Exhibit p(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
NATIONAL AUSTRALIA ASSET
MANAGEMENT LIMITED
OCTOBER 1999
INDEX
1. SUMMARY OF RULES
2. INTRODUCTION
2.1 Purpose of the Rules
2.2 The Basic Principle
3. SCOPE OF THE RULES
3.1 Instruments Covered by the Rules
3.2 Instruments Not Covered by the Rules
3.3 To Whom Do These Rules Apply?
3.4 Investment Clubs and Syndicates
3.5 Consequences of Failing to Comply
4. PROCEDURES FOR DEALING
4.1 Securities
4.2 New Issues
APPENDICES
1. Summary of Insider Trading Legislation & Flowchart
2. Example of Buy/Sell Dealing Form
3. Authorised Signatories
4. Broker Form
5. Staff Acknowledgement
October 1999
1. SUMMARY OF RULES
A. GENERAL
1. Every staff member is expected to know and observe the rules.
2. Dealing should not take place if it could prejudice the reputation of NAM.
3. Prior authorisation to deal must always be sought from an Authorising
Officer.
4. Authorisation to deal is valid for twenty-four hours and re-authorisation
will be necessary if dealing is not completed in the time frame specified.
5. All staff must provide the Compliance Manager with a list of brokers they
propose to deal with. Prior approval must be obtained from the Managing
Director to use a broker who is not on your approved broker list.
6. Staff may not seek or accept extended settlement terms of any form of
credit from the broker unless the broker provides this facility generally
to its customers.
7. Use of free or discounted brokering services as a general rule is not
permitted. In very limited circumstances the Managing Director may give
prior written authorisation for this to occur, eg where there is a long
standing private client relations hip between the staff member and broker.
8. Personal dealing advices, duly authorised and showing the date the deal was
completed must be lodged with the Compliance Manager.
9. Staff members should not derive any personal advantage from information
which is not generally available and which has been obtained in the course
of their employment.
10. NAM or National Australia Bank (NAB) may embargo dealing in particular
company securities or derivatives from time to time. Authorising Officers
will be aware of such restrictions and will advise you accordingly.
Authorising Officers are not required to disclose the reason for declining
an application to deal.
11. Staff who make or contribute to making investment decisions on financial
securities in their employment, are prohibited from establishing
discretionary dealing accounts with any brokers for the purposes of dealing
in securities that are in the same asset class as those they trade in their
employment.
12. You must not deal on your own account or for others over whom you have
significant influence or control, if such dealing could prejudice the
reputation or call into question the integrity of NAM.
13. You must not engage in `front running'.
14. If you possess unpublished price-sensitive information relating to
securities, or are precluded for any other reason from dealing, you must
not deal in those securities for your own account, or advise or cause any
other person to deal, or communicate any information or opinion on those
securities to any other person if you know or believe that the other person
will deal or cause or advise someone else to.
15. You must not sell securities short unless you can borrow the securities or
otherwise acquire the securities for settlement under normal market
practices.
16. If you make, or support decision making on investments, you are not allowed
to participate in any underwriting or placing of a security in the asset
class you are associated with and that NAM is involved in, unless the offer
is available to the general public or the offeror has made securities
available to the staff generally.
B. DEALING
1. Fill in the details on a dealing form.
2. Have the form signed by an Authorising Officer, usually the Executive
Director, Australian Equities.
3. Place your order with your broker.
4. Lodge the completed dealing form with the Compliance Manager after your
order is filled (keep a copy for yourself).
2. INTRODUCTION
2.1 PURPOSE OF THE RULES
The Corporations Law ("the Law") and the Business Rules of the Australian
Stock Exchange ("the ASX Business Rules") impose obligations on persons
involved in the securities and futures industries in relation to dealings
in securities and futures contracts. This document summarises those legal
requirements and sets out NAM's policies and procedures governing personal
dealings by its staff. The aim of the rules is to protect us from legal
liability and to ensure that every person associated with NAM:
o complies with the Law, best practice and the Rules of the
Australian Stock Exchange and Sydney Futures Exchange;
o does not abuse the trust that is placed in them as responsible
members of staff; and
o maintains the high standards of integrity on which NAM's
reputation is based.
Personal dealings in securities and futures contracts need to be subject to
certain authorisation and disclosure procedures, which are detailed in
these rules.
Every member of staff is expected to know and observe these rules. Any
breach may result in dismissal as well as exposure to possible civil and
criminal liability for insider trading and market manipulation. This could
affect your ability to participate in the securities or futures industry
including obtaining further employment in the finance sector.
In addition, a breach of these personal dealing rules may result directly
or indirectly in a breach by NAM of the Law or the ASX and SFE Business
Rules, and thus jeopardise the dealers' and futures brokers' licences held.
2.2 THE BASIC PRINCIPLE
All staff and associates are entitled to buy and sell securities and
futures contracts whenever they wish, subject to complying with these
rules.
However, as much for your own protection as for the protection of NAM, it
is necessary to have a framework of rules and procedures governing your own
account dealing in securities. In this area more than most, employees'
conduct is liable to come under close scrutiny, both from within and
outside the firm, and must be capable of being justified after the event.
The mere appearance of wrongdoing can be sufficient to cause embarrassment.
In practice, employees are likely to find that in this area the burden of
proof is on them to show that they have behaved correctly.
For these reasons it is important that staff understand they must comply
not merely with the letter of these policies but also with their spirit, as
expressed in the following principle:
o Dealing should not take place if it could prejudice the reputation or
call into question the integrity of NAM.
o The legitimate desire to maximise personal financial situations must
not be allowed to distract staff from their work responsibilities.
2.3 ACKNOWLEDGEMENT
All staff will receive a copy of these rules for their records and will
sign and return a copy with the list of their brokers to Human Resources as
acknowledgement that they have received, read and understood these rules.
This acknowledgement will also occur annually as part of the performance
appraisal process. (Refer Appendix 5)
3. SCOPE OF THE RULES
3.1 INSTRUMENTS COVERED BY THE RULES
o Securities and listed unit trusts, whether Australian or foreign, and
whether or not listed on an exchange in Australia.
o Options, warrants, partly paid shares and rights to subscribe for or
acquire shares in or convertible notes of a company.
o Exchange traded options traded on a securities exchange.
o Debentures, shares and bonds issued by governments, local authorities,
public authorities or international agencies and corporations and
options, warrants and rights to subscribe for or acquire such
debentures, shares or bonds.
o Futures contracts including but not limited to futures on indices and
individual equities (but not commodities).
o Unlisted trusts including property trusts.
3.2 INSTRUMENTS NOT COVERED BY THE RULES
The Rules do not apply to any of the following:
o Purchase of securities by prospectus, investor booklet, initial offer
documents or public superannuation fund products.
o Acceptance or application of rights or bonus issues, corporate
restructures, selldowns or buybacks, or dividend re-investment plans
available to you as an existing shareholder.
o Acquisition of National Australia Bank shares under the staff share scheme.
o Acquisition of shares and options by way of gifts or legacies.
HOWEVER, THE RULES WILL APPLY WHEN YOU SELL THESE INSTRUMENTS.
The Rules also do not apply to dealings in shares, options or units in
privately owned family companies or trusts, provided you do not have or
share power to make investment decisions.
3.3 TO WHOM DO THESE RULES APPLY?
These rules apply to:
o All staff working within NAM, be it full-time, part-time or on a
temporary basis.
o Contract staff and secondees (including consultants) who are on
contracts of 1 month or longer or on open ended contracts.
Where you have influence or control in relation to a discretionary account,
these transactions will be subject to the dealing rules. This includes an
account set up in the name of yourself, your spouse, your partner, your
children under 18 years, your company or your family trust and your
personal superannuation fund. It may also include other members of your
household. If you are unsure, please refer to Legal/Compliance and obtain
their written advice.
A member of staff will be presumed to have significant influence or control
over the dealings of his/her spouse, financially dependant children and
personal superannuation fund unless he/she has notified Legal/Compliance in
writing to the contrary. Legal/Compliance will acknowledge, in writing,
receipt of such advice which they will retain for future reference.
Where a spouse or partner is also employed elsewhere within the finance
sector and subject to their own company's personal dealing rules, it is
recognised that they may find it impossible or very difficult to comply
with both sets of rules. In these circumstances you should refer to
Legal/Compliance in order that a compromise may be agreed, where possible,
under the relevant dealing rules and any external regulations.
Legal/Compliance will advise you in writing of any variations to these
Rules. You should retain a copy for future reference.
Compliance Managers prepare monthly reports on staff dealings. Exceptions,
in the form of conflicts or unresolved issues, are reported to the Managing
Director regularly.
3.4 INVESTMENT CLUBS OR SYNDICATES
You are not prohibited from belonging to investment clubs or syndicates,
however such arrangements must be cleared in advance by Legal/Compliance.
Full details of the operation of the syndicate (and any future changes)
will need to be supplied to obtain clearance which will be in writing and a
copy retained by Legal/Compliance for future reference.
3.5 CONSEQUENCES OF FAILING TO COMPLY
Under AIMA rules NAM is required to report any breach of the insider
trading rules to the authorities.
Failure to comply with these policies could have one or more of the
following consequences for the member of staff concerned:-
o disciplinary action by a regulatory body, leading to imposition
of fines/imprisonment;
o prosecution of the member of staff by the authorities for insider
dealing;
o dismissal from NAM.
4. PROCEDURES FOR DEALING
Staff may deal through any broker and written prior authorisation must be
obtained from an Authorising Officer. The broker's name must be included on
the staff dealing form.
