Australian Equity Derivative Disclosure Reforms: One Step Closer

[co-author: Alice Barber]

In brief

• The Government has introduced a Bill containing reforms that would require mandatory public disclosure of all forms of derivative interests once the 5% threshold is reached.
• The reforms will apply to the substantial holder disclosure provisions, director disclosure and beneficial holder notices. The reforms are extensive and fundamental.
• The reforms will not affect the existing 20% takeover rule or the compulsory acquisition provisions.
• The Bill retains the existing concept of “relevant interests” and creates a new concept of “deemed economic interests”- which captures derivative interests which are not relatable to any particular underlying security holding of the writer.
• ASIC (but not a listed entity) could also issue tracing notices on similar grounds for deemed economic interests.

Introduction

The Government has introduced into Parliament the long-anticipated proposed amendments to Chapters 6 and 6C of the Corporations Act which will result in the mandatory disclosure of all forms of derivative interests if the 5% threshold is reached.

The amendments are contained in the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Bill 2025 (Cth).¹

The Government’s stated policy objective for the reforms is to “improve corporate transparency by showing who ultimately owns, controls, and receives profits from companies” and to “broaden ASIC’s regulatory powers in respect of disclosure obligations and related matters”.²

The good news is that the Bill is a significant improvement on the public consultation draft of the Bill that was circulated in November 2024.³ However, the reforms in the Bill are extensive and fundamental. It will take market participants a fair amount of time to become familiar with the nature and effect of the reforms and to implement systems to ensure compliance with them (noting that, among other things, the substantial holder notification forms themselves will significantly change).

The reforms will apply to the following disclosure provisions in the Act:

• the substantial holder disclosure provisions;
• the director interest disclosure provisions; and
• the tracing (beneficial holder notice) provisions.

The Bill expands the disclosure obligations to cover all interests arising under equity derivatives regardless of whether (i) the derivative is capable of being physically settled or cash settled and (ii) the counterparty has a relevant interest in the underlying securities.

Importantly, though, the Government has taken on board market feedback, and sensibly decided that the reforms will not affect the existing operation of:

• the 20% takeover rule (the impact of equity derivatives on the application of the 20% rule will continue to be governed by the Takeovers Panel’s Guidance Note 20 (GN 20)); or
• the compulsory acquisition or statutory buy-out provisions that apply following a successful takeover bid.

The reforms will commence 12 months after the Bill receives Royal assent. So, we could expect the reforms to commence in the final quarter of calendar 2026.⁴

In this article, we summarise some of the key features of the Bill.

Equity derivatives

Under the existing law, only certain physically settled equity derivatives must be disclosed in a substantial holder notice and then only to the extent the counterparty to the derivative has a ‘relevant interest’ in the underlying securities. GN 20 expands the circumstances where derivative interests must be disclosed, but it does not require the disclosure of all derivative interests in all circumstances.

The Bill closes this gap by expanding the substantial holder notice disclosure obligations to cover all interests arising under equity derivatives regardless of (i) whether the derivative is capable of being physically settled or cash settled, (ii) whether the counterparty has a relevant interest in the underlying securities and (iii) whether the interests would have been required to be disclosed by GN 20.

Under the Bill, the following derivative interests would need to be disclosed if the requisite notional aggregate 5% threshold is reached:

• physically settleable derivatives (both those relatable to an identified underlying security holding covered by s608(8) and those not covered by s608(8));
• non-physically settleable derivates; and
• offsetting short positions in certain circumstances (eg where a person has an interest arising from a derivative they must also disclosure any arrangements that offset the economic exposure arising from the derivative).

Sensibly, to avoid confusion, the Government has taken on board market feedback (including from us) and created a distinction between:

• “relevant interests” – this essentially replicates what that concept currently means; and
• "deemed economic interest” – a new concept.

Relevant interests

The Bill ‘clarifies’ the operation of the accelerated relevant interest regime in s608(8) (through a new s608A). There is no need for the person who has the benefit of an agreement (or right or option) with a counterparty that, on performance, enforcement or exercise, will result in the person acquiring a relevant interest in securities to ascertain, for example, whether the counterparty has set aside particular securities to satisfy their obligations or whether they are held for other purposes. Instead, a party to a derivative is effectively required to assume that any securities that the counterparty has will be used to satisfy the counterparty’s obligations under the derivative. In the parlance of the Bill, the holding of relevant interests in derivatives is referred to as the discloser’s ‘relatable derivative-based holding’ (as the relevant interest is relatable to a security holding).

Deemed economic interests

Unlike relevant interests, deemed economic interests are not necessarily relatable to any particular underlying security holding. In other words, a ‘deemed economic interest’ is a theoretical holding of shares underlying a derivative which represents the portion of that taker or holder’s economic interest which is not reflected in any holding which the counterparty has a relevant interest in.

A ‘deemed economic interest’ will be calculated by:

• for physically settled derivatives (or a derivative with an option to physically settle as well as cash settle) – the number of underlying securities deliverable at a physical settlement less any already captured under s608(8) (see the discussion above); and
• for non-physically settleable derivatives (such as a cash settled derivative) – the number of underlying securities specified by, or calculated in accordance with, an ASIC legislative instrument (a draft of which is yet to be published).

