ASIC RG 134 — ASIC Regulatory Guide – RG 134 Funds management: Constitutions

Page 1 REGULATORY GUIDE 134 Funds management: Constitutions October 2023 About this guide This guide is for responsible entities of registered managed investment schemes (registered schemes), corporate directors of corporate collective investment vehicles (CCIVs), Australian passport fund operators and their advisers. It sets out our guidance on the requirements in the Corporations Act for the constitutions of registered schemes, CCIVs and Australian passport funds. Page 2 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 2 About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by:  explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act)  explaining how ASIC interprets the law  describing the principles underlying ASIC’s approach  giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project. Document history This guide was issued in October 2023 and is based on legislation and regulations as at the date of issue. In December 2025, minor updates were made to reflect the remaking of ASIC relief in September 2025: see Note 2 to RG 134.27(b) and Note to RG 134.266. Previous versions:  Superseded Regulatory Guide 134, issued August 1998, updated November 1998, June 1999 and September 2000, reissued June 2013, February 2014, October 2015, July 2018 and October 2022 Disclaimer This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations. Page 3 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 3 Contents A Overview ........................................................................................... 4 How our guidance applies ................................................................. 4 Requirements for a constitution ......................................................... 6 Complying with our guidance............................................................. 8 B Consideration and issue price—Retail investment funds ........... 9 Consideration to acquire interests in a registered scheme ............... 9 Issue price of shares in a retail CCIV .............................................. 28 C Rights of members—Retail investment funds ............................ 30 Protecting class rights in a retail investment fund ........................... 30 Establishing sub-funds of CCIVs ..................................................... 30 Cross-investment between sub-funds ............................................. 31 D Powers and rights of operators—Retail investment funds ....... 32 Powers to deal with property and raise money................................ 32 Rights to fees and indemnities ........................................................ 33 E Complaints, disputes and remedies—Retail investment funds 37 Requirements for retail investment funds ........................................ 37 Requirements for Australian passport funds ................................... 40 F Changing the constitution—Retail investment funds and wholesale CCIVs ............................................................................ 42 Requirements for retail investment funds ........................................ 42 Relief available for retail investment funds ...................................... 43 Requirements for wholesale CCIVs ................................................. 44 G Withdrawal—Retail investment funds ......................................... 45 Withdrawal from a registered scheme ............................................. 45 Redemption of shares in a retail CCIV ............................................ 54 H Winding up—Registered schemes only ...................................... 57 Procedures for winding up ............................................................... 57 Independent audit ............................................................................ 60 Postponement of winding up ........................................................... 60 I Enforceability of the constitution—Retail investment funds and wholesale CCIVs ............................................................................ 61 Constitution of registered schemes ................................................. 61 Constitution of retail and wholesale CCIVs ..................................... 62 J Incorporation by reference—Retail investment funds and wholesale CCIVs ............................................................................ 63 Making provision for and specifying matters ................................... 63 Relief to incorporate listing rules of a financial market .................... 63 Key terms ............................................................................................... 65 Related information ............................................................................... 69 Page 4 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 4 A Overview Key points The constitution of a managed investment scheme that is registered with ASIC (registered scheme) and the constitution of a corporate collective investment vehicle (CCIV) must meet certain requirements under the Corporations Act 2001 (Corporations Act). In addition, the constitution of a registered scheme or a sub-fund of a retail CCIV that is registered as an Australian passport fund must meet the content requirements in the Australian Passport Rules. This guide explains these requirements. How our guidance applies RG 134.1 This guide is for: (a) responsible entities of registered schemes; (b) corporate directors of CCIVs; (c) Australian passport fund operators; and (d) their advisers. Note: Table 1 explains which parts of this guide apply to each type of fund. RG 134.2 The guide sets out our expectations for the content of constitutions that are part of applications lodged with ASIC to register: (a) managed investment schemes; (b) CCIVs; and (c) a registered scheme or a sub-fund of a retail CCIV as an Australian passport fund. RG 134.3 In this guide, as illustrated in Figure 1: (a) ‘investment fund’ refers to managed investment schemes and CCIVs; (b) ‘retail investment fund’ refers to registered schemes and retail CCIVs; (c) ‘investment fund operator’ refers to operators of managed investment schemes and corporate directors of CCIVs; (d) ‘retail investment fund operator’ refers to responsible entities and corporate directors of retail CCIVs; (e) ‘Australian passport fund’ refers to a registered scheme or sub-fund of a retail CCIV that is also registered as a passport fund under the Asia Region Funds Passport; and (f) ‘wholesale CCIV’ refers to a CCIV operated by corporate directors that has wholesale members only. Note: For full definitions, including the definition of ‘retail CCIV’, see ‘Key terms’. Page 5 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 5 Figure 1: Who this guide applies to Note: For a description of Figure 1, see RG 134.3 (accessible version). RG 134.4 Table 1 sets out the topics covered in this guide, and which types of funds the guidance applies to. Table 1: Summary of our guidance by topic Guidance in this guide Retail investment funds Wholesale CCIVs Consideration and issue price (Section B) Yes No Rights of members (Section C) Yes