robust and transparent pricing mechanism being:
- securities traded on an exchange which is a member of the World Federation of Exchanges
- commodities and currencies traded on a recognised market with post-trade transparency or for which there is a regulated derivatives market which controls price discovery, and
- indices over the above underlying products
In general, there are three broad categories of products quoted under the AQUA Rules that can be quoted in this way: Managed Funds, Exchange Traded Funds (ETFs), and Structured Products. Certain products will not be admitted under the AQUA Rules framework. These are as follows:
- a security in a listed investment company
- a unit in a real estate investment trust (REIT) or similar fund
- a unit is an infrastructure fund or trust
- a unit in a non-portfolio strategic investment vehicle (such as a private equity fund)
- a financial product where the issuer has a significant influence over the price or value of the underlying instrument(s)
- a financial product for which, in ASX’s opinion, there is insufficient information available to the market on an ongoing basis regarding the price or value of the underlying instrument(s)
- a financial product where the underlying instruments are shares in an unlisted company, artworks or other collectibles, wine or other assets where the price or value of the underlying instrument is not set by a transparent mechanism
- units in a managed fund product for which the net asset value is not disclosed daily (in the case of admission to Trading Status) or at least quarterly (in the case of admission to the Quote Display Board)(see below for an explanation of Trading Status and the Quote Display Board)
- a financial product priced by reference to an index where the level of that index is not publicly available or reported on a regular basis, and
- any other financial product to which ASX considers the listing mechanism and continuous disclosure regime in the ASX Listing Rules should apply.
The Trading Market and the Quote Display Board
Under the AQUA Rules, products may be quoted on either the Trading Market or the Quote Display Board (QDB).
The Trading Market provides a trading platform for products quoted under the AQUA Rules which is called ASX Trade. The Trading Market operates the same way securities are traded on the equity trading market, that is, there is continuous matching of bids and offers and an opening and closing auction. Bids and offers an interest in a product quoted under the AQUA Rules are placed by a broker in ASX Trade and if there is a match the trade will be automatically executed. Settlement of the trade will occur on the third day after the trade (T+3). The price of the Product will depend on the performance of the underlying security, commodity, currency or index.
Alternatively an AQUA Product issuer may quote a product on the QDB. The QDB on ASX Trade provides a facility whereby ASX Market Participants (including brokers and financial institutions) may post indicative prices for products quoted under the AQUA Rules on behalf of issuers. There is no active trading through ASX Trade rather if an investor wishes to enter into a transaction they (through a broker) will need to contact the ASX Market Participant that posted the indicative price (on behalf of the relevant issuer) and enter into an agreement to buy or sell an interest in the product. This facility will be used for products quoted under the AQUA Rules where the product is either forward priced (all unit acquisitions and redemptions that take place during the day are transacted at the end of day price) or products where the issuer does not require on-market trading as a means of product distribution - but where CHESS settlement of the product may be attractive for commercial or operational reasons.
There are some important differences between the Trading Market and Quote Display Board under the AQUA Rules, including the following:
- Market Making: There are market making requirements for products quoted under the AQUA Rules and admitted to Trading Status unless the product has, and continues to have, a spread of 1,000 Product Holders and a net asset value of at least $10 million. There are no such requirements for Products quoted on the Quote Display Board.
- Requirements for admission of Managed Funds to the Trading Market: Trading status will only be granted to Managed Funds if the fund is an open-ended scheme (being a scheme which continuously issues and redeems financial products based on the net asset value of the fund) and the constitution of the fund provides that off-market redemption facilities will operate daily.
- Disclosure of Net Asset Value for Managed Funds: As referred to above, information about the NAV of a Managed Fund’s underlying instruments must be disclosed daily for a Managed Fund quoted on the Trading Market but only quarterly if the fund is quoted on the Quote Display Board.