The Hon Bill Shorten, Minister for Financial Services and Superannuation and the Hon Tony Burke, Minister for Sustainability, Environment, Water, Population and Communities today announced that the Government intends to amend the Corporations Regulations 2001 to allow for water rights commonly traded on Australian water markets to be regulated in the same manner as agricultural commodities such as wheat.
"There has been uncertainty in water markets about the legal status of water rights and contracts to trade these rights," Mr Shorten said.
"This uncertainty has affected irrigators, water brokers, irrigation infrastructure operators and other participants in water markets, and regional communities."
"The Government appreciates the need to provide certainty, and proposes amendments that will ensure that the trade of water rights is exempt from being considered a financial product under the Corporations Act 2001."
Water Minister Tony Burke said this issue was raised at one of the very first round table meetings he convened with irrigator groups.
"The situation to date has created considerable complexity and today's announcement gives water entitlement holders a level of certainty in trade which matches what they have asked for," Mr Burke said.
Australian water market participants are set to benefit from clarification about the appropriate regulations that apply to them.
"The proposed amendments will address concerns raised by some market participants about that lack of clarity as to the role of Australian Securities and Investments Commission (ASIC) in Australian water markets" Mr Shorten said.
Mr Shorten emphasised that the proposed exemption will not apply to the trade of complex products such as options contracts which will continue to be regulated by ASIC.
Once the regulation has been drafted, stakeholders will be encouraged to engage with Treasury to discuss the appropriate scope of the regulations prior to its finalisation. Details about timing and format of stakeholder engagement will be announced in due course.
Further detail on the scope of the proposed exemption is attached.
10 November 2012
Attachment
OUTLINE OF PROPOSED EXEMPTION
There is market uncertainty about whether water rights and contracts to trade these rights are derivatives, which are a type of financial product. This uncertainty extends to trade of water allocations and entitlements (sometimes called temporary and permanent trade) which occur frequently.
It is important that water market participants are certain about the regulatory framework that applies to trade in water products
What is the amendment?
The Department of the Treasury proposes to make amendments to the Corporations Regulations 2001 to exempt ‘tradeable water rights’ and agreements to trade in such rights from the definition of derivatives provided in the Corporations Act 2001.
A tradeable water rights refer to:
- water access rights;
- water delivery rights; or
- irrigation rights.
The definition of each of these products is available at http://www.comlaw.gov.au/Details/C2007A00137
The proposed amendment will:
- include tradeable water rights that are conferred by government rights (and irrigation rights that are conferred by irrigation infrastructure operators and can be transformed into government-issued rights) and contracts to trade these rights; and
- not include tradeable water rights and contracts to trade these rights that add complex derivative arrangements to rights conferred by government. Products that have these additional derivative arrangements (such as options contracts) will be regulated by ASIC. This is comparable with the treatment of commodities such as wheat.
The final form of the amendment will be determined by the Department of the Treasury following engagement with stakeholders.
What does this mean?
The proposed amendments will mean that tradeable water rights will be treated in the same manner as commodities such as wheat. Contracts that add complex derivative elements would continue to be captured by regulation administered by ASIC. This means intermediaries dealing with contracts containing complex derivative elements will continue to be required to hold the relevant financial product licences.
Next steps
The next step will be to have the amended regulations drafted. Once drafted, the Department of the Treasury will engage with stakeholders to discuss the appropriate scope of the regulations prior to its finalisation. Further details about timing and format of stakeholder engagement will be provided shortly.