Securities Act (Externally Managed Group Investment Funds) Exemption Notice 2013

2013/130

Coat of Arms of New Zealand

Securities Act (Externally Managed Group Investment Funds) Exemption Notice 2013

Pursuant to section 70B of the Securities Act 1978, the Financial Markets Authority gives the following notice (to which is appended a statement of reasons of the Financial Markets Authority).

Notice

1 Title
  • This notice is the Securities Act (Externally Managed Group Investment Funds) Exemption Notice 2013.

2 Commencement
  • This notice comes into force on 1 May 2013.

3 Revocation
  • This notice is revoked on the close of 30 September 2017.

4 Interpretation
  • (1) In this notice, unless the context otherwise requires,—

    Act means the Securities Act 1978

    confirmation document, in relation to a holder of specified participatory securities, means a document that properly evidences the nature and ownership of the specified participatory securities of the holder

    distribution means the direct or indirect transfer to a holder of specified participatory securities of money or property—

    • (a) that is received by an externally managed fund in respect of investments held by the fund; and

    • (b) that is held on trust for holders of specified participatory securities

    externally managed fund means a group investment fund—

    • (a) that is established under—

      • (ii) section 29 of the Trustee Companies Act 1967; or

      • (iii) section 42A of the Public Trust Office Act 1957; and

    • (b) in respect of which the trustee has appointed another party as manager of the fund

    manager means the person acting in the promotion or management of an externally managed fund (other than a trustee)

    Regulations means the Securities Regulations 2009

    specified participatory security means a participatory security that—

    • (a) is an interest in an externally managed fund; or

    • (b) confers on the holder of the participatory security the right to participate in any money or property that is the subject of a distribution

    trust deed means a trust deed entered into by a trustee and a manager that relates to the establishment of an externally managed fund

    trustee means—

    • (b) Public Trust.

    (2) Any term or expression that is defined in the Act or the Regulations and used, but not defined, in this notice has the same meaning as in the Act or the Regulations.

5 Exemption from section 33(3) of Act
  • Every manager and every person acting on its behalf are exempted from section 33(3) of the Act in respect of specified participatory securities.

6 Exemption from section 37(3) of Act
  • Every trustee, every manager, and every person acting on behalf of either or both of them are exempted from section 37(3) of the Act in respect of specified participatory securities.

7 Conditions of exemptions in clauses 5 and 6
  • (1) The exemptions in clauses 5 and 6 are subject to the conditions that—

    • (b) both the trustee and the manager have signed a trust deed relating to the specified participatory security; and

    • (c) the trust deed contains provisions specifying the matters set out in Schedule 1; and

    • (d) the trust deed contains provisions to the effect set out in Schedule 2; and

    • (e) the registered prospectus for the specified participatory securities contains—

      • (i) a description of the principal terms of the trust deed; and

      • (ii) a statement that the trust deed may be inspected without fee at a place (that is also stated) by any person on request; and

      • (iii) a statement that a copy of the trust deed will be sent to prospective and current investors on request and on payment of a reasonable fee prescribed by the manager; and

    • (f) the registered prospectus for the specified participatory securities contains a statement by the trustee—

      • (i) that the offer of the securities complies with the trust deed; and

      • (ii) as to whether or not the trustee guarantees the repayment of the securities; and

      • (iii) that the trustee is under an obligation to exercise reasonable diligence to ascertain whether or not the manager has breached the terms of the trust deed or of the offer of the securities; and

    • (g) the trust deed and any contract relating to the externally managed fund contain no provision that has the effect of exempting the trustee from, or indemnifying the trustee against, liability for breach of trust if the trustee fails to show the degree of care and diligence required of the trustee, having regard to the provisions of the trust deed.