No Powers and rights of operators (Section D) Yes No Complaints, disputes and remedies (Section E) Yes No Changing the constitution (Section F) Yes Yes Withdrawal (Section G) Yes No Winding up (Section H) Registered schemes only No Enforceability of the constitution (Section I) Yes Yes Incorporation by reference (Section J) Yes Yes Retail investment fund operators Retail investment funds May be eligible to be registered as an Australian passport fund under the Asia Region Funds Passport A sub-fund of a retail CCIV may be eligible to be registered as an Australian passport fund Registered managed investment schemes (registered schemes) Responsible entities Retail corporate collective investment vehicles (retail CCIVs) Corporate directors Corporate directors Wholesale corporate collective investment vehicles (wholesale CCIVs) Page 6 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 6 Requirements for a constitution Registered schemes RG 134.5 The constitution of a registered scheme must be a legally enforceable document between the responsible entity and members that sets out some or all of the rights, duties and liabilities of the responsible entity in its operation of the scheme. RG 134.6 Under s601GA of the Corporations Act, the constitution of a registered scheme must make adequate provision for, or specify, certain prescribed matters. These include: (a) the consideration to acquire and dispose of an interest in the scheme (see Section B); (b) the powers and rights of the responsible entity (see Section D), including: (i) for making investments, borrowing or dealing with scheme property; and (ii) to be paid fees or be indemnified out of scheme property; (c) the method for dealing with complaints about the scheme (see Section E); (d) any rights of members to withdraw from the scheme (see Section G); and (e) winding up the scheme (see Section H). Note: In this guide, references to sections (s), Parts (Pts) or Chapters (Chs) are to the Corporations Act, unless otherwise specified. RG 134.7 The constitution of a registered scheme must be contained in a document that is legally enforceable between the members and the responsible entity of the scheme (s601GB): see Section I. RG 134.8 In our view, making provisions of the constitution required under s601GA subject to other documents that may affect the provisions means that the constitution does not ‘make adequate provision for’ or ‘specify’ the matters required by s601GA: see Section J. RG 134.9 The constitution of a registered scheme may be changed only in certain circumstances (see s601GC): see Section F. Retail and wholesale CCIVs RG 134.10 A CCIV must have a constitution: see s1223B(1). The replaceable rules in the Corporations Act do not apply to a CCIV: see s1223A. RG 134.11 The constitution of a retail CCIV must: (a) make provision for: (i) the establishment of sub-funds, and classes of shares referable to sub-funds (s1223G(a)) (see Section C); (ii) any cross-investment of assets between different sub-funds of the CCIV (s1223G(e)) (see Section C); Page 7 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 7 (iii) the method for dealing with complaints in relation to the CCIV (s1223G(b)) (see Section E); and (iv) shares in the CCIV to be redeemed, if some or all of the shares are redeemable shares or redeemable preference shares (s1223H) (see Section G); (b) state that the CCIV has power to borrow or raise money (s1223G(c)); (c) if there are any limits on the power to borrow or raise money—set out the limits (s1223G(d)) (see Section D); and (d) specify any rights of the corporate director to be paid fees or be indemnified out of CCIV assets (s1224N) (see Section D). RG 134.12 The constitution of a retail CCIV may be changed only in certain circumstances (see s1223D): see Section F. RG 134.13 The constitution of a wholesale CCIV must specify the requirements for modifying, or repealing and replacing, the constitution (s1223F): see Section F. There are no other prescribed minimum content requirements for the constitution, but it is open to the corporate director to also include content required for a retail CCIV. RG 134.14 In our view, making provisions of the constitution required under s1223F, 1223G, 1223H and 1224N subject to other documents that may affect the provisions means that the constitution does not ‘make provision for’, ‘state’, ‘set out’ or ‘specify’ the matters required by those sections: see Section J. Australian passport funds RG 134.15 Under section 4 of the Australian Passport Rules, a passport fund operator must ensure an Australian passport fund has a constitution that always provides for: (a) a member to seek remedy, including through compensation, against the Australian passport fund and its operator; and (b) the agreed forum where: (i) a member may commence proceedings against the Australian passport fund or its operator; and (ii) the Australian passport fund or its operator may commence proceedings against a member. Note 1: The Australian Passport Rules are the Corporations (Passport) Rules 2018 made under s1211 and 1211A by the Australian Minister responsible for the Asia Region Funds Passport. Under s1211(2), the Australian Passport Rules must be substantially the same as the Passport Rules set out in Annex 3 to the Memorandum of Cooperation on the Establishment and Implementation of the Asia Region Funds Passport (Memorandum of Cooperation). Note 2: For more information on requirements for Australian passport funds, see RG 134.172–RG 134.178. Page 8 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 8 Complying with our guidance RG 134.16 There are consequences if a retail investment fund’s constitution does not meet the requirements in the Corporations Act. RG 134.17 In particular, non-compliance will be a potential breach of: (a) the duty of the retail investment fund operator to ensure that the constitution meets the requirements in the Corporations Act for registered schemes or for retail CCIVs; or Note: See s601FC(1)(f) for registered schemes, and s1224D(2)(e) for retail CCIVs. (b) the duty of officers of the operator to do what a reasonable person in the officer’s position would do to ensure that the operator complies with the requirements for registered schemes or for retail CCIVs. Note: See s601FD(1)(f)(i) for registered schemes, and s1225(1)(f) for retail CCIVs. RG 134.18 Failure to ensure the constitution of a CCIV complies with the requirements under Subdiv C of Div 1 of Pt 8B.3, including the minimum content requirements, is a strict liability offence: see s1223B(3). RG 134.19 ASIC may also deregister a registered scheme if its constitution does not meet the requirements in s601GA or s601GB. RG 134.20 Under s1223C, we may direct a retail CCIV to modify its constitution to comply with the content requirements in Subdiv C of Div 1 of Pt 8B.3. RG 134.21 In deciding whether to amend the constitution, a retail investment fund operator must consider all relevant implications so as to comply with its duties under the Corporations Act. Note: For information on the process for registering a retail investment fund, including our assessment of the relevant constituent documents as part of