4.1 SECURITIES
1. PRIOR AUTHORISATION TO DEAL MUST ALWAYS BE SOUGHT FROM AN AUTHORISING
OFFICER FOR ALL DEALS GOVERNED BY THESE RULES. A list of Authorising Officers is
available in the Policy Database. (Refer to Appendix 3 for the current listing
of Authorising Officers). Authorisation may not always be granted because of
possible conflicts of interest, reputation concerns etc. If urgent prior
permission to deal is needed and you are unable to obtain same day written
authorisation personally, eg due to being absent on holiday or sick leave, the
rules still apply but a work colleague may apply for you.
NAM may at any time without any reason:-
o restrict trading in any security or derivative by an employee;
o impose special conditions or restrictions on the trading in
certain securities or derivatives;
o decline to give permission to deal when it is requested.
2. Authorisation to deal is valid for twenty-four hours and
re-authorisation will be necessary if dealing is not completed within
the time frame specified.
3. All staff must provide the Compliance Manager with a list of brokers
they propose to deal with and this list will be confirmed in writing
by the Managing Director. A copy of the broker approval form is
available in the Policy Database. (Refer Appendix 4). Prior approval
must be obtained from the Managing Director to use a broker who is not
on your approved broker list.
4. In dealing with brokers:
o No staff member may seek or accept extended settlement terms of
any form of credit from the broker or party with whom they place
orders unless the broker provides this facility generally to its
customers. This facility must be documented by an Agreement,
signed by the staff member and the broker and staff must advise
the Compliance Manager in writing that they have a credit facility
with the broker. The Compliance Manager may wish to sight the
agreement.
o Use of free or discounted brokering services as a general rule is
not permitted. In very limited circumstances the Managing Director
may give prior written authorisation for this to occur, eg where
there is a longstanding private client relationship between the
staff member and broker.
5. Personal dealing advices, duly authorised and showing the date the
deal was completed must be lodged with the Compliance Manager.
6. You MUST NOT derive any personal advantage from information which is
not generally available and which has been obtained in the course of
your employment.
7. NAM or NAB may embargo dealing in particular company securities or
derivatives from time to time. Authorising Officers will be aware of
such restrictions and will advise you accordingly. Authorising
Officers are not required to disclose the reason for declining an
application to deal.
8. Staff who make or contribute to making investment decisions on
financial securities in their employment, are prohibited from
establishing discretionary dealing accounts with any brokers for the
purpose of dealing in securities that are in the same asset class as
those they advise on or trade in their employment.
9. You MUST NOT deal for your own account, or for others over whom you
have significant influence or control, if such dealing could prejudice
the reputation or call into question the integrity of NAM. In all
personal dealings you must avoid any conflict of your own interests
with those of clients.
10. You MUST NOT engage in 'front running', ie. if you are aware that NAM
has made a decision to deal for a client or fund, you must not deal in
that security or any related security until after the order or
decision has been executed or cancelled. Clients' interests are always
paramount.
11. If you possess unpublished price-sensitive information relating to
securities, or are precluded for any other reason from dealing, you
MUST NOT deal in those securities for your own account, or advise or
cause any other person to deal, or communicate any information or
opinion on those securities to any other person if you know, or have
reason to believe, that the other person will as a result deal or
cause or advise someone else to. Please refer to Appendix 1 for a
brief summary of the insider trading legislation. If you are in doubt
as to whether the information you hold is unpublished price-sensitive
information then you should refer immediately to Legal/Compliance.
12. You MUST NOT sell securities short unless you can borrow the
securities or otherwise acquire the securities for settlement under
normal market practices. Short selling is subject to these dealing
rules.
13. If you make or support decision making on investments, you are not
allowed to participate in any underwriting or placing of a security in
the asset class you are associated with and that NAM is involved in,
unless the offer is available to the GENERAL PUBLIC or the offeror has
made securities available to NAM staff generally.
14. Personal trading should be commensurate with your financial ability to
fund and maintain an appropriately sized investment portfolio. Trading
should not be on a scale which detracts from performance of normal
duties.
4.2. NEW ISSUES
Offers of securities under prospectus to staff may be made by a broker or
underwriter to designated officers within NAM. The parcel of shares offered
will then be offered to interested staff in a manner approved by the
Executive Director, Australian Equities.
Participation in any new security offering must be approved through the
staff personal dealing approval process. Generally, only offerings through
your registered private client brokers and in privatisations where a
customer offer is made will be approved.
If you are made an offer as a result of your employment by NAM by any
broker, including your private client broker (eg an offer that is not
available to all private clients), you must either decline the offer or
arrange for it to be a general offer to NAM staff.
APPENDIX 1
INSIDER TRADING
INSIDER TRADING IS A CRIMINAL OFFENCE, IN RESPECT OF WHICH BOTH CIVIL AND
CRIMINAL PENALTIES CAN BE IMPOSED:
CRIMINAL PENALTIES: A$200,000 (INDIVIDUALS)/A$1,000,000 (COMPANIES)
AND/OR 5 YEARS
-------------------
IMPRISONMENT;
CIVIL PENALTIES: COMPENSATION FOR DAMAGES
OTHER ORDERS: SUSPENSION/BAN FROM THE INDUSTRY (INDIVIDUALS AND/OR
COMPANIES)
The prohibitions against insider trading are contained in section 1002 of the
Corporations Law ("the Law") in relation to securities and in sections 1251-1257
of the Law in relation to futures. SIS Legislation prohibits insider trading of
public offer superannuation interests (S174 SIS Act). The prohibitions in
relation to securities extend to acts committed within Australia regardless of
whether or not the issuer of the securities is Australian or not, and to acts
committed outside Australia in respect of securities issued by an Australian
entity.
The Law is essentially the same for securities and futures, with one exception
as detailed below.
A. SECURITIES
The main operative provision of the Law is quoted below. Although this
provision refers to securities issued by a body corporate, it also applies
to securities issued by any other legal person, including governments. Note
`securities' includes debentures, prescribed interests, units of prescribed
interest, options, government bonds and superannuation interests).
1002G(1) [APPLICATION OF SECTION]
Subject to this Division, where:
(a) a person (in this section called the "INSIDER") possesses information
that is not generally available but, if the information were generally
available, a reasonable person would expect it to have a material
effect on the price or value of securities of a body corporate; and
(b) the person knows, or ought reasonably to know, that:
(i) the information is not generally available; and
(ii) if it were generally available, it might have a material effect
on the price or value of those securities;
the following subsections apply.
1002G(2) [NO PURCHASE OR SALE ETC OF SECURITIES]
The insider must not (whether as principal or agent):
(a) subscribe for, purchase or sell, or enter into an agreement to
subscribe for, purchase or sell, any such securities; or
(b) procure another person to subscribe for, purchase or sell, or to
enter into an agreement to subscribe for, purchase or sell, any
such securities.
1002G(3) [NO COMMUNICATION OF INFORMATION]
THIS IS KNOWN AS THE `TIPPING' OFFENCE.
Where trading in the securities referred to in subsection (1) is permitted
on the stock market of a securities exchange, the insider must not,
directly or indirectly, communicate the information, or cause the
information to be communicated, to another person if the insider knows, or
ought reasonably to know, that the other person would or would be likely
to:
(a) subscribe for, purchase or sell, or enter into an agreement to
subscribe for, purchase or sell, any such securities; or
(b) procure a third person to subscribe for, purchase or sell, or to
enter into an agreement to subscribe for, purchase or sell, any
such securities.
When used above, the following expressions have the meanings indicated:
(1) "INFORMATION" includes:
(a) matters of supposition and other matters that are insufficiently
definite to warrant being made known to the public; and
(b) matters relating to the intentions, or the likely intentions, of
a person.
(2) Information is "GENERALLY AVAILABLE" if:
(a) it consists of readily observable matter; or
(b) without limiting the generality of paragraph (a), both the
following subparagraphs apply:
(i) it has been made known in a manner that would, or would be likely
to, bring it to the attention of persons who commonly invest in
securities of bodies corporate of a kind whose price or value
might be affected by the information; and
(ii) since it was so made known, a reasonable period for it to be
disseminated among such persons has elapsed; or
(c) it consists of deductions, conclusions or inferences made or
drawn from either or both of the following:
(i) information referred to in paragraph (2)(a); (ii)information
made known as mentioned in subparagraph 2(b)(i).
(3) "MATERIAL EFFECT ON PRICE OR VALUE OF SECURITIES":
A reasonable person would be taken to expect information to have a
material effect on the price or value of securities of a body
corporate if the information would, or would be likely to, influence
persons who commonly invest in securities in deciding whether or not
to subscribe for, buy or sell the first-mentioned securities.
There are a number of exceptions to both the prohibition on insider
trading and the prohibition on passing on inside information,
including the following:
(a) Exceptions to prohibition on trading:
o subscribing for shares under an underwriting agreement or
agreeing to do so, or selling shares so acquired;
o trading by a body corporate or partnership when a partner or
employee is in possession of price sensitive information but (a)
the employee who made the dealing decision was not in possession
of the information or any advice derived therefrom, (b) there are
Chinese Walls in place which could reasonably be expected to
prevent the flow of the information or advice to the person who
made the dealing decision and (c) no such information or advice
actually flowed;
o dealing in the knowledge of one's own trading intentions or
agreements (either as an individual or as a body corporate);
o dealings as holder of a dealer's licence on behalf of and
pursuant to a specific instruction from a non-related client,
subject to the existence of Chinese Walls between the dealer and
any persons who may hold price sensitive information, and to no
information actually flowing to either the client or the dealer;
o purchases pursuant to a requirement under the Law.
(b) Exception to prohibition on passing on information:
o entice another person to enter into an underwriting or
sub-underwriting agreement;
o delivering information pursuant to a requirement under the Law.