The concept of ‘deemed economic interest’ is subject to a number of extensions and exceptions that already (currently) apply to the concept of ‘relevant interest’ in sections 608 to s609B.

Substantial holder notices

The Bill broadens the existing concept of 'substantial holding' to capture interests arising under equity derivatives.

Deemed economic interests are counted as if they were relevant interests for substantial holder notice purposes, and therefore count in the 5% disclosure threshold.

The Bill requires a party to a derivative in the bought position to consider their interests in each of the following categories and also count them in testing whether they have a substantial holding in the body:

• relatable derivative-based interests;
• deemed physically settleable derivative-based interests; and
• deemed non-physically settleable derivative-based interests.

If the person’s and their associates’ aggregate interests across all these categories reach the 5% threshold, the person must disclose their relevant percentage holdings in a substantial holder notice.

The Bill requires the substantial holder notice to also disclose any offsetting short positions which reduce the economic exposure from the derivative. ASIC would have power to determine how to calculate the number of securities in which the person has an offsetting short position.

Accordingly, going forward, a person will be required to disclose in their substantial holder notices (in addition to the details currently required in respect of non-derivative holdings):

• their relatable derivative-based holding percentage;
• their deemed physically settleable derivative-based holding percentage;
• their deemed non-physically settleable derivative-based holding percentage;
• the aggregate percentage across the above three categories of derivatives, known as their ‘derivative-based holding percentage’;
• details of any offsetting short positions, including their offsetting short position percentage; and
• their aggregate percentage across derivative-based and non-derivative based holdings, known as their ‘holding percentage’.

At every point when disclosure is required, the holder must report each class of derivative-based holding percentage, even if the figure for one or more of them is 0%.

Changes in the composition of a person’s interest will also be required. A person must disclose when their derivative-based holding percentage in the body moves by 1% or more, even if their overall holding percentage in the body has moved by less than 1%.

The Bill retains the existing 2 business day deadline for giving substantial holder notices, except in cases of a notice triggered by a takeover bid (in that latter case, the deadline remains at 9.30am on the trading day after the bid period starts).

The Bill contemplates that the current substantial holder notifications forms⁵ will be replaced with new forms designed by ASIC (which could be in a machine-readable form).

Tracing notices

ASIC and listed entities can currently issue tracing notices to a member of a listed entity or persons named in a previous tracing notice. However, the Bill expands the class of persons who can be the subject of a tracing notice to include persons suspected on reasonable grounds of having relevant interests in, or having given instructions about, securities. Listed entities must base their reasonable suspicion on information already disclosed under Chapter 6C of the Act, though this limitation does not apply to ASIC.

Under the Bill, ASIC has additional powers to issue tracing notices on similar grounds for deemed economic interests and ask for information beyond what a listed entity can request, including details of instructions given in relation to securities.

Freezing orders

ASIC will also have the power (similar to its existing power under the ASIC Act) to make freezing orders, including where ASIC considers that a person has contravened the substantial holding or tracing notice provisions in relation to a body. Such orders may restrict the acquisition or disposal of derivative-based interests and/or relevant interests.

Commentary

The reforms in the Bill are complex. We consider that GN 20 is currently operating effectively in terms of the disclosure of equity derivatives and that the reforms in the Bill are unnecessary. However, it is clear that the reforms will proceed and we are now one step closer to them becoming law.

The reforms, if passed in the form of the Bill, will have wide-ranging implications for market participants who buy and / or sell equity derivatives over the 5% threshold. It is not relevant whether those activities occur in the context of, or may otherwise affect, an actual or potential control transaction.

The reforms would represent the most extensive amendments to Chapters 6 and 6C of the Act in over a quarter of a century. The disclosure provisions, for example, whilst generally consistent with the approach under GN 20 operate much more broadly than GN 20.

Thankfully the Bill contemplates that the market will have at least 12 months to get ready for these reforms. However, there will be considerable work to do for market participants (and ASIC) to get ready for the commencement of the reforms, including from a reporting and disclosure perspective.

We will provide a further update as the Bill progresses.

1. The Bill was introduced into the House of Representatives for the first reading on 4 September 2025. We previously discussed these reforms in the context of the public consultation draft of the Bill that was circulated in November 2024 – click here.
2. See the Explanatory Memorandum to the Bill, at 1.
3. Treasury received significant comments on the consultation draft of the Bill. See, for example, Law Council of Australia, “Enhanced beneficial ownership disclosure for listed entities – submission”, dated 13 December 2024. One of the authors of this article, was part of the committee that wrote that submission. Treasury is to be commended for its efforts in facilitating significant improvements to be made to the Bill before its introduction into Parliament.
4. This is another sensible amendment by the Government, as the original Bill was scheduled to commence just 6 months after receiving Royal Assent – a period that was way too short given the broad ranging nature of the reforms.
5. Being Form 603, Form 604 and Form 605.

[View source.]