    (2) Subclause (1)(g) does not apply to—

    • (a) a release otherwise validly given in respect of anything done or omitted to be done by a trustee before the giving of the release; or

    • (b) a provision enabling such a release to be given—

      • (i) on the agreement of a majority comprising not less than three-fourths in value of the specified participatory securities held by holders voting (in person or, where proxies are permitted, by proxy) at a meeting summoned for the purpose; and

      • (ii) either with respect to specific acts or omissions or on the trustee being wound up or ceasing to act.

8 Exemption from section 37A(1A)(d) of Act
  • Every manager and every person acting on a behalf of a manager are exempted from section 37A(1A)(d) of the Act in respect of specified participatory securities.

9 Exemptions from section 52(1) and (3) of Act
  • Every manager and every person acting on behalf of a manager are exempted from section 52(1) and (3) of the Act in respect of the register of specified participatory securities kept under section 51(1)(c) of the Act.

10 Condition of exemptions in clause 9
  • (1) The exemption in clause 9 from section 52(1) of the Act is subject to the condition that the part of the register that relates to the securities of a holder of specified participatory securities is, except when duly closed (but subject to any reasonable restrictions that the manager may impose, so that not less than 2 hours in each working day is allowed for inspection), open to the inspection of that holder, or a representative of that holder, without fee.

    (2) The exemption in clause 9 from section 52(3) of the Act is subject to the condition that, on payment by a holder of specified participatory securities of the fee prescribed for the purposes of section 52(4) of the Act, the manager promptly provides, or causes to be provided, to that holder a copy of the part of the register that relates to the securities of that holder.

11 Exemption from section 54 of Act
  • Every manager and every person acting on behalf of a manager are exempted from section 54 of the Act in respect of specified participatory securities.

12 Condition of exemption in clause 11
  • (1) The exemption in clause 11 is subject to the condition that the manager must send, without fee, to a holder of a specified participatory security a confirmation document within 5 working days after receiving a request for the document from the holder of a specified participatory security.

    (2) The exemption in clause 11 is subject to the further condition that the manager must send, without fee, to a specified participatory security holder, at least once every 6 months,—

    • (a) a confirmation document; or

    • (b) a notice containing the statements specified in subclause (3).

    (3) The notice referred to in subclause (2)(b) must contain—

    • (a) a statement to the effect that the holder of the specified particpatory securities has the right to receive from the manager, without fee, a confirmation document if the holder makes a request to the manager to receive the document; and

    • (b) a statement to the effect that the holder of the specified participatory securities may obtain a copy of the confirmation document by electronic means; and

    • (c) a statement as to how the holder of the specified participatory securities may obtain a copy of the confirmation document by electronic means (for example, from a specified Internet address).

    (4) If the manager has sent a notice to a holder of specified participatory securities under subclause (2)(b), the exemption in clause 11 is subject to the further conditions that—

    • (a) the manager must, after it receives a request from the holder of the specified participatory securities for a confirmation document under subclause (1),—

      • (i) comply with the request under subclause (1); and

      • (ii) treat the request as a request for the manager to send to the holder at least once every 6 months a confirmation document under subclause (2)(a) (instead of a notice under subclause (2)(b)); and

      • (iii) send to the holder at least once every 6 months a confirmation document under subclause (2)(a) until the holder revokes the request by notice to the manager; and

    • (b) the manager must ensure that—

      • (i) a copy of the confirmation document is available in the manner described in subclause (3)(c) at all reasonable times during the period beginning on the date that the notice is sent to the holder of the specified participatory securities and ending on the date that the manager next sends a confirmation document or notice to the holder under subclause (2); and

      • (ii) the manner of obtaining the confirmation document described in the notice under subclause (3)(c) allows the copy of the confirmation document to be printed or saved so as to be usable for subsequent reference.

13 Exemption from regulation 5(1)(c) of Regulations
  • Every manager and every person acting on behalf of a manager are exempted from regulation 5(1)(c) of the Regulations in respect of specified participatory securities.