B. FUTURES
The insider trading provisions in relation to futures are very similar to
those pertaining to securities, except that for information to be captured
by the prohibitions, it must have been obtained from someone connected with
the body corporate whose securities in some way affect the price of the
particular futures contract. This "connection" can arise in a variety of
ways, including being employed by a company which acts as financial adviser
to the relevant issuer.
In addition, a person is precluded on a particular day from dealing in a
futures contract concerning a body corporate if, by virtue of being, or
having been at any time during the 6 months ending on that day, connected
with the body, the person has inside information in relation to that
futures contract.
INSIDE INFORMATION FLOW CHART
[GRAPHIC OMITTED]
October 1999
APPENDIX 2
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NATIONAL AUSTRALIA ASSET MANAGEMENT LTD
PERSONAL DEALING REPORT
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A. AUTHORITY
Name
Date .................
HAS AUTHORITY TO DEAL IN THE FOLLOWING SECURITIES
SECURITY: CODE: .............................
BUY/SELL ON BEHALF OF
NAME: ............................
BROKER: .............................
This authority is valid for twenty four hours from the time hereof
.......................................................................
......
................................................................
Staff Member Signature
Authorising Officer (Name & Title)
Date ................ ...... Time .....................
B. REPORT
I confirm that I have/have not dealt the above security(s) ..........on
............ .... (date)
Staff Member Signature
..................................................................
Original to Compliance Officer
Copy to Staff Member
October 1999
APPENDIX 3
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NATIONAL AUSTRALIA ASSET MANAGEMENT LTD
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PERSONAL DEALING
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AUTHORISING OFFICERS
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ASSET CLASS OFFICER
Australian Equities Stephen Hiscock*
Australian and International Fixed Bob Warren
Interest
International Equities Patricia Preneta
Derivatives Paul Laband or David Taylor
In the absence of the relevant Officer for the appropriate asset class,
any other of the designated Authorising Officers may sign the Personal
Dealing Report. However, see exception below.
*WHEN HE IS AWAY, STAFF SHOULD FIRSTLY SEEK AUTHORISATION FROM RICHARD
FISH, SENIOR PORTFOLIO MANAGER, AUSTRALIAN EQUITIES.
October 1999
APPENDIX 4
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NATIONAL AUSTRALIA ASSET MANAGEMENT LTD
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PERSONAL DEALING BROKERS
Name:
Brokers or financial intermediaries that I or my associated interests may
use for personal dealings:
........................................................................
........................................................................
........................................................................
........................................................................
........................................................................
Signed:.........................................................
Date:
.....................................................................
APPROVED:
DATE
Page 2
APPENDIX 5
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NATIONAL AUSTRALIA ASSET MANAGEMENT LTD
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PERSONAL DEALING RULES
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To: Human Resources
I, .............................................................. have
received, read and understood the Personal Dealing Rules of National Asset
Management Ltd dated October 1999.
Signature ...... Date
APPENDIX 5
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NATIONAL AUSTRALIA ASSET MANAGEMENT LTD
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PERSONAL DEALING RULES
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To: Paul A. K. Laband, Managing Director
I have read and understood the personal dealing rules of NAAM dated
October 1999 and understand that a breach of these guidelines will be
considered misconduct and may result in termination of my employment with
NAAM or related companies.
Name: ..................................................
Signature:..................................................
Date: ............................
YOUR RESPONSIBILITIES AS A SECURITIES REPRESENTATIVE OF NATIONAL AUSTRALIA
ASSET MANAGEMENT LTD (`NAM')
1. WHO IS A `SECURITIES REPRESENTATIVE'?
A `SECURITIES REPRESENTATIVE' is defined in Section 94 of the Corporations
Law (`the Law') as a person who holds a `proper authority' from a
securities licensee.
A Securities Representative must be employed by or act for or by
arrangement with the licensee in connection with a securities business or
investment advice business carried on by the licensee.
If you hold yourself out to be a representative of a licensee, you will be
regarded as such (Section 94(4)).
`SECURITIES' is defined broadly in the Corporations Law to mean government
debentures or bonds, shares, options and prescribed interests (eg unit
trusts). It does not include futures as they are dealt with under a
separate licensing regime. (You may also be a representative under NAM's
futures brokers licence.)
2. YOUR CONDUCT AS A SECURITIES REPRESENTATIVE
2.1 Section 806 of the Law provides that you must not act as a
securities representative of NAM unless you hold a proper authority
from NAM.
This does not mean that you cannot act as an employee of NAM without
a proper authority. What it means is that you must not DEAL IN
SECURITIES or make SECURITIES RECOMMENDATIONS or give SECURITIES
ADVICE on NAM's behalf without first having a proper authority.
2.2 NAM must keep a register of proper authorities granted by it under
the Law, which will be maintained by the Compliance Division (Ron
Chee). This register must be updated with any changes of
information. You must notify IMMEDIATELY of any changes to the
following:
a) your name;
b) your current residential address; and
c) your current business address (i.e if you change buildings)
Where you cease acting in a dealing capacity for NAM eg you are
transferred from NAM to another area of the NAB, or you resign, you
must:
i. notify Compliance immediately; and
ii. hand back your proper authority to the Compliance Division
2.3 The Australian Securities and Investments Commission (`ASIC') may
require you to provide it with a copy of your proper authority where
it has reason to believe you have acted as a representative of NAM
(Section 814).
3. MAKING SECURITIES RECOMMENDATIONS:
Under the Law any person who offers `securities advice' or makes
`securities recommendations' will require a proper authority. The
expression `SECURITIES RECOMMENDATION' is defined to mean the making of
direct or explicit recommendations about securities. `SECURITIES ADVICE'
is thought to include any advice to take a particular action or inaction
in relation to securities (e.g sell, buy, subscribe, hold). Such advice
may also come in the form of analyses or reports about securities.
The Law contains detailed provisions in relation to the giving of
securities recommendations. These are IN ADDITION to the requirements
under the general law to provide appropriate advice and to disclose
conflicts of interests. Our dealers licence requires us to disclose to our
clients any fee or commission paid to any person who referred the client
to us. In its advisory surveillance activities, the ASC focuses on the
retail end of the market, but the provisions set out below also
technically apply to `SOPHISTICATED INVESTORS'. The ASIC's definition of a
non retail client is fairly narrow and may exclude some of our wholesale
clients, ie. some of our clients may be classified as `retail' investors
by the ASC.
3.1 THE `KNOW YOUR CLIENT AND PRODUCT' RULE
Section 851 of the Law requires that a securities representative
must have a reasonable basis for making a securities recommendation.
To have a reasonable basis for making a securities recommendation,
the representative must:
a) ascertain that the recommendation is appropriate to the investment
objectives, financial situation and particular needs of the client as known
to the representative; and
b) base the recommendation on such consideration and investigation, reasonable
in all the circumstances, in relation to the securities which are being
recommended.
Where there is a contravention of Section 851, the representative
will be liable (under Section 852) to compensate the client for any
loss or damages sustained by the client as a result of having
followed the representative's recommendation.
The securities representative should be able to comply with Section
851 by performing sufficient research to ensure that a securities
recommendation is appropriate to the particular client. The
information of which the securities representative should be aware
includes:
a) the client's investment objectives;
b) details of the client's need for income, capital growth, security,
liquidity, flexibility and proposed time frame; and
c) the client's financial situation including assets, liabilities and income,
and the client's aversion to or tolerance of risk.
IT IS IMPERATIVE THAT ALL PROPERTY AUTHORITY HOLDERS MAKING SECURITIES
RECOMMENDATIONS OR GIVING SECURITIES ADVICE TO CLIENTS MAINTAIN CLIENT
FILES WHICH CLEARLY DOCUMENT THE RECOMMENDATION MADE TO THE CLIENT AND THE
BASIS UPON WHICH THIS RECOMMENDATION WAS MADE.
4. PROHIBITED CONDUCT
4.1 Section 995 of the Law states that a person shall not, in connection
with any dealing in securities, engage in conduct that is misleading
or deceptive or is likely to mislead or deceive.
4.2 Section 999 of the Law provides that a person must not make a
statement that is false in a material particular or materially
misleading, and which is likely to induce the sale or purchase of
securities by other persons if, when the person makes the statement,
the person does not care whether the statement is true or false or
the person knows or ought reasonably to have known that the
statement is false in a material particular or materially
misleading.
4.3 Section 765(1) provides that when a person makes a representation
with respect to any future matter and the person does not have
reasonable grounds for making the representation, the representation
shall be taken to be misleading. The onus is on the person making
the representation to prove that he had reasonable grounds for
making it. `REASONABLE GROUNDS' may include the representative's
degree of training, his enquiries as to the client's needs, his
knowledge of the product, his research facilities and the process by
which the recommendation was made.
4.4 If a person suffers loss or damage by virtue of the securities
representative engaging in any of the abovementioned prohibited
conduct, THE PERSON MAY RECOVER THE AMOUNT OF THE LOSS OR DAMAGE BY
ACTION AGAINST THE SECURITIES REPRESENTATIVE OR AGAINST ANY OTHER
PERSON INVOLVED IN THE CONTRAVENTION.
5. NAM'S LIABILITY FOR ACTS OF ITS REPRESENTATIVES
As authorised representatives of NAM you are in a position of great
responsibility. NAM is made liable for your acts as a representative to
the same extent as if NAM had done them. If you do an act, and a third
person does or omits to do an act in reliance on your conduct, then NAM
will be liable in damages to the third person for any loss reasonably
incurred as a result of your actions.
Consequently, it is very important that you should comply with you
responsibilities.