that registration, see Regulatory Guide 131 Funds management: Establishing and registering a fund (RG 131) and Information Sheet 272 How to register a corporate collective investment vehicle and sub-fund (INFO 272). RG 134.22 We may deregister a registered scheme under s601PB(1)(b) or take action against the responsible entity and/or its officers if we consider that the constitution does not meet the requirements in s601GA or 601GB. Note: The following applies for schemes registered before 1 October 2013: (a) If the constitution meets the requirements set out in Regulatory Guide 137 Constitution requirements for schemes registered before 1 October 2013 (RG 137), we will not deregister the registered scheme or take any action against a responsible entity or its officers on the basis that a constitution does not comply with s601GA and 601GB. Our no-action position will not affect the rights of other persons, including members, to take action for non-compliance. The responsible entity should assess whether the constitution complies with the Corporations Act and, if not, what action it should take to remedy any non-compliance. (b) If the scheme applies to become registered as an Australian passport fund, its constitution must be amended to comply with the Australian Passport Rules and s601GA and 601GB. Page 9 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 9 B Consideration and issue price—Retail investment funds Key points The guidance in this section is relevant to retail investment funds. The constitution of a registered scheme must make adequate provision for the consideration that is to be paid to acquire an interest in the scheme. What constitutes ‘adequate provision’ will depend on the circumstances of the registered scheme: see RG 134.23–RG 134.26. To minimise uncertainty, we have given relief to allow a responsible entity to set the amount of the consideration to acquire an interest in a registered scheme: see RG 134.27–RG 134.118. We encourage a responsible entity that does not rely on our relief, or that proposes to include provisions giving a discretion about timing that affects payment of the consideration, to provide us with a draft of the relevant provisions before lodging an application to register the scheme: see RG 134.31–RG 134.40. We also encourage a corporate director of a retail CCIV to have regard to the guidance in this section that applies to responsible entities when it is setting the issue price of a share in a CCIV. Consideration to acquire interests in a registered scheme What is ‘adequate provision’? RG 134.23 The constitution of a registered scheme must make adequate provision for the consideration that is to be paid to acquire an interest in the scheme: see s601GA(1)(a). RG 134.24 This requirement aims to ensure that members have rights in the constitution about the consideration to acquire an interest, because this consideration may affect the value of other members’ interests, including by unfairly diluting them. In our view, the responsible entity may be subject to a conflict between: (a) its interest in further issues of interests, which may increase its remuneration and may be promoted by offering interests at a discount; and (b) the interests of members, which may be to avoid diluting the value of their interests. RG 134.25 Because s601GA is principles based, what constitutes ‘adequate provision’ will depend on the circumstances of the registered scheme. RG 134.26 We acknowledge that responsible entities and their advisers might face uncertainty about whether a constitution makes adequate provision for the consideration to acquire an interest in a registered scheme. Page 10 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 10 What relief is available? RG 134.27 To minimise uncertainty on what pricing discretions are permitted, we have granted relief for registered schemes under ASIC Corporations (Discretions for Setting the Issue Price and Withdrawal Price for Interests in Managed Investment Schemes) Instrument 2023/693 (ASIC Instrument 2023/693). Responsible entities can choose to: (a) rely on the relief in ASIC Instrument 2023/693 by including provisions in the constitution that meet the requirements of this relief; or (b) make adequate provision in the constitution for the amount of the consideration to be paid in a way that does not meet all of the requirements in the relief but does comply with the requirement in s601GA(1)(a). Note 1: ASIC Instrument 2023/693 commenced on 12 September 2023 and remade the relief under Class Order [CO 13/655] Provisions about the amount of consideration to acquire interests and withdrawal amounts not covered by ASIC Corporations (Managed Investment Product Consideration) Instrument 2015/847 and Class Order [CO 13/657] Discretions affecting the amount of consideration to acquire interests and withdrawal amounts. ASIC Instrument 2023/693 applies to responsible entities of registered managed investment schemes that were registered after 30 September 2013 or prior schemes where the responsible entity has published on its website that it will rely on this instrument or [CO 13/655]. Note 2: If a scheme was registered before 1 October 2013 and the responsible entity has not published a notice on its website that it will rely on [CO 13/655] or ASIC Instrument 2023/693, the responsible entity may instead choose to include provisions that meet the requirements in ASIC Corporations (Managed Investment Product Consideration) Instrument 2025/629, which remade the relief in ASIC Corporations (Managed investment product consideration) Instrument 2015/847—for more information, see RG 137. RG 134.28 We have also granted responsible entities relief from the requirements for equal treatment and acquiring interests on forfeiture under ASIC Corporations (Equality of Treatment Impacting on the Acquisition of Scheme Interests and CCIV Shares) Instrument 2023/697 (ASIC Instrument 2023/697). Note: ASIC Instrument 2023/697 commenced on 12 September 2023 and remade the relief under Class Order [CO 13/656] Equality of treatment impacting on the acquisition of interests. Our relief in ASIC Instrument 2023/697 also applies to retail and wholesale CCIVs as applicable. Relying on our relief RG 134.29 If a responsible entity chooses to rely on all or any part of our relief in ASIC Instrument 2023/693, it can: (a) draft provisions in the constitution that reflect the content of ASIC Instrument 2023/693; or (b) incorporate the content of ASIC Instrument 2023/693 by referring to it in a provision of the constitution. Page 11 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 11 RG 134.30 A responsible entity may incorporate ASIC Instrument 2023/693 by specifically referring to the provisions of that instrument as being taken to be incorporated in the constitution, or by referring generically to the provisions of any exemption or declaration as being taken to be incorporated in the constitution. Requesting a review of provisions for scheme constitutions RG 134.31 Given the 14-day registration period for schemes, we encourage any responsible entity that does not rely on our relief in ASIC Instrument 2023/693, or that proposes to