14 Condition of exemption in clause 13
  • The exemption in clause 13 is subject to the condition that the registered prospectus for the specified participatory securities contains all of the information, statements, certificates, and other matters specified in Schedule 4 of the Regulations that are applicable as if references to—

    • (a) a unit were references to a specified participatory security; and

    • (b) a unit trust were references to an externally managed fund; and

    • (c) a unit holder were references to a holder of specified participatory securities; and

    • (d) a unit trustee were references to the trustee.

15 Exemption from regulation 28 of Regulations
  • Every manager and every person acting on behalf of a manager are exempted from regulation 28 of the Regulations to the extent that an advertisement contains a projected rate of return that may be earned by holding specified participatory securities.

16 Condition of exemption in clause 15
  • The exemption in clause 15 is subject to the condition that—

    • (a) the advertisement refers to the registered prospectus and contains a statement that the method of calculating the projected rate of return that may be earned by holding specified participatory securities is contained in the registered prospectus; and

    • (b) the registered prospectus sets out the principal assumptions and method of calculation in accordance with which the advertised rate of return is calculated.

17 Revocation of Securities Act (Externally Managed Group Investment Funds) Exemption Notice 2003
18 Transitional provisions
  • If, before 1 May 2013, a manager or a trustee offers specified participatory securities in reliance on the Securities Act (Externally Managed Group Investment Funds) Exemption Notice 2003 under a prospectus that was registered before that date, the manager, the trustee, and a person acting on behalf of either or both of them may continue to rely on that notice in respect of securities offered under that prospectus (as if that notice continued in force after 30 April 2013).


Schedule 1
Matters to be specified in trust deed

cl 7(1)(c)

1 Investment of externally managed fund
  • The investment or classes of investment in which the assets of the externally managed fund may be invested.

2 Capital of externally managed fund
  • (1) Whether any limits as to number or amount apply to all specified participatory securities or to any class of specified participatory securities that have been or may be issued for the externally managed fund and, if so, the nature of those limits.

    (2) The liability, if any, of the holders of the specified participatory securities to contribute to the externally managed fund before its winding up.

    (3) If there is, or is to be, a minimum amount of specified participatory securities that must be allotted before the commencement of the externally managed fund, a statement of that minimum amount.

3 Redemption and transfer of specified participatory securities
  • The terms relating to the redemption, transfer, and transmission of the specified participatory securities.

4 Winding up of externally managed fund
  • (1) The circumstances in which the externally managed fund must or may be wound up, and the procedure for winding up.

    (2) The rights and liabilities of holders of specified participatory securities on, and in the course of, the winding up of the externally managed fund.

5 Meetings
  • The procedure for convening and holding, and voting rights at, meetings of holders of specified participatory securities.

6 Trustee
  • (1) The terms relating to the appointment, remuneration, and, if any, removal from office of the trustee.

    (2) The powers of the trustee, including any borrowing powers and any powers to delegate the management of the externally managed fund.

    (3) The duties and liabilities of the trustee, including the duty to hold the assets of the externally managed fund according to the terms of the issue of the specified participatory securities.

7 Manager
  • (1) The terms relating to the appointment, remuneration, and, if any, removal from office of the manager.

    (2) The powers of the manager, including any borrowing powers and any other powers in connection with the externally managed fund.

    (3) The duties and liabilities of the manager.

8 Profits involved
  • The terms relating to the use or distribution of any profits of the externally managed fund.

Schedule 2
Provisions to be contained in trust deed

cl 7(1)(d)

1 Duties of trustee
  • The trustee must—

    • (a) exercise reasonable diligence to ascertain whether or not any breach of the terms of the trust deed or of the offer of the specified participatory securities has occurred; and

    • (b) except if the trustee is satisfied that the breach will not materially prejudice the interests of the holders of the specified participatory securities, do all the things that the trustee is empowered to do to cause any breach of those terms to be remedied.

2 Right of trustee to obtain information
  • (1) The trustee is entitled to receive all notices and other communications relating to the externally managed fund that any holder of the specified participatory securities is entitled to receive.