6. REGISTER OF INTERESTS IN SECURITIES TO BE MAINTAINED BY YOU (FORM 714)
----------------------------------------------------------------------
6.1 As the holder of a proper authority, Section 881 of the Law requires
you to maintain a register of your interests in securities. Attached
is FORM 714 - `REGISTER OF INTERESTS IN SECURITIES' that should be
used as a guide in preparing your register. The register may be
maintained in electronic form but must contain all this information.
6.2 The Law provides that WITHIN 7 DAYS of obtaining a proper authority
or acquiring a relevant interest in securities, details of relevant
interests in securities must be noted on your securities register.
Details of any change or cessation in the relevant interest in
securities should also be noted WITHIN THE 7 DAYS.
6.3 Details which must be entered include:
a) date of commencement, change or cessation of relevant interest;
b) number of securities involved;
c) if consideration was involved in the commencement, change or cessation, the
amount of the consideration, and if any part did not consist of money,
details of what it was; and
d) if the securities are not registered in your name, the name of the
registered owner of the securities or, if any other person is entitled to
become registered, the name of that person.
6.4 THE AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION CAN REQUIRE
PRODUCTION OF YOUR REGISTER, SO IT IS IMPORTANT TO KEEP IT UP TO
DATE (SECTION 885).
COMPLIANCE PERSONNEL CONDUCTS AN AUDIT ON THE REGISTERS ON A REGULAR BASIS TO
ENSURE THE REGISTERS ARE MAINTAINED PROPERLY. ALSO AS PART OF THIS SURVEILLANCE
PROGRAM, THE TRANSACTIONS RECORDED IN THE REGISTER ARE COMPARED TO THE PERSONAL
DEALINGS FORMS LODGED WITH COMPLIANCE.
REGISTER OF INTERESTS/CHANGE IN DETAILS (FORM 715)
6.5 Section 882 of the Law provides that you must notify the Australian
Securities and Investments Commission (via Form 715) of the
following when you begin to maintain a register:
a) where the register is kept; and
b) the name and address of the licensee from whom you hold a proper authority
(NAM).
Upon becoming a person who holds a `proper authority' Compliance
will issue you with a Form 715 for completion and signing.
Compliance will forward it to the ASC on your behalf.
Under Section 883, changes to be notified to the Australian
Securities and Investments Commission are:
a) change in location of register;
b) ceasing to hold a proper authority; and
c) change in name or address of licensee.
Attached is a pro forma Form 715 for you to complete and give to
Compliance when either (a) or (b) as above occurs. Register keeper
details and Part B should be competed as required. If you return it
to NAM Compliance (Ron Chee) we will lodge this form on your behalf
with the ASC.
7. TRAINING
The Corporations Law Regulations contain provisions concerning the
training and supervision for proper authority holders. NAM, as the holder
of the dealers licence, is obliged to ensure that each representative is:
a) adequately supervised in the performance of the duties that he or she is
required by the holder to perform;
b) is sufficiently trained in relation to those duties before acting as a
representative; and
c) keeps up to date in relation to those duties by means of continuing
training programs.
These obligations are reinforced in the dealers licence conditions and are
reviewed in the ASC surveillance program and by NAM's external auditor.
The content of an ongoing training program for representatives should
derive directly from the core competencies required before a person can be
appointed a proper authority holder (knowledge, application skills and
ethical conduct). Continuing training programs should therefore be
intended to maintain or promote holder's knowledge of securities and
relevant provisions of the law, to enhance application skills and to
inculcate ethical values and attitudes. Sales focused training alone does
not meet those requirements.
TRAINING ADMINISTRATION
The ASC does not set precise standards as to what constitutes sufficient
training for the representatives of licensed dealers. It is incumbent upon
each principal holder to ascertain the sufficiency of training having
regard to the nature of its business and the experience of the particular
representative. The industry standard appears to be in the vicinity of
20-30 hours structured training per annum and about 10 hours of
unstructured professional reading per annum.
Structured training would include formal study (e.g SIA course) and
accredited external courses/seminars, inhouse presentations with guest
speakers, etc. Attendance at and completion of the formal training must be
controlled and monitored.
Compliance sends out forms every 6 months requesting that you complete
details of training undertaken by you in the relevant period. It is important
that these are completed as quickly .....and accurately as possible and passed
to Ron Chee. In addition we will be organising training sessions to be held
quarterly with a guest speaker on matters relevant to the industry and our
licensing obligations.
NAM COMPLIANCE
JANUARY 1998
===========================================================================
NATIONAL AUSTRALIA
ASSET MANAGEMENT LIMITED
COMPLIANCE MANUAL
===========================================================================
RON CHEE
LINDA PISCIONERI
SEPTEMBER 1999
FOREWORD
NATIONAL ASSET MANAGEMENT (NAM) IS A SIGNIFICANT PLAYER IN THE AUSTRALIAN FUNDS
MANAGEMENT INDUSTRY. OUR SUCCESS HAS BEEN BUILT ON INTEGRITY AND PROFESSIONALISM
AND A "HANDS ON" APPROACH TO THE MANAGEMENT OF THE BUSINESS.
THIS MANUAL HIGHLIGHTS KEY STANDARDS AND LEGAL REQUIREMENTS WITH WHICH YOU MUST
COMPLY. COPIES OF THIS MANUAL CAN BE PROVIDED TO CLIENTS, POTENTIAL CLIENTS AND
FELLOW MEMBERS OF THE NATIONAL AUSTRALIA BANK GROUP AS AN ETHICAL AND LEGAL
FRAMEWORK OF NAM.
AS PART OF WORKING AT NAM, IT IS EXPECTED THAT YOU ACT AND CONDUCT YOURSELF IN
CONFORMITY WITH THE RULES AND REGULATIONS DETAILED IN THIS MANUAL. DEPARTURE
FROM THE PROCEDURES WILL BE VIEWED SERIOUSLY, AND COULD LEAD TO DISMISSAL. THIS
INFORMATION AND ADDITIONAL DETAILS ON POLICIES, PROCEDURES AND INVESTMENT
GUIDELINES CAN BE ACCESSED THROUGH THE NAM COMPLIANCE BULLETIN BOARD (LOCATED
VIA LOTUS NOTES). PLEASE ENSURE THAT YOU ARE FAMILIAR WITH THIS MANUAL AND
UNDERSTAND HOW IT IMPACTS ON YOUR DAY TO DAY WORK.
AS A RESULT OF OUR SUCCESS AND THE CHANGING LOCAL AND GLOBAL INVESTMENT
ENVIRONMENT, IN WHICH NAM OPERATES, WE ARE FACING NEW CHALLENGES AS A COMPANY
AND AS INDIVIDUALS. NAM IS CONTINUALLY REVIEWING THE STRUCTURE OF ITS BUSINESS
TO ENSURE THAT THESE CHANGES CAN BE MET.
PAUL A.K. LABAND
MANAGING DIRECTOR
CONTENTS
Chapter 1 INTRODUCTION........................................ Page 1
Chapter 2 Duties to Clients................................... Page 2
Advice and Recommendations
Securities Hawking and Pressure Selling
Complaints
Client Confidentiality
Tax File Numbers
Agreements and Deeds
Chapter 3 DEALING............................................. Page 8
Conduct
Insider Trading
Chinese Walls and Confidential Information
Substantial Shareholdings
Counterparties
Staff Dealing Rules
Chapter 4 DUTIES TO EXTERNAL PARTIES.......................... Page 13
Licensing a. NAM
b. Staff
c. Securities Registers
d. Money Laundering and Other Illegal Activity
e. Suppliers
f. Information Memorandum
& Disclosure Document Accuracy
g. Promotional Material and Advertising
Chapter 5 DUTIES WITHIN NAM...............................................
Page 18
Contact with Regulators
Contact with the Media
Errors and Breaches
Confidentiality Regarding NAM
Service of Legal Documents
Record Keeping
Maintaining Office Security
Personal Benefits and Gifts
Outside Employment and Directorships
Conflicts of Interest
Chapter 6 AND
Finally.......................................................Page 24
Vigilance
The Compliance Division
Appendix 1 Dealing Conduct and Law........................Page i-vi
Appendix 2 Proper Authority Holder Obligations............Page vii
National Australia Asset Management Limited
Compliance Manual
CHAPTER 1... INTRODUCTION
The NAB Group and National Australia Asset Management Limited are committed to
building and maintaining high standards of integrity, fair dealing, quality of
service and ethical behaviour in all their relationships. We must always ask
whether our actions are "right and proper", and at all times be mindful of the
interests of our clients, fellow staff members, suppliers and the community and
environment at large.
Often this can be summarised as "the front page test", that is, "Would you be
comfortable if your actions were portrayed on the front page of the daily
newspaper?" If not, then you should not proceed.
The Law provides an absolute minimum standard for our conduct. We must ensure
our actions cannot mislead or deceive, either deliberately or inadvertently.
Further, the Corporations Law imposes a standard that we must act EFFICIENTLY,
HONESTLY AND FAIRLY. If we fail to reach this broad standard, not only do we
risk losing clients we may be excluded from the securities industry by the
Australian Securities and Investments Commission ("ASIC").
We support the Investment & Financial Services Association Group Code of
Ethics, which is largely reflected in the principles of this Manual.
CHAPTER 2... DUTIES TO CLIENTS
ADVICE AND RECOMMENDATIONS
Dealing with client inquiries is part of our function as an investment manager.
Clients and potential clients often ring NAM in search of investment advice.
However, this is an area where we should tread with some caution. Investment
advice and recommendations should NEVER be given. This applies to all staff,
whether or not they hold a Proper Authority from NAM. NAM has been issued with a
Dealers Licence by ASIC, that authorises NAM to operate managed investment
schemes and to carry on a securities business only. NAM has to apply to ASIC for
an Investment Adviser Licence if it wants to carry on an investment advice
business.
