What is Securities Exchange Guarantee Corporation Limited?

Securities Exchange Guarantee Corporation Limited was incorporated in 1987 as a company limited by guarantee to be the trustee of the National Guarantee Fund (NGF). It is a fund set up for the purpose of compensating retail clients for losses suffered as a consequence of a default by participant in financial market operated by ASX Limited. The member of Securities Exchange Guarantee Corporation includes Chi-X Australia Pty Ltd (Chi-X) since 26 October 2020 and ASX Limited.

In accordance with Division 4 of part 7.5 of the Corporation Act 2001 and the Corporations Regulations 2001 the SEGC administers the National Guarantee Fund and it also holds the assets of the National Guarantee fund in trust for setting out in the legislation. 

For the retail clients meeting the requirement of Division 3 of the part 7.5 the operator of the financial markets other than ASX have to place approved compensation arrangement that governs ASX set out in Division 4. The losses covered under the arrangement establish by Division 3 is known as Division 3 losses and that are covered under Division 4 are known as Division 4 losses.

The board of Securities Exchange Guarantee Corporation consists of directors that are experienced in commercial matters involving the securities industry.

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What is the National Guarantee Fund?

The National Guarantee Fund (NGF) is a compensation fund needed to meet the requirements of claims while dealing with the participants of Chi-X Australia Pty Ltd and ASX limited and sometimes participants of ASX Clear Pty limited (ASX Clear). 

In 1987, six State Stock exchanges merged to establish the ASX limited and the assets of the fidelity funds of these stock exchanges merged to establish the National Guarantee Funds.

The Securities Exchange Guarantee Corporation used to offer investor compensation and clearing and settlement services until March 2005 in the requirement mentioned in part 7.5 of the Corporations Act.

The National Guarantee Fund was separated by a payment out of the National guarantee fund to ASX Clear on 31 March 2005, which then assumed sole responsibility for clearing counterparty risk. As a result National Guarantee Fund now only offers compensation in relation to the Chi-X and ASX.

New Members of Securities Exchange Guarantee Corporation (SEGC)

Since 26 October 2020, Chi-X Australia Pty Ltd joint as a member of the SEGC and the participants on the Chi-X market will be covered by the National Guarantee fund.

Board of Directors

• Nancy Milne, Chair
• Michael Willcock
• Susan Doyle
• David Trude (Chi-X Appointed Director)
• Colin Scully (ASX Appointed Director)

 Who can claim?

There are different types of claims provided by the Corporations Regulations, which can made and set out the criteria which must be met before the Securities Exchange Guarantee Corporation can allow a claim.

• Subdivision 4.3 claims of part 7.5 of the Corporations Regulations

It offers a completion of sales and purchases of securities transactions member market’s debt and equities market. Within the six months after the day on which the claimant became eligible to make claim, the claims should be served on the securities and exchange guarantee corporations and the claim served after six months will be barred unless the board of Securities exchange Guarantee Corporation otherwise determines.  

• Subdivision 4.7 claims of part 7.5 of the Corporations Regulations

It offers compensation for a loss that result from an unauthorized transfer of securities. Within the six months after the claimant became aware that they have suffered loss due to unauthorized execution, the claims should be served on the securities exchange guarantee corporation and after six months the claims are barred unless the board of SEGC otherwise determines.

• Subdivision 4.9 claims part 7.5 of the Corporations Regulations

It offers compensations for loss that lead market participant of member market to become insolvent and fails to meet their obligations to a person who had previously entrusted property to it. Within the six months after the claimant became aware that they have suffered loss due to unauthorized execution, the claims should be served on the securities exchange guarantee corporation and after six months the claims are barred unless the board of SEGC otherwise determines.

Caps on Claims

In November 2019, the Corporations Amendment Regulations was made and registered and its effect is to expand the existing cap on subdivision 4.9, property claim, to all heads of claim and to introduce caps per claimant.  The caps are necessary to reduce the risk and the sustainability of the National Guarantee Fund that one or more large claims could seriously exhaust the national guarantee fund making it less likely to be available to retail clients of Chi-X and ASX Participants. 

• Participant-related cap

This cap was offered on the amount paid in respect of any one insolvent participant for claims under subdivision 4.9 in respect of property entrusted. Before the regulation there was only one claim of the National Guarantee funds.

The cap was around 15% of the minimum amount ($15 million) and across the all heads of claim the compensation amount payable in respect of any one insolvent participant would be $15 million.

• Claimant related cap

Related to the same event and participant the amount that a claimant may receive for claims is $1 million and the cash component is capped at $250,000.

BBY Claims

The Securities exchange guarantee Corporation now pays most claims in relation to BBY Ltd.

Deadline for lodging claims

Subdivision 4.3 claim

The securities exchange guarantee corporation on 14 June 2016 published a notice, stating that the 4.3 claims are needed to be lodged within six months from the day on which a claimant became eligible to make its claim and its board will consider any such claims received from BBY clients on or before 31 July 2016.

Subdivision 4.9 claim

The Securities Exchange guarantee corporation published a notice on 19 June 2017 for lodgement of subdivision 4.9 claims against the fund by 20 September 2017.