include provisions giving a discretion about timing that affects payment of the consideration to acquire an interest, to give us a draft of the relevant provisions before lodging an application to register the scheme. This will help us in reviewing the proposed provisions and liaising with the responsible entity about them. RG 134.32 A written request for a review and a copy of the relevant draft provisions should be sent to applications@asic.gov.au. Note 1: If the draft provisions do not comply with s601GA(1)(a) (taking into account this guidance), the responsible entity should lodge an application for individual relief rather than asking for a review. For more information on how to apply for relief, see Regulatory Guide 51 Applications for relief (RG 51) and Regulatory Guide 136 Funds management: Discretionary powers (RG 136). Note 2: Ordinarily, we will not act on requests to review draft provisions of the constitution of a registered scheme, other than provisions for the consideration to acquire an interest or calculation of the withdrawal amount. RG 134.33 The request for review should include an explanation of: (a) how the draft provisions comply with s601GA(1)(a) (taking into account this guidance); (b) the impact of the provisions on the certainty of determining the consideration; and (c) why the provisions do not create an inappropriate risk of a dilutive effect and are otherwise consistent with the purpose of s601GA(1)(a). RG 134.34 We will take all of this information into account in reviewing the draft provisions, and any provisions of a constitution lodged with an application for registration. We may also take into account other factors that appear relevant. RG 134.35 There is no fee for this service. RG 134.36 A responsible entity or its advisers should allow enough time for us to review the draft provisions and provide any comments. We will generally require at least 10 business days to review the provisions and provide our comments. However, if a provision is unusually complex or novel, we may require more time for consideration. Page 12 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 12 RG 134.37 When lodging a subsequent application to register the scheme, the responsible entity or its advisers should state that certain provisions have been reviewed before lodgement. We may refuse registration if the responsible entity or its advisers have not requested a review of the relevant provisions and we do not have sufficient time to consider whether the provisions comply with s601GA(1)(a). RG 134.38 An application to register a scheme that follows a review by ASIC will not receive any priority or an expedited processing time on that account alone. RG 134.39 A review of the provisions in a constitution before lodgement does not preclude us from raising additional matters when assessing whether the constitution meets the requirements under s601EB. RG 134.40 We may publish reports on our view of particular kinds of provisions we have reviewed. Where we have published our view about a particular kind of provision, a responsible entity or its advisers do not need to apply for a review if the provision is the same. When lodging an application to register a scheme in these circumstances, the responsible entity or its advisers should state that a certain provision is the same as a provision in a published report. If there are some differences, we encourage responsible entities and their advisers to lodge a written request for a review. Calculating the consideration RG 134.41 Under ASIC Instrument 2023/693, a responsible entity can exercise certain discretions if the price is based on: (a) a reasonably current market price for interests in a class of interests in a scheme that is able to be traded on a financial market where the scheme is listed on the financial market; or (b) the net asset value for interests in a class of interests in a scheme that is either: (i) not traded on a financial market; or (ii) an exchange traded fund or managed fund and the interests are able to be traded on a financial marketed operated by ASX or Cboe. Note: For the definition of ‘exchange traded fund’ and ‘managed fund’, see ‘Key terms’. RG 134.42 The responsible entity can decide on a matter that affects what is determined as the market price or net asset value per interest, or make an adjustment to the amount determined. This relief relates only to discretions affecting the amount of the consideration. RG 134.43 For example, when calculating the consideration, the responsible entity can: (a) add or deduct from the market price or net asset value per interest; and (b) cover costs associated with acquiring or disposing of relevant assets. Page 13 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 13 RG 134.44 However, our relief under ASIC Instrument 2023/693 does not allow: (a) adjustments that are made to determine a particular amount as the consideration to acquire an interest (even if it is expressed in a form that refers to the net asset value per interest, or the market price) as distinct from an adjustment based on something that affects the amount that is determined. This is because these types of adjustments can distort the consideration; (b) discretions affecting the timing for the provision of the consideration for the issue of interests; and (c) discretions about the form of consideration. However, consideration in the form of a non-monetary asset may be treated as being provided in relation to the monetary price at which the responsible entity could properly buy the asset. RG 134.45 Our relief under ASIC Instrument 2023/693 takes into account the purpose of s601GA. Unlisted unitised schemes RG 134.46 After the initial issue of interests in an unlisted unitised registered scheme, a responsible entity will usually set the consideration to acquire an interest using the value of assets of the scheme. RG 134.47 Under ASIC Instrument 2023/693, a responsible entity of an unlisted registered scheme may include a provision for calculating the consideration using a formula or method that is based on the value of: (a) scheme property, less any liabilities that may be met from scheme property, divided by the number of interests on issue; or (b) the assets of a class of interests in the scheme, less any liabilities attributable to that class under the constitution that may be met from scheme property, divided by the number of interests on issue in that class (this is referred to as a ‘class pricing’ provision). Note: A responsible entity of an unlisted registered scheme can choose to rely on our relief under s601GAE in ASIC Instrument 2023/693 even if it is issuing an interest in a situation covered by s601GAD under this legislative instrument. RG 134.48 An example of a ‘class pricing’ provision is an interest in a particular class being issued at a price calculated, as at the close of business on the date of application, according to the formula in Figure 2. Figure 2: Example class pricing provision Application price = Net asset value + transaction costs Number of interests on issue Page 14 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 14 RG 134.49 In this formula, ‘net asset