THIS IS AN AREA FOR GREAT CARE.
The ASIC strictly polices the "know your client" rules in relation to the giving
of investment advice and the making of recommendations. For example, the person
advising must be aware of the client's individual financial situation and their
particular needs and objectives.
A recommendation can be express or implied and may be to buy, sell, hold or not
to acquire certain securities. Thus, if you were to tell a client that they
should retain their NAM trust units until the end of the financial year because
markets were likely to pick up, you would have given that client a
recommendation. If the client made a loss as a consequence of relying on that
recommendation, you will be liable to compensate that client.
We are not in the business of being investment advisers nor are we in a position
to know enough about our clients' personal financial details to make
recommendations on a reasonable basis. We strongly encourage our clients to seek
independent investment advice.
Everyday dealings with clients can lead to potential for legal liability through
the giving of advice. For instance, a telephone inquiry might be received from a
potential investor for a retail fund seeking further and up to date information
on the units offered by our Trust. The direction of such conversation could lead
to questions like: "Should I put my money in?", "Is now a good time?" "What do
you think I should do?" "How will this effect my tax?" At this stage, the client
should be urged to seek advice from their investment adviser. If they do not
have an investment adviser, Client Services telephone team is able to provide a
list of investment advisers in the client's area.
Often clients are happy to receive information rather than advice, so that they
can make their own decisions. Therefore, general information about the
investment markets or information about NAM's approach to the markets at that
time may satisfy them, e.g. we have reduced fixed interest exposure or increased
offshore investment. However, you must ensure that you have not given an
implicit recommendation and always refer the client to his or her adviser.
A client who is unwilling to deal through an investment adviser should be
encouraged to seek other professional advice from their accountant, tax adviser,
solicitor, asset consultant or other adviser.
The client who seeks a further explanation of the terms of a Prospectus or
Information Memorandum should be told that advice on prospectuses or Information
Memoranda, particularly about what they mean for an individual, should be sought
from a financial adviser. Any client queries relating to a Prospectus or
Information Memorandum funds should be directed to Client Services.
Staff who deal with clients and financial advisers should be careful that they
are not making a recommendation to people who could reasonably be expected to
rely on it. As advisers are expected to carry out research into the investment
products they recommend, generally representations to advisers would not be
construed as recommendations or advice. However, such staff are still obliged to
act honestly, efficiently and fairly and must not mislead or deceive their
audience.
Whilst the same rules apply to wholesale and retail clients, it may not be as
reasonable for a wholesale client to act on a fund manager's recommendation as
it would for a retail client. However, we must still be careful not to give
advice to any client.
Below are some examples of typical responses to clients. The "Never says" are
dangerous statements which have the potential to open NAM and staff up to
liability. The "Better alternatives" are a safer way of addressing the same
query.
NEVER SAY..... A BETTER ALTERNATIVE....
Now would be a good time for We have increased exposure to the
you to put some money in the sharemarket in our funds.
sharemarket.
The level of franking in the Distributions from the Managed Investor
Managed Investor Australian Australian Equities Trust include franking
Equities Trust will give you credits. The estimated level of franking
a tax benefit. is...
If it was my money, I would NAM urges you to visit a financial planner be
pulling out of the who could take all of your affairs into sharemarket now and
waiting account and develop a full financial plan. for the market to settle
down.
If you are young like me, the The National Growth Fund is likely to be National
Growth Fund would be more volatile than the, but with greater the best for you.
risk you often have the potential for
greater return in the longer term.
The Fund will improve in the We have repositioned the Fund so that, if
next quarter. our assessment of the economy is right, we
might expect better performance in the
period ahead.
The bias towards industrials The portfolio has a bias toward
will see the Fund outperform. industrials at the moment.
THE "BETTER ALTERNATIVES" ARE NOT INTENDED TO BE A SCRIPT FOR ANSWERING CLIENT
QUERIES BUT ARE PROVIDED TO HIGHLIGHT DIFFERENCE BETWEEN CAREFULLY AND
CARELESSLY CHOSEN WORDS - THE DIFFERENCE BETWEEN PROTECTING FROM OR EXPOSING TO
LEGAL LIABILITY.
SECURITIES HAWKING AND PRESSURE SELLING
It is our policy to sell our services and products in a professional manner,
always mindful of protecting our reputation and integrity.
"Pressure selling" is clearly not compatible with this policy.
Our policy is consistent with the Corporations Law prohibition on securities
hawking, which is defined as going from place to place and issuing invitations
or offers to subscribe for, amongst other things, units in unit trusts. The
reference to 'going from place to place' is not defined but does include a
person communicating with other persons by post, telephone and similar services.
This means that an offer to invest in NAM trusts made over the telephone to at
least two people will be regarded as securities hawking, as would a similar
offer sent by post. Importantly, the Corporations Law prohibition does not apply
in relation to an offer or invitation if accompanied by a Prospectus/
Information Memoranda and sent by post.
COMPLAINTS
COMPLAINTS
THE AUSTRALIAN STANDARDS AS 4269-1995 - COMPLAINTS HANDLING defines a complaint
as "Any expression of dissatisfaction with a product or service offered or
provided." This includes any of the following:
o any incident which could give rise to legal action in which NAM could be
named as a party;
o any incident which could give rise to adverse or incorrect press comment;
o any incident which might lead to disciplinary action for a staff member;
o any incident which may have been reported to the regulator by an external
party;
o any incident which could have an impact upon NAM's relationship with a
client, a unit holder or a regulatory body; or
o any incident which suggests or involves any allegation of gross
inefficiency.
COMPLAINTS REPORTING PROCEDURE
Any matter, which falls within any of the above categories, should be
immediately reported to your line manager.
IF THE CIRCUMSTANCES REQUIRE, THE REPORTING OF THE COMPLAINT WILL BE ESCALATED
IN ACCORDANCE WITH NAM'S ESCALATION PROCEDURE.
In addition, all complaints must be reported to Client Services no later than
the next business day after receipt.
The initial verbal reporting of the incident should be followed by a written
report to Client Services. The details should include the date that the
complaint was received, how it was identified, and those persons (internally and
externally) who were aware of the incident. If you are in doubt as to what or
whom to report, you should consult your line manager.
BENCHMARKS FOR RESPONSE
We have a legal responsibility to deal with complaints and inquiries WITHIN A
REASONABLE TIME. If we are not in a position to respond to the complaint
immediately, then a letter of acknowledgment should be sent confirming that the
matter is being investigated.
Under Managed Investment Act we must, if we receive a complaint in writing,
acknowledge the complaint in writing within 14 days from receipt. The resolution
of the complaint must be communicated to the complainant within 45 days after
receipt.
However, NAM's policy is to acknowledge the complaint in writing within 5
business days from receipt and the resolution of the complaint must be
communicated to the complainant within 20 business days after receipt.
DEALING WITH A COMPLAINANT
We have to be responsive, fair and reasonable when dealing with a complainant.
SETTLEMENT
After 4 weeks from the date of the response (not acknowledgment) to a complaint,
it can be treated as settled, as long as the complainant has been made aware of
this fact and has not indicated dissatisfaction with the response.
COMPLAINTS REGISTER
All complaints (no matter how trivial it may appear) should be noted on the
Complaints Registers database maintained by CLIENT SERVICES. The database
records the status of the complaint, follow up actions and resolution.
ANALYSIS
Complaints should be classified and analysed for the identification of systemic
and recurring problems. Remedial actions should be taken to prevent recurrence
of similar problems.
NAM'S COMMITMENT
NAM and its staff is committed to the principles of the complaints framework set
out in the Australian Standard AS4269-1995 and its obligations under the Managed
Investments Act, when managing the complaints handling and resolution process.
CLIENT CONFIDENTIALITY
As part of our duty to act in the best interests of our clients, we must respect
the information we receive from and about them. In fact, many of our investment
management agreements contain confidentiality clauses, the purpose of which is
to restrict totally the supply of information to other parties.
Staff should avoid mentioning a client's name, discussing their business
relationship or affairs, or supplying reports to third parties or to other
members of the Group. In the latter instance, approval should be sought from the
relevant Executive Director responsible for the client before information is
agreed to be supplied. The client should authorise the release of personal data
to other Group entities.
Clients' affairs should only be discussed internally, in the normal course of
business. This means that even internal discussions of a client's affairs should
be restricted to staff members involved in processes and activities for the
client.
Where information may already be in the public domain, release of that
information should not proceed without first checking with the Compliance
Division.
TAX FILE NUMBERS
In the course of our business we are obliged to collect tax file numbers from
clients for reporting to the Australian Tax Office. Should a client elect not to
supply a tax file number, NAM is obliged to deduct tax from certain payments at
the highest marginal tax rate (plus Medicare Levy) and remit that tax amount to
the Commissioner of Taxation.
TAX FILE NUMBERS ARE STRICTLY CONFIDENTIAL.
By Law we have implemented certain security measures to prevent unauthorised
access, use or modification of tax file numbers. Tax file numbers submitted to
us with applications are to be shredded once keyed into the computer system.
Further, we must maintain the security of the tax file number information until
its destruction. A client's tax file number should never appear on the client's
physical file. All tax file number information must be deleted from the computer
system when practicable after a client ceases their relationship with us.
Unauthorised use of tax file numbers would amount to a breach of privacy and of
taxation laws and is a criminal offence. A person who has their privacy breached
in such a manner may be entitled to compensation from those who breach it. The
offending person can incur fines of up to $10,000 or imprisonment for two (2)
years, or both.
AGREEMENTS AND DEEDS
Apart from legislative rules imposed upon the way we do business, clients
investing money with NAM expect us to abide by terms agreed for the management
of their money. These terms are set out in various agreements and deeds.