    (2) The trustee, or any representative of the trustee (being a person authorised to act for the purposes of this clause by the trustee), is entitled to—

    • (a) attend any meeting of the holders of the specified participatory securities; and

    • (b) be heard at that meeting on any part of the business of the meeting that concerns the trustee, as the trustee, or the holders of the specified participatory securities.

    (3) The manager of the externally managed fund must, from time to time,—

    • (a) at the request in writing of the trustee, make available for the trustee's inspection the whole of the accounting and other records relating to the externally managed fund; and

    • (b) give to the trustee any information that the trustee requires with respect to all matters relating to those records.

3 Duties and liabilities of manager
  • (1) The manager of the externally managed fund has the following duties:

    • (a) to use best endeavours and skill to ensure that the affairs of the externally managed fund are conducted in a proper and efficient manner; and

    • (b) to use due diligence and vigilance in the exercise and performance of its functions, powers, and duties as a manager; and

    • (c) to account to the holders of specified participatory securities for all money that the manager receives on behalf of the externally managed fund; and

    • (d) not to pay out, invest, or apply any money belonging to the externally managed fund for any purpose that is not directed by, or authorised in, the trust deed; and

    • (e) to supply to the holders of specified participatory securities, in general meeting, any oral or written information relating to the affairs of the externally managed fund that any holder has given the manager reasonable notice to supply.

    (2) The manager of the externally managed fund must ensure that all money received on behalf of the externally managed fund is paid into a trust account operated by the trustee or its nominee as soon as practicable.

    (3) The manager of the externally managed fund must have the same liability for any acts and omissions by it in the exercise and performance of its functions, powers, and duties as manager as it would have if it exercised and performed those functions, powers, and duties as a trustee of the externally managed fund, and is entitled to the same relief from liability as it would be if it were a trustee.

4 Meetings
  • (1) The manager of the externally managed fund must, from time to time, at the request in writing of the trustee or of persons holding not less than one-tenth in value of the specified participatory securities, summon a meeting of the holders of those securities for the purpose of giving to the trustee their opinions or directions in relation to the exercise of the trustee's powers.

    (2) The trustee may, on the trustee's own volition or at the request of the manager, summon a meeting of the holders of the specified participatory securities for the purpose of giving to the trustee their opinions or directions in relation to the exercise of the trustee's powers.

    (3) The trustee must, at the request in writing of persons holding not less than one-tenth in value of the specified participatory securities, summon a meeting of the holders of the specified participatory securities for the purpose of giving to the trustee their opinions or directions in relation to the exercise of the trustee's powers.

    (4) Every meeting summoned under this clause must be summoned by sending by post a notice, specifying the time and place of the meeting, to every holder of specified participatory securities at the holder's last known address not later than 14 days before the date of the proposed meeting.

    (5) Every meeting summoned under this clause must be chaired by a person nominated by the trustee or any other person appointed in that behalf by the holders of the specified participatory securities present at the meeting.

    (6) The manager must provide the trustee with a copy of the register of specified participatory securities kept under section 51 of the Securities Act 1978, and of all changes to the register.

Dated at Wellington this 22nd day of April 2013.

Sue Brown,
Head of Primary Regulatory Operations.


Statement of reasons

This notice, which comes into force on 1 May 2013 and is revoked on 30 September 2017, replaces the Securities Act (Externally Managed Group Investment Funds) Exemption Notice 2003 (the 2003 notice) which expires on 30 April 2013. The exemptions in the 2003 notice for externally managed group investment funds established by statutory trustee companies or Public Trust are carried forward, but with an additional exemption and some modification of conditions. In summary, this notice exempts, subject to conditions, the trustees of the funds, and the external managers, from the requirements in—

  • sections 33(3) (the statutory supervisor and deed of participation requirements) and 37(3) (the requirement for subscriber authorisations) of the Securities Act 1978 (the Act). These exemptions are subject to a new condition that the trustee company or Public Trust have a licence under the Securities Trustees and Statutory Supervisors Act 2011 that covers participatory securities and units in unit trusts. The trust deed continues to be required to specify the same matters and contain the same implied terms as those required for participatory securities but with some adjustment to reflect the nature of the fund; and