value’, ‘transaction costs’ and ‘number of interests on issue’ are proportionate to those variables the responsible entity determines are properly referable to that class. RG 134.50 We consider that the best available information to determine the value of interests or a class of interests in an unlisted registered scheme is generally the value of the market price of the assets after any transaction costs that may be expected. This is because the value of the interests will depend on the acquisition or realisation of the assets. RG 134.51 While the consideration to acquire an interest in a registered scheme that is not traded on a financial market (or is in a class of interests referred to in RG 134.41(b)(ii)) must be based on the value of assets less liabilities for our relief to apply, discretions may be exercised in calculating this. In addition, adjustments may be made to the amount determined in the responsible entity’s discretion. Note: For example, a provision that gives the responsible entity discretion to determine which of the two formulas specified in the constitution (each of which is based on the value of assets less liabilities) is to be used to set the consideration will be ‘based on’ the value of assets less liabilities. RG 134.52 Some responsible entities will have partly paid interests on issue, and may wish to include these in the formula or method to determine the consideration to acquire an interest. In our view, this type of provision may not meet the requirements in ASIC Instrument 2023/693 where the formula or method: (a) does not count the partly paid interests as interests in the registered scheme when determining the number of interests on issue; and Note: For the purposes of counting the number of interests on issue, a partly paid interest should be counted as a fully paid interest (i.e. a partly paid interest should be counted as a ‘whole’ rather than a fractional interest in the denominator of the formula or method for calculating the consideration). (b) does not treat the value to the scheme of the right to make calls for the unpaid amount as an asset of the scheme. We consider that the current value to the scheme of the responsible entity’s right to make future calls for any unpaid amounts needs to be considered. Note 1: The value of the right to make a call for unpaid amounts may be appropriately accounted for by: (a) making a separate adjustment in the numerator of the formula or method to account for the value; or (b) treating the value as an asset in the definition of ‘net asset value’, where such a term is used in the numerator of the formula or method. Note 2: In valuing the right to make calls for any unpaid amounts, the responsible entity should consider the risk that members may fail to pay an outstanding amount called for by the responsible entity, or to restrictions on the ability to make a call for a defined period (in which case, time value of money should be considered). The factors relevant to valuation may differ depending on the specific circumstances and nature of the scheme and the terms on which partly paid interests are issued. Page 15 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 15 RG 134.53 Examples of pricing provisions that appropriately account for partly paid interests are shown in Figure 3 and Figure 4. Figure 3: Example pricing provision accounting for partly paid interests—Separate adjustment to the numerator RG 134.54 In this formula, ‘V’ is the value of the right to call for the unpaid amount. This excludes unpaid amounts already being treated as an asset of the scheme. In determining this value, the responsible entity should consider certain factors: see RG 134.52(b). In determining the number of interests on issue, a partly paid interest should be counted as a ‘whole’ interest: see RG 134.52(a). Figure 4: Example pricing provision accounting for partly paid interests—Adjustment to definition of ‘net asset value’ RG 134.55 For this formula, the definition of ‘net asset value’ in the constitution includes a positive adjustment to account for the value of the right to call for the unpaid amount. This excludes unpaid amounts already being treated as an asset of the scheme. For example, it may treat the value of that right as an asset. In determining this value, the responsible entity should consider certain factors: see RG 134.52(b). In determining the number of interests on issue, a partly paid interest should be counted as a ‘whole’ interest: see RG 134.52(a). RG 134.56 We understand that there can be material costs involved in the acquisition and/or disposal of assets, which may not necessarily be reflected in the valuation of these assets. These are often described as ‘transaction costs’. These costs are in addition to any fees that are reflected in an adjustment to the net asset value per interest in calculating the amount of the consideration. The types of costs that may be incurred in acquiring or disposing of these assets will depend on the types of assets. RG 134.57 We consider that the inclusion of actual transaction costs, or an estimate, ensures that members who are not acquiring or disposing of interests at a particular time are not disadvantaged by the registered scheme bearing costs associated with the need to acquire and dispose of assets to satisfy such applications in the consideration. RG 134.58 We understand the responsible entity may not always be able to include the actual costs associated with the acquisition and/or disposal of assets. In these circumstances, it is acceptable for the constitution to permit the responsible Application price = Net asset value + V + transaction costs Number of interests on issue Application price = Net asset value + transaction costs Number of interests on issue Page 16 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 16 entity to use an estimate of the acquisition or disposal costs to determine the transaction cost amount. If a responsible entity uses an estimate, the estimate should seek to provide equity and fairness among members. If the scheme is generally growing with money coming in from new issues, any withdrawals will not normally involve additional transactional costs and this should be reflected in the adjustments. If the outlook is for withdrawals to exceed new issues, the reverse may apply. Note 1: If the responsible entity uses estimates, it should take into account its duties under s601FC. Note 2: A responsible entity has duties to act honestly and in the best interests of members. In our view, a responsible entity may not be complying with these duties if it attributes costs to the acquisition or disposal of assets that do not reflect the expected costs of acquisition or disposal of the assets, after taking into account any netting of these costs with persons undertaking offsetting transactions with the fund that may be expected. Unlisted exchange traded funds and managed funds traded on financial markets RG 134.59 The responsible entity of an exchange traded fund or a managed fund that has a class of interests traded on a financial market operated by ASX or Cboe will set the consideration to acquire an interest in the registered