They govern matters ranging from asset allocation and restricted investments to
operations, communications and confidentiality agreements. They provide the
framework for our relationships with clients, trustees and custodians. As such,
all staff must be aware of their responsibilities under the various agreements
and deeds.
If you are unclear as to your responsibilities, or think that the level of
service we are giving a particular client can be improved, you should discuss
the matter with your line manager. It is vital that when new clients are
accepted, each responsible area clearly understands its obligations and
limitations in respect of that client.
The Client Services Unit is responsible for conveying a standard level of client
information to approved group entities such as National Investment Services and
National Custodian Services. Once a new client relationship has been
established, the portfolio manager would normally be the recipient of any
changes to the terms of the Agreement and is responsible for ensuring that this
information is forwarded to the Client Services Unit, which is responsible for
distribution to other areas of the company. NAM has in place a New Client or
Mandate Variation Take On Process and a Post Implementation Review Process,
which has to be adhered to in the event of implementing a new client mandate or
implementing a variation to an existing mandate.
You should be mindful of the cost of a breach of an investment mandate,
agreement or deed, both in actual dollar terms and in terms of reputation. The
need to mitigate any loss for the client, custodian, trustee and NAM is
paramount.
If you become aware of a breach, you should report it immediately to the
Compliance Division. All new investment mandates, agreements or deeds and
amendments to these documents should be forwarded to the Compliance Division for
review and final execution. Please also note that there is a procedure for the
signing of documents and only certain designated officers of the company are
empowered to execute such documents.
CHAPTER 3 DEALING
CONDUCT
The Group is committed to dealing with assets in such a way that our dealing
practices can not be brought into question. This notion applies equally to
dealings on behalf of client funds as well as personal dealings.
When dealing for a portfolio, a trade should be carried out, at `best
execution'. Unjustifiably high levels of trading (`churning') are unacceptable
due to the attendant dealing cost and the risk of causing the ATO to assert that
a portfolio is `trading' as opposed to `investing'. This may impact on the tax
benefits available to superannuation funds or charity fund portfolios.
In relation to securities and futures, the Corporations Law is specific. It
prohibits:
o misleading or deceptive conduct, EG. IT IS UNETHICAL AND ILLEGAL TO
INITIATE RUMOURS OR CIRCULATE FALSE, MISLEADING AND DECEPTIVE INFORMATION.
o Stock market manipulation, E.G. TRADING IMMEDIATELY BEFORE MARKET
CLOSING TIME AT A PRICE HIGHER THAN MARKET FORCES REQUIRE SO THAT THE
CLOSING PRICE APPEARS HIGH.
o False trading and market rigging, E.G. PLACING BOTH BUY AND SELL ORDERS
IN RELATION TO A STOCK FOR THE PURPOSE OF BUILDING UP TURNOVER
OR"MANAGING " A PRICE.
o False or misleading statements or omissions in relation to securities.
o Fraudulently inducing people to deal in securities.
o Distributing information about illegal transactions.
o Insider trading.
Further, the Superannuation Industry (Supervision) Act requires that all
investments be made at arm's length.
These standards form the basis for ALL NAM dealing conduct. Further details in
relation to dealing and conduct for NAM staff are set out below and in Appendix
1.
IF YOU ARE IN ANY DOUBT AS TO WHETHER ANY CONTEMPLATED CONDUCT FALLS OUTSIDE THE
LAW, YOU SHOULD CONTACT COMPLIANCE BEFORE YOU ACT.
INSIDER TRADING
"Insider trading" is the term given to a situation where a person ("the
insider") trades securities in the knowledge of price sensitive information that
is unpublished. Information is unpublished if it has not been released to the
market. REMEMBER THAT UNITS IN A TRUST ARE "SECURITIES" FOR THESE PURPOSES.
Information is "price sensitive" when a reasonable person would expect that
information to have a material effect on the price of that security if it was
generally available.
o The insider does not have to be connected with the company in which
securities are being dealt.
o The insider must not, whether in his or someone else's name or as an
agent for someone else, make any transaction in relation to any such
securities. This includes trading for client accounts.
o Where trading in the securities is permitted on a stock market, the
insider must not share the inside information with anyone who might
transact on the basis of that information.
o The insider must withdraw from any situation affected by, or potentially
affected by inside information which is in their possession.
Some examples of Insider Trading:
o An equity analyst gleans confidential information from a visit to ABC
Corp about worse than expected profits from a particular business unit.
On his return to the office, putting client interests first, he sells
client holdings of ABC Corp.
o Your neighbour, a worker at XYZ Co, tells you that XYZ's revolutionary
product has failed several trials. You sell your XYZ shares because you
know this information will depress the share price when it is announced.
o Negotiations between the trustee, auditor and NAM on the valuation of a
particular trust asset have concluded and you know that the asset will
be revalued shortly. You buy units in the trust before the revaluation
takes effect.
If you ought to have suspected that you were an `insider' it is no defence to
say that you nevertheless did not suspect.
Given the importance to NAM of company visits when assessing the merits of
companies as investments, the opportunity to receive inside information
certainly exists. However, information gathered from company visits need not be
inside information. Staff who visit companies and talk to company management
should continually evaluate the information they receive on the basis of whether
the price of that company's securities would be MATERIALLY affected if that
information was generally available.
Staff should make every effort to ensure they do not become "insiders" and that
where they are given information about a security they ask, if in doubt, whether
or not that information is generally available. If you do find that you have
price sensitive information, do not communicate that information to anyone and
immediately seek the advice of the Compliance Division.
Insider trading can also occur when dealing in futures contracts. However, the
rules are slightly different. There must be a connection between the insider and
with the company whose securities affect the price or value of the relevant
futures contract. Importantly to NAM, being a substantial shareholder amounts to
a sufficient connection to give effect to these provisions. (See Appendix 1.)
Contraventions of the Insider Trading provisions constitute a CRIMINAL OFFENCE,
and have serious consequences including fines up to $200,000 and/or five years'
imprisonment. Civil remedies are also available personally against an insider
trader.
To prevent contravention of the insider trading provisions Chinese Walls are in
operation between the various companies in the Group, and in certain cases
within Group companies.
CHINESE WALLS AND CONFIDENTIAL INFORMATION
To protect the interests of our clients, NAM, and the NAB Group, we have in
place a system of "Chinese Walls". A Chinese Wall is an internal procedure that
limits the flow of confidential information between structures within an
organisation.
Chinese Walls exist within the organisation to prevent or minimise the conflicts
of interest between NAM's own interests and the interests of its clients, or
between different clients, between staff and client, or between companies within
the NAB Group. For example, NAM can trade in stocks whilst other members of the
NAB Group may be advising on capital raisings or takeovers. Without Chinese
Walls, such trading could amount to insider trading.
Chinese Walls are a defence to Insider Trading if it can be shown:
(i) that the decision to enter into a transaction relating to securities
was made by someone other than the person who was aware of price sensitive
information; and (ii) that arrangements were in place within the company
which could reasonably be expected to ensure that neither information nor
advice was communicated to the person who made the decision to trade by
the person in possession of the information; and
(iii) neither information nor advice was in fact communicated.
Information about the specific investment intentions and holdings of funds
managed by NAM is confidential and must not be disclosed to anyone outside NAM.
Each of the companies within the NAB Group are separated by Chinese Walls.
Consequently, staff of NAM are to disregard any interest of any other Group
member when making investment decisions.
It is of critical that staff do not attempt to circumvent Chinese Walls.
SUBSTANTIAL SHAREHOLDINGS
The NAB Group is obliged to advise the Australian Stock Exchange and the
relevant company of substantial shareholdings in companies. A substantial
shareholding is one of at least 5% of a company's issued capital. Changes in
excess of 1% of a substantial shareholding must also be advised.
COUNTERPARTIES
NAM's local and offshore fixed interest and equity dealings may be conducted
with any accredited member of a recognised exchange.
Over The Counter (OTC) dealings may only be conducted with the four major
Australian Trading Banks or any Offshore Banks rated AA or better by Standard
& Poors.
Real property dealings may only be transacted with agents approved in writing by
the Managing Director.
STAFF DEALING RULES
There is a trend toward more stringent personal dealing rules within the funds
management industry worldwide, which we fully support. By creating a process of
authorisation and a trail of documentation, we protect the reputation of NAM and
its staff.
NAM Staff Dealing Rules are broad, covering investment in corporate equity and
debt securities, options, warrants, rights, futures on shares, currencies,
interest rates, commodities and indices, and various government securities.
Whilst issues of listed stocks covered by prospectuses, eg. company floats, and
shares acquired under the NAB Staff Share Scheme are generally excluded from the
rules, the sale of shares acquired in such a way is covered by the Staff Dealing
Rules.
Staff are not generally required to obtain authorisation to trade in any of
NAM's products. However, a member of staff must not undertake personal deals
directly with a fund he is managing without prior authorisation.
All transactions where the staff member has a degree of control or influence are
subject to Staff Dealing Rules, even if such transactions are not in the name of
the staff member.
The Rules require a staff member to get authorisation from a nominated senior
investment staff member as outlined in the staff dealing policy prior to
trading. The list of authorised staff will be notified to you from time to time
and is always available from the Compliance Division. Staff must advise the
Managing Director of the broker/s they intend to trade with.
Authorisation will not be given when transactions in the same security have
taken place that day or are to take place within 24 hours. An embargo list is
kept by the Compliance Division containing securities for which the company may
hold price sensitive information. A security cannot be traded whilst it appears
on the embargo list.
Authorisation is valid for 24 hours. If an order is not completed within that
time, fresh authorisation must be sought.