  • section 37A(1A)(d) of the Act (the requirement to register interim financial statements with refresher certificates). This is a new exemption to align this notice with the Securities Act (Group Investment Funds) Exemption Notice 2011; and

  • section 52(1) and (3) of the Act (register requirements), subject to conditions that the register is open for inspection and that copies can be obtained on request by the relevant holder of the securities; and

  • section 54 of the Act (the security certificate requirements), subject to modified conditions that require issuers to send confirmation information to holders of the securities but also allow for that notice to be made available by electronic means; and

  • regulation 5(1)(c) of the Securities Regulations 2009 (the content requirements for a prospectus for participatory securities) subject to the condition that the registered prospectus instead comply with the content requirements for a unit trust prospectus; and

  • regulation 28 of the Securities Regulations 2009 (restricting prospective financial information being distributed) in respect of the projected rate of return for the interests in the fund, subject to the condition that the principal assumptions and relevant methods of calculation for the rate of return are stated in the prospectus and referred to in the advertisement.

The Financial Markets Authority (FMA), after satisfying itself as to the matters set out in section 70B(2) of the Act, considers it appropriate to grant the exemptions because—

  • the effect of the exemptions is to enable externally managed group investment funds to be offered without a statutory supervisor and under the disclosure requirements applying to unit trusts, rather than those applying to participatory securities generally. The structure of an externally managed group investment fund where the trustee is not an issuer, and the manager is under the supervision of a statutory trustee company, provides for a level of independent supervision of the issuer equivalent to that required for other participatory securities, debt securities, and unit trusts. The appointment of a statutory supervisor as well as a trustee to perform the supervision function adds unnecessary compliance costs that would ultimately be borne by investors. The exemptions providing relief from this have been in place for a number of years and the policy reasons remain valid and relevant. Consultation with market participants demonstrates continued reliance on the exemption:

  • the Securities Trustees and Statutory Supervisors Act 2011 now requires securities trustees and statutory supervisors to be licensed, and the licences specify whether the supervisor is licensed to supervise debt securities, participatory securities, or units in unit trusts. The exemption has therefore been amended to reflect this requirement, so that the trustee of the externally managed fund must have a licence in respect of units in unit trusts and participatory securities:

  • the exemptions also align certain other obligations of these group investment funds with those applying to unit trusts. Group investment funds are similar in nature to unit trusts as investment vehicles. Allowing group investment funds to provide disclosure similar to that of unit trusts accordingly provides investors with better information concerning these investments. It also assists investors to make comparisons between the 2 types of investments. It is also appropriate to align some of the conduct obligations with those of unit trust issuers:

  • a further exemption has been added from the requirement to register financial statements with a director's refresher certificate extending the life of the prospectus. This is consistent with the requirements applying to group investment funds and unit trusts, and reduces the cost of requiring preparation and registration of interim financial statements. It does not cause any significant detriment to investors because no relief is granted from the certification requirement. Accordingly, if an issuer is not able to certify that the scheme's financial position has not materially and adversely changed, the issuer will not be able to rely on the exemption and will need to prepare and register interim financial statements and refer to them in a new registered prospectus:

  • the change to enable delivery of securities confirmation information by notice to the investors of where this information can be accessed on the Internet recognises the increased use by issuers and investors of Internet-based communications:

  • given the continuing validity and relevance of the exemptions, and the amendments that recognise legislative change and current market practices, FMA considers that the exemptions will not cause significant detriment to subscribers and are not broader than is reasonably necessary to address the matters that give rise to the exemptions.


Issued under the authority of the Acts and Regulations Publication Act 1989.

Date of notification in Gazette: 26 April 2013.

This notice is administered by the Financial Markets Authority.