scheme using the net asset value per interest. RG 134.60 We have given conditional relief under ASIC Instrument 2023/693 for responsible entities of exchange traded funds or managed funds to include a provision to allow the amount of the consideration to acquire interests in a class of interests that are, or will be, traded on a financial market operated by ASX or Cboe to be based on the value of scheme property, less any liabilities that may be met from scheme property, divided by the number of interests on issue. Note: A responsible entity can choose to rely on our relief under s601GAE in ASIC Instrument 2023/693, even if it is issuing an interest in a situation covered by s601GAD under this legislative instrument. RG 134.61 These types of registered schemes are required to have uncapped facilities for issue and withdrawal operating on each trading day. This is intended to ensure that arbitrage opportunities limit divergence between market price and a price based on the value of the scheme assets less liabilities. If the market price is lower, market participants could purchase interests at the lower market price and withdraw through the continuous redemption facility at the higher price to make a profit. RG 134.62 The profit-making opportunities can attract market participants to continue with this process until the two prices equalise (within a certain spread) and any further profit-making opportunities are eliminated. In our view, the quality of the management of an unlisted registered scheme traded on a financial market operated by ASX or Cboe does not substantially affect the value of its interests. In these circumstances, we consider that the consideration to acquire an interest in this type of registered scheme is more accurately priced based on the value of scheme assets, less liabilities, rather than market price. Page 17 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 17 Listed schemes RG 134.63 After the initial issue of interests in a listed registered scheme, the responsible entity may choose to set the consideration to acquire an interest, taking into account the market price of the interests in the class that is traded. RG 134.64 We have given conditional relief under ASIC Instrument 2023/693 for responsible entities to include a provision that means the amount of the consideration to acquire an interest is based on the reasonably current market price of the interests in the relevant class that is traded. However, this can be subject to discretions related to determining the reasonably current market price or making an adjustment to it. The adjustment must be for an amount to be added to or deducted from the market price, rather than an amount that results in a particular outcome as to the amount of the consideration that is effectively not a market price. Note: A responsible entity can choose to rely on our relief under s601GAE in ASIC Instrument 2023/693, even if it is issuing an interest in a situation covered by s601GAD under this legislative instrument. RG 134.65 We consider that the market price generally better reflects the underlying value of the interests in the scheme. Market pricing is an independent pricing mechanism that regulates the depth of any discount that could result in unfair economic dilution and establishes an appropriate reference point for measuring it. RG 134.66 Our relief enables a responsible entity to determine the exact point of time when the market price is determined. This includes whether it is based on completed trades or bids or offers on a date, or average prices over a period (e.g. using a volume weighted average). However, the market price that is used must be reasonably current. Note: For more information on ‘reasonably current’ market value, see RG 134.114. RG 134.67 In our view, if the consideration to acquire an interest is based on the net asset value and that price is lower than the market price, it has the potential to unfairly dilute existing members’ interests. However, if that price is equal to or higher than the market price, using it will not dilute members’ interests. Note: For example, a net asset value price might be appropriate when the market on which the scheme is traded is not liquid or deep enough to allow an accurate reflection of the true value of the interest, and interests are issued and withdrawn on a frequent basis. RG 134.68 A listed scheme may have a class of interests on issue that is not traded. In these circumstances, it is our opinion that the consideration to acquire an interest in that class should be priced using a formula or method based on the value of assets, less any liabilities that may be met from the assets referable to that class, divided by the number of interests in that class on issue. Page 18 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 18 Nil or fixed price schemes RG 134.69 ASIC Instrument 2023/693 does not give any relief for registered schemes where the amount of consideration to acquire an interest is nil or a fixed price. This is because we do not consider there is likely to be much uncertainty for responsible entities and their advisers about whether a constitution makes adequate provision for the consideration to acquire an interest at a nil or fixed price. RG 134.70 We note that in some cases, a registered scheme may initially issue interests at a fixed price but subsequently issue any other interests based on ‘assets less liabilities per interest’, or market value. Our relief in ASIC Instrument 2023/693 still applies to the provisions relating to the subsequent issue of interests based on ‘assets less liabilities’ or ‘assets of a class less liabilities of a class’. However, if after an initial issue the interest of a member depends on the value of assets, the value of which varies over time, the amount of the consideration to acquire should reflect the changes in net asset value per interest, or, for a listed scheme, the market price of the interests. Options RG 134.71 A responsible entity may wish to issue options to acquire an interest in a registered scheme. Where the responsible entity wishes to issue options, it should consider whether the constitution will need to include a provision about how the exercise price of the option is to be calculated. We do not consider that the constitution needs to include a provision about the premium payable on the option as the issue of the option does not itself separately dilute the value of other members’ interests. Placements RG 134.72 Responsible entities may issue interests in listed registered schemes by way of placement. The consideration for the interests is generally at a discount to the market price at which interests are acquired. A placement allows a responsible entity to raise capital reasonably quickly and cost effectively from targeted investors. However, as a placement excludes other existing members, it may dilute the economic and voting rights of non-participating members and has the potential to be unfair. RG 134.73 We have given conditional relief under ASIC Instrument 2023/693 allowing responsible entities to determine the consideration to acquire an interest where the interest is issued under a placement. The relief applies if: (a) the interests are traded on ASX or an approved foreign market; (b) trading of the interests in that class has not been suspended; and (c) where the interests are traded on an approved foreign market, either: Page 19 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 19 (i) the interests, together with any related issue in the previous year, do not immediately before the issue comprise more than 15% of the interests in that class; or (ii) the following requirements are met: (A) members who hold interests in the same class approve the issue of the interests by a placement resolution; (B) unless the responsible entity considers that the issue of interests by the placement will not adversely affect the interests of members in another class, members of that class also approve the issue of the interests by placement resolution; and (C) the notice convening a meeting to vote on the issue of interests by placement contains particulars of how the money raised by the issue will be used by the responsible entity. RG 134.74 A placement resolution means, in relation to an approval of an issue of interests, a special resolution where votes are only cast for interests (eligible interests) that are held by a member: (a) who will not acquire any of the interests that are to be issued or an interest in those interests; or (b) who does not hold the interests on trust for or on behalf of another person, unless that person will not acquire any of the interests that are to be issued or an interest in those interests. RG 134.75 By requiring that the interests are listed on ASX or an approved foreign market, our relief in ASIC Instrument 2023/693 provides an independent pricing mechanism that helps responsible entities assess the price of the issue under the placement and helps protect members from unfair dilution. These markets regulate the depth of any discount and establish an appropriate reference point for measuring it. To ensure that the interests are adequately priced and the market is fully informed, interests in the relevant class must not be suspended from quotation. RG 134.76 Member approval of a placement is required if, together with any related issue under a placement in the previous year, it would exceed 15% of the interests in the relevant class. For ASX-listed registered schemes, this requirement applies under Listing Rule 7.1. For foreign-listed registered schemes, this requirement applies as a condition of relief under the modified provisions in ASIC Instrument 2023/693. This requirement ensures that the risk of unfair economic dilution is sufficiently addressed because it will either have limited materiality or be approved by members. Note: Our relief in ASIC Instrument 2023/693 focuses on provisions in relation to the calculation of the amount of consideration under a placement. However, there are also additional requirements in the Corporations Act that have the potential to impact on the acquisition of interests in a registered scheme by way of placement, including: Page 20 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 20 (a) the prohibition on the acquisition of more than 20% of a relevant interest in interests of a listed registered scheme (see s606); (b) the requirement to manage conflicts of interest (see s912A(1)(aa)); (c) the requirement for approval of certain related party transactions (see Pt 5C.7); (d) the duties of a responsible entity (see s601FC); and (e) the prohibition on self-acquisition of interests by a responsible entity (see s601FG). Rights issues RG 134.77 Responsible entities may issue interests in registered schemes by way of a rights issue. As with an issue under a placement, the consideration for interests is generally at a discount to the standard price at which interests in the registered scheme are acquired. RG 134.78 We have given relief under ASIC Instrument 2023/693 for responsible entities to determine the consideration to acquire an interest in a registered scheme where the interest is issued under a rights issue. The responsible entity can choose to make the offer to all members, or members of a specific class. This relief also applies to issues on the exercise of an option, if the option was offered to all members or all members of a particular class at the time of the offer of the options. Our relief is subject to any statutory exclusion of a member permitted by s601FC(1)(d), whether by ASIC exemption or otherwise. Note: If an offer is restricted to members of a class, the responsible entity must comply with the relevant obligation under s601FC(1)(d) to treat members of different classes fairly. RG 134.79 Our relief in ASIC Instrument 2023/693 covers rights issues that meet the requirements in s9A. In our experience, this definition captures the features of the most common structure of a rights issue in the Australian market. RG 134.80 The relief focuses on provisions for calculating the amount of consideration under a rights issue. We consider that it gives responsible entities appropriate flexibility to structure a rights issue within the parameters of the Corporations Act to best meet the needs of the registered scheme. Note: We may carefully scrutinise the structure of any rights issue (including underwriting by an associate) that appears to be a disguised placement outside of the process of assessing an application to register a scheme. We may also consider whether it is appropriate to apply for a declaration of unacceptable circumstances to the Takeovers Panel. For more information, see Regulatory Guide 6 Takeovers: Exceptions to the general prohibition (RG 6). Additional relief affecting rights issues RG 134.81 We have given additional relief from s601FC(1)(d) for registered schemes under ASIC Instrument 2023/697 to allow a responsible entity to: (a) exclude foreign members from participating in a rights issue; and Page 21 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 21 (b) offer some or all members who are wholesale clients the opportunity to acquire interests under the rights issue before the opportunity is offered to other members, and require members who are wholesale clients that receive the offer to notify their acceptance of the offer at a time before other members must accept the offer. Note: A responsible entity has a duty to treat all members of the same class equally and members of different classes fairly: see s601FC(1)(d). RG 134.82 Our relief to exclude foreign members applies in the following situations: (a) If the registered scheme is listed and the offer is one to which ASX Listing Rule 7.7 applies, the responsible entity must comply with that rule for our relief to apply. (b) If the registered scheme is not listed on ASX and the offer is renounceable, the responsible entity must appoint a nominee to sell the rights to acquire the interests not taken up and distribute the net proceeds for our relief to apply. (c) If neither of the situations in RG 134.82(a)–RG 134.82(b) applies, our relief will apply where the responsible entity determines that it would be unreasonable to make the offer to a foreign member, taking into account: (i) the number of members