Subsequent to the order being placed the authorisation must be handed to the
Compliance Division, who maintain a register of staff trades. Staff are
recommended to keep a copy of completed authorisations for their records.
THE STAFF DEALING RULES SHOULD BE READ IN FULL BY ALL STAFF MEMBERS INTENDING TO
TRADE. A copy is available on the NAM Compliance Bulletin Board. Any queries can
be raised with the Compliance Division on a confidential basis.
CHAPTER 4 DUTIES TO EXTERNAL PARTIES
LICENSING
A. NAM
DEALERS LICENCE
NAM, as a company that deals in securities, both by issuing units in trusts
and by trading securities on behalf of clients, is required to hold a
Dealers Licence issued by the Australian Securities and Investments
Commission. This Licence is fundamental to our business.
Key conditions of the Licence include:
(a) We are under a duty to disclose commissions and brokerage payable on
securities.
(b) any party who transacts, or intends to transact, business with NAM is
entitled to view the original Licence on request. Please refer any such
requests to the Compliance Division.
(c) Regulation 7.3.02 of the Corporations Regulations specifies that NAM
as the holder of a licence must ensure that Proper Authority holders are
supervised, trained and kept up to date in relation to their duties.
NAM complies with this by ensuring copies of this Manual are freely
available, supervision of staff by senior personnel, and by way of an
induction program and various ongoing training programs. Staff are
encouraged to contact the Compliance Division if they feel further training
is required in any matters referred to in this Manual.
FUTURES BROKERS LICENCE
NAM has also been issued with a Futures Brokers Licence by ASIC. It is also
a member of the Sydney Futures Exchange ("SFE") as an Associate Broker.
The Compliance Division have both licences available for your inspection.
B. STAFF
A staff member can only act as a representative of NAM if that person has
been given a "Proper Authority" to act under NAM's licence. Proper
Authorities empower the Proper Authority holder to represent a licensed
dealer or futures broker.
If you are involved in dealing securities or futures on behalf of NAM's
clients, or marketing our products and services, you MUST hold a Proper
Authority issued by NAM. If you carry out such duties and do not hold a
Proper Authority, you should cease your activities immediately and consult
your line manager and Compliance Division.
The Compliance Division maintains a Register of all Proper Authority
holders. The Register includes details of full name, current residential
address, business address, date and place of birth and the date of issue of
the Proper Authority. It also includes the address where the individual
Register of Interest in Securities for each Proper Authority holder is
located. It is a requirement that ANY AMENDMENTS TO THE INFORMATION
CONTAINED ON THIS REGISTER MUST BE MADE WITHIN TWO BUSINESS DAYS OF ANY
CHANGE OCCURRING.
The ASIC is able to request the holder of a Proper Authority to produce
that Proper Authority. This request cannot lawfully be refused without
reasonable excuse.
In respect of its Futures Licence, NAM has issued a Proper Authority to
each of those persons who engage in dealing futures or consulting about
the use and application of futures in our investment strategies. Only
those persons who have been issued with a Proper Authority can represent
the company in respect of futures investments. The Corporations Law and
the Articles of Association of the SFE (and Circulars published by them)
govern the conduct of those dealing in or talking about the use of futures
on behalf of NAM. The SFE Compliance Manual covers relevant aspects and is
available to all staff.
Should you wish to borrow the SFE Compliance Manual or require further
information, please ask the Compliance Division.
ANY STAFF MEMBER WHO IS UNSURE WHETHER HE OR SHE SHOULD REQUIRE A PROPER
AUTHORITY, EITHER UNDER THE DEALERS LICENCE OR THE FUTURES LICENCE, SHOULD
IMMEDIATELY DIRECT THAT INQUIRY TO THEIR LINE MANAGER AND THE COMPLIANCE
DIVISION.
C. SECURITIES REGISTERS
Holders of Proper Authorities granted by NAM under its Dealers Licence are
obliged by the Corporations Law to maintain a Register of Relevant
Interests in Securities. NON COMPLIANCE WITH THIS REQUIREMENT CARRIES THE
POTENTIAL FOR HEFTY FINES AND IMPRISONMENT.
A pro forma register is available on the NAM Compliance Bulletin Board
(Sample Form-714). If you have any queries about keeping a register of
securities, please contact the Compliance Division. Also, Proper Authority
holders should refer to Appendix 2 for details of broader obligations.
Proper Authority holders are obliged to notify the ASIC of establishment of
a register, the place where it is kept and the dealer for whom the Proper
Authority is held. A CHANGE IN ANY OF THESE DETAILS SHOULD BE NOTIFIED TO
THE COMPLIANCE DIVISION IMMEDIATELY SO THAT APPROPRIATE FORMS CAN BE LODGED
WITH THE ASIC.
D. MONEY LAUNDERING AND OTHER ILLEGAL ACTIVITY
Money laundering is the process by which criminals attempt to conceal the
true origin and ownership of the proceeds of their criminal activities. If
undertaken successfully, it allows them to maintain control over those
proceeds and ultimately to provide legitimate cover for this source of
income.
Federal legislation imposes an obligation on us to report these illegal
activities. Whilst this legislation initially sought only to detect money
laundering, it has now been broadened to involve suspected breaches of
various laws including the Corporations Law and taxation laws.
We are obliged to report any suspect transactions to the relevant
government agency. "Suspect" transactions are those transactions or
attempted transactions that a member of staff feels may involve a breach of
Taxation or Corporations laws, the use of illegally obtained money, or the
breach of any other Law of the Commonwealth or a territory. Anyone who
believes a transaction may be suspect in any way should report the matter
IMMEDIATELY to their line manager and the Compliance Division.
NAM does not accept cash for any transaction. However, suspect transactions
need not involve cash.
For example, you may have noticed a large unitholding in the name of a non-
resident. Withholding tax of 10% is applied to distributions. However, from
your dealings with the client you suspect that he resides within Australia.
This situation involves activity that should be reported.
For further details please refer Money Laundering Policy contained on NAM
Compliance Bulletin Board.
E. SUPPLIERS
We are committed to establishing mutually beneficial relationships with
suppliers, based on the same high ethical standards as apply to all other
dealings. We expect suppliers to compete on the same basis as NAM on
quality and price of the services or goods to be supplied.
We aim to build a partnership with our suppliers. Their confidential
proprietary information should not be passed to third parties without
their express consent. Gifts, other than of a nominal value, should not be
accepted from suppliers.
F. INFORMATION MEMORANDUM & DISCLOSURE DOCUMENTS ACCURACY
We are obliged to produce disclosure documents that contain all
information which investors and their professional advisers would
reasonably expect to find contained within such a document. This
effectively means that the Prospectus must be written for the needs of
unsophisticated investors. It is important that each current Information
Memorandum is constantly reviewed to ensure that the information contained
within it is at all times current.
It is the responsibility of each department to ensure that where events or
new information render an existing Information Memorandum materially
incorrect or misleading, the Compliance Division is immediately informed.
Remember, an Information Memorandum can be misleading not simply because of
the material contained in it, but because of material NOT contained in it.
Such information could range from a change in the method for pricing of
units to a typographical error that omitted a stock from a portfolio. Some
changes may even require -constitution amendments before they can be put
into practice.
When it comes to the ASIC's attention that an Information Memorandum is
either incorrect or misleading, they can issue a "stop order" which will
prevent the continued circulation of the Information Memorandum. The APRA
has similar powers over superannuation products. This would cause
significant financial loss and loss of reputation to NAM, as it would
prevent it from accepting applications until the stop order was lifted.
Any legislative, investment policy or administrative changes which occur
during the currency of an Information Memorandum and come to your
attention should be referred to, or discussed with the Compliance
Division.
NAM's Due Diligence framework encompasses these principles.
G. PROMOTIONAL MATERIAL AND ADVERTISING
Advertising is the most public face of the company. False or misleading
advertising is incompatible with the reputation for absolute integrity
which the group is determined to maintain.
Within NAM's structure, a number of people are involved in the marketing
of products. We use a range of materials to promote NAM, including slides,
overhead transparencies, handouts, pamphlets and advertising through the
media. We must ensure that all marketing materials meet the following
conditions:
o Promotional material that in any way misleads or deceives, either
expressly or by omission, MUST be avoided.
o Sufficient prominence in type style and size should be given to any
necessary qualifications or conditions.
o All graphs and diagrams must be accurate and to scale.
o Where the promotional statement refers to taxation it should state the
assumed rate of taxation used in the statement, and that the levels and
basis of taxation may change. In addition, where it refers to income
from an investment which is either taxed in the fund before it is
received by the unitholder, or taxed in the hands of the unitholder at a
later date, the material should not describe the income as "tax free".
o The material should bear a date.
o You should query whether any independent verification of information is
necessary.
o The material should not contain a statement or forecast which might be
false or misleading. Nor should it purport to be a statement of fact
UNLESS there is satisfactory evidence within our possession to support
it. A copy of that information must be retained for record keeping
purposes.
o Any support given by, or reference to any organisation (eg. ASSIRT,
William Mercer) must be supported by the prior written permission of that
organisation. A copy of that permission must be retained for record
keeping purposes.
o Where investment performance is used in promotional material, it should
contain a statement to the effect that future performance of the fund is
not guaranteed. Further the period for which any earning rate is featured
should be clearly stated and should be the most recent period.
o Where appropriate, it should be stated that NAM nor any member of the NAB
Group guarantees the repayment of capital or a particular rate of return.
The statements must comply with the Reserve Bank of Australia Prudential
Statement C2.
All promotional material must contain standard form disclaimers as
instructed by the Compliance Division.
Any proposed advertisement must be submitted to the Corporate Solicitor or
Head of Technical Services (and Human Resources department for employment
ads) prior to the advertisement being finalised for copy.