in the relevant jurisdiction; (ii) the number and value of interests held by members that may be issued in a particular jurisdiction; and (iii) the cost of complying with legal requirements and any requirements of a regulatory authority in making the offer in the relevant jurisdiction. RG 134.83 We have granted relief from s601FC(1)(d) to exclude foreign members. This is because there are often only small numbers of foreign members in a particular jurisdiction and/or legal or regulatory problems with offers to foreign members meeting that jurisdiction’s requirements. A responsible entity is also permitted to do this in relation to members with an address outside Australia and New Zealand in relying on the disclosure exemptions for rights issues as defined under s9A. For a listed registered scheme, our relief requires that foreign members be given a fair opportunity to share in the benefit of any discount on a rights issue where possible. This applies directly or indirectly through the requirement to comply with the ASX Listing Rules. RG 134.84 Our relief to allow an offer to be made to members who are wholesale clients before other members applies where the terms of the offer are such that interests will not be issued to any members before the date that the other members can elect to accept the offer to have the interest issued to them. RG 134.85 We grant this relief to allow offers of interests to occur at different times under a rights issue. This type of rights issue is commonly referred to as an ‘accelerated’ or ‘jumbo’ rights issue. A responsible entity structuring a rights issue as an accelerated rights issue may be treating members of the same class differently because the different offer periods for institutional and retail members mean the offers may not be made on the same terms to each class. Page 22 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 22 Distribution reinvestment plans RG 134.86 A responsible entity may offer members an opportunity to acquire additional interests by using some or all of any capital or income distributions to pay for those additional interests. To increase the attractiveness for members, the consideration to acquire these additional interests can be at some discount, and members pay no brokerage on their acquisition. RG 134.87 Under ASIC Instrument 2023/693, a responsible entity may determine the amount of the consideration to acquire an interest in a registered scheme where some or all of a distribution of capital or income payable to a member is applied to pay for the issue of the interests to that member. RG 134.88 For the reasons given at RG 134.83, we have given additional relief from s601FC(1)(d) for registered schemes (under ASIC Instrument 2023/697) to allow a responsible entity to exclude certain foreign members from participating in a distribution reinvestment plan. Interest purchase plans RG 134.89 An interest purchase plan generally provides members with a convenient means of obtaining additional interests in a registered scheme. These additional interests are often acquired at a discount to the market price and without brokerage fees or stamp duty. RG 134.90 Under ASIC Instrument 2023/693, a responsible entity can set the consideration to acquire an interest under a purchase plan if it meets the requirements of ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 (ASIC Instrument 2019/547), which applies to interest purchase plans where: (a) the interests in the relevant class are traded and trading has not been suspended (beyond a minimum period) on ASX; (b) we have not made certain determinations to prevent an issuer from relying on our relief; and (c) there are no existing exemptions from particular provisions of the Corporations Act. RG 134.91 There are also certain conditions for the relief in ASIC Instrument 2019/547 that a responsible entity must meet. If a responsible entity meets these conditions, they will also be eligible to rely on relief from s601FC(1)(d) (under ASIC Instrument 2023/697) to undertake the interest purchase plan. Note: For more information, see ASIC Instrument 2019/547, Regulatory Guide 125 Share and interest purchase plans (RG 125) and ASIC Instrument 2023/697. Negotiated fees RG 134.92 A responsible entity may regularly negotiate lower fees with certain wholesale clients. These fees may be included in the calculation of the Page 23 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 23 consideration at which interests are issued. We recognise there are commercial benefits for responsible entities in attracting wholesale clients by negotiating commercial rates of fees with them. RG 134.93 Under ASIC Instrument 2023/693, a responsible entity may set the consideration to acquire an interest that involves a negotiated fee arrangement, as long as it meets the requirements in ASIC Corporations (Registered Schemes and CCIVs: Differential Fees) Instrument 2017/40 (ASIC Instrument 2017/40). RG 134.94 ASIC Instrument 2017/40 provides a conditional exemption for responsible entities where the responsible entity differentiates between members in relation to fees based on factors including: (a) the aggregation of a member’s interests across the range of financial products issued by the responsible entity (or a related body), that are regulated under the Corporations Act; (b) the aggregation of holdings of a member and certain family members across a range of financial products offered or issued by the responsible entity (or a related body corporate) according to the value or period of time during which the aggregated interests have been held; or (c) members who are employees of the responsible entity (or its related body corporate), provided that the value of the employees’ interests or shares relative to the other members does not exceed 5%. RG 134.95 To rely on this instrument, a responsible entity must ensure that: (a) a statement is disclosed to members and included in any Product Disclosure Statement (PDS): (i) of the basis on which the differential fee will be calculated and which sets out the fees members will have to bear; or (ii) where fees are negotiated with wholesale clients, that the fee arrangement is to be offered to certain wholesale clients; (b) the differential fee arrangement does not adversely affect the fees paid or to be paid by any member who is not entitled to participate; and (c) other than where fees are negotiated with wholesale clients, the differential fee arrangement is applied without discrimination to all members who satisfy the criteria to receive the benefit of the arrangement. Note: For more information on differential fees, see ASIC Instrument 2017/40. Forfeited interests RG 134.96 An acquisition of an interest in a registered scheme that occurs as a result of sale on a forfeiture may be caught by s601GA(1)(a), and we have granted relief under ASIC Instrument 2023/693 to allow responsible entities to set the consideration to acquire a forfeited interest in a class of interests that are quoted on the financial market operated by ASX. Page 24 REGULATORY GUIDE 134: Funds management: Constitutions © Australian Securities and Investments Commission October 2023 Page 24