Any new promotional material must be provided to the Corporate Solicitor or
Head of Technical Services for comment prior to being used.
CHAPTER 5 DUTIES WITHIN NAM
CONTACT WITH REGULATORS
All contact by a regulatory body (eg. ASIC, APRA, ASX, SFE must be communicated
to the Compliance Division as soon as possible.
It is important that staff should deal with regulatory bodies in an open and
co-operative manner and that Regulators are informed as soon as possible of
anything concerning the business which might reasonably be expected to be
disclosed to them. A system has therefore been developed to ensure that contact
with regulatory bodies is managed so that complete and accurate information is
conveyed to them in a timely and professional manner and that we can control the
information given and the responses received the Compliance Division will
control all contact with the Regulators.
CONTACT WITH THE MEDIA
THE MANAGING DIRECTOR IS SOLELY RESPONSIBLE FOR ALL MEDIA CONTACT REGARDING
CORPORATE MATTERS RELATING TO NAM OR NAB. ALL PRESS RELEASES OR MEDIA ARTICLES
PREPARED BY NAM MUST BE CLEARED THROUGH THE EXECUTIVE DIRECTOR, BUSINESS
DEVELOPMENT AND IN HIS ABSENCE BY THE MANAGING DIRECTOR. TELEPHONE CONTACT WITH
JOURNALISTS MUST ONLY RELATE TO ASSET SECTOR MATTERS IE. MARKET VIEWS ETC. ANY
REFERENCE TO CLIENT MATTERS MUST NOT BE DISCLOSED UNLESS AGREED BY THE CLIENT.
ERRORS AND BREACHES
Material Breaches and errors can include the following:
o Breach of any legislation or regulatory requirements, eg Corporations Law,
Superannuation Industry Supervision Act, dealer's licence or trustee
approval.
o Breach of terms of any contract, eg Trust Deed, Investment Management
Agreement (mandate), Service Provider Agreement.
o Breach of any internal procedures/controls, eg Compliance Manual, Staff
Personal Dealing Rules, Insider Trading Rules or any other documented
policy or code.
o Any unintentional act or omission resulting in a loss/profit to NAM or its
clients (eg unauthorised overdrafts, purchase/sale of incorrect security).
o Any act or omission resulting in a fine or penalty, eg late filing of
ASIC/SFE returns, late payment of invoices.
o Any act or omission resulting in a complaint by an external party.
ALL ERRORS AND BREACHES ARE TO BE NOTIFIED TO THE COMPLIANCE DIVISION REGARDLESS
IF "MATERIAL" OR NOT. IN ACCORDANCE TO THE NAM ESCALATION POLICY, COMPLIANCE
WILL REVIEW THE BREACH, DETERMINE "MATERIALITY AND ALLOCATE A PRIORITY.
PRIORITY 1
HIGH PRIORITY. A severe breach or error has occurred which could result in
the suspension of one or more NAM's licences, litigation, reputational damage or
adverse media coverage. A High Profile Event (HPE).
If the answer is "yes" to any of the following, the breach/error will be classed
as a Priority 1:
o This matter may give rise to a criminal prosecution or an action for
damages against NAM or a member of NAM staff.
o There is a real possibility of adverse comment and/or reputational risk.
o This matter involves potential serious disciplinary action of staff.
o This matter involves a significant breach or perceived breach of in-house
compliance procedures and policies or any applicable code of conduct by
directors, management or staff.
o This matter may result in investigations by regulators into, or allegations
of, possible breaches by staff of insider trading legislation.
o There have been breaches or potential breaches of any principle,
regulation, formal guidance or code of any securities investment business
regulator (eg. ASIC, ASX, SFE), exchange, or other regulatory body,
normally of concern to Compliance, which could lead to the withdrawal of
authorisation, intervention, warning or disciplinary action by a regulator,
including any matter where a notification to a regulator is considered
appropriate.
o There has been an unsatisfactory grading by a regulator or a serious issue
raised by them.
Any of the aforementioned occurrences immediately escalates the category to that
of Priority 1.
PRIORITY 2
MEDIUM PRIORITY. A breach or error has occurred which has, or could have,
resulted in a moderate to significant financial loss. Moderate to significant
financial loss is defined as any loss greater than $1,000. This also covers
instances where a profit resulted that could, in fact, have been a loss.
The following occurrences would be graded Priority 2:
o Any breach that does not fall under the categories listed as Priority 1.
o Any serious error arising through inadvertence, ignorance, negligence,
accident, carelessness or inexperience.
PRIORITY 3
LOW PRIORITY. Errors or a minor or less serious nature resulting in small
(less than $1,000) or no financial loss.
ESCALATION PROCEDURE
ALL breaches and errors must be notified to Compliance immediately on
identification, using the Checklist for Notification of breaches/errors form,
which is available on the Compliance Bulletin Board.
PRIORITY 1
All Priority 1 occurrences are to be considered HPE and are required to be
immediately reported by Compliance in the manner described by NAM's Compliance
Manual to the following:
o NAM Board;
o Compliance Committee (if applicable);
o Managing Director;
o Business Manager; and
o Head of Technical Services.
Any request for reimbursement must be authorised by the Managing Director and
Business Manager.
PRIORITY 2
All Priority 2 occurrences are required to be notified to the Managing Director,
Business Manager and Head of Technical Services. Any request for reimbursement
must be authorised by the Managing Director and Business Manager.
PRIORITY 3
Priority 3 occurrences may be dealt with by the Executive Director or the
relevant Departmental Head after the occurrence has been classified as such by
the Compliance Division.
If any staff member becomes aware of the occurrence of any such event discussed
above, they should notify the Compliance Division immediately.
CONFIDENTIALITY REGARDING NAM
It is important that all staff are cautious in the way they discuss work matters
outside the office, including in the home and socially. An "off the cuff" remark
may be passed on to one of our clients, or to one of our competitors, either
deliberately or inadvertently, and produce an adverse effect upon the nature of
our relationship with a client or upon our business. Whilst it is understood
that many staff members tend to socialise with people within the industry and it
is therefore natural to "talk shop", it is expected that staff members will at
all times consider that the reputation or business of NAM rests with the need to
keep business matters "in house".
SERVICE OF LEGAL DOCUMENTS
In the course of our business, there may be occasions when people bring legal
actions against us. Often this process would begin with a writ or subpoena being
served upon NAM. Service of such documents should ONLY be accepted by the
Company Secretary or a Director of the company who should then alert the
Compliance Division to the matter.
RECORD KEEPING
There is a saying that "he who has the best memory is the one who writes it
down".
This can be applied to most functions undertaken within the company. It is
important that intelligible and sufficiently detailed notes or records are kept
of what you do and how you do it. At the very least, it may enable a staff
member to assume the duties of an absent colleague and to assist in those duties
being performed quickly and efficiently. At the other end of the spectrum,
records or notes will always be invaluable if a query or concern subsequently
arises as to the circumstances surrounding a particular transaction.
Whilst there are good business reasons for record keeping, often legislation
also requires the maintenance of proper records. Apart from legislative
requirements to keep minutes of Directors' meetings, the Superannuation Industry
(Supervision) Act, for example, specifically requires retention of reports sent
to clients of the Approved Deposit Funds.
Fund managers and dealers in particular should record what they are doing, why
and when. This documentation should be done at the time and not after the event.
For example, the allocation of deals between clients should be documented
immediately to avoid any suggestion that the allocation was based on hindsight.
As a part of an audit by a regulator, we could expect to be asked for reasons to
justify our actions in any particular circumstances. Thus, good record keeping
practices are of paramount importance.
Business processes have been designed with appropriate record keeping in mind,
so it is important that record keeping processes, for example, file notes of
client visits, are not circumvented. File notes should remain factual and not
contain any unsubstantiated claims or gossip.
If you are in any doubt as to what information should be kept, please see the
Compliance Division.
MAINTAINING OFFICE SECURITY
In view of the confidential nature of information held by NAM, outside visitors
should not be allowed into the general office area, unless specifically cleared
or accompanied by a staff member. Visitors should otherwise be confined to
meeting and interview rooms and the reception area. If you notice someone in the
general office area you do not recognise, you are encouraged to ask that person
who they are and what they are doing.
A "clean desk" policy should be observed, so that all confidential information
is securely stored away from general access at all times. This will ensure that
a high level of security is maintained. Waste bins for confidential material are
provided for the disposal of confidential information.
Computer applications must be shut down at the end of each day ensuring that you
`log out' and switch off your machines.
Access to files is restricted to those within each business unit, and only then
to those needing to use such files.
PERSONAL BENEFITS AND GIFTS
Gifts and other benefits, except those of nominal value, should not be accepted.
Gifts and benefits can give rise to inferences of compromise and be seen as
inducement to do business this can be damaging to the reputation of NAM as well
as the staff member. Therefore, they should be politely refused. Such a
compromise, whether in fact or merely perception, would be contrary to the
notion of always working in the best interests of our clients.
For these purposes, a discount on goods or services offered to staff personally
by a client or supplier should be treated as a benefit.
Entertainment is generally acceptable, though again, should not be accepted if
it is of such scale as to be potentially compromising.
OUTSIDE EMPLOYMENT AND DIRECTORSHIPS
It is recognised that some staff may have employment other than solely with NAM.
However, those with outside employment must ensure that it does not interfere
with their responsibilities to NAM or carry any reputational risk for the
company.
The external employment must satisfy the three following conditions:
o it cannot result in any perceived or actual conflict of interest.
o It cannot be with any other financial institution.
o It does not interfere with the staff member's responsibilities or job
performance at NAM.
If anyone is in doubt as to the appropriateness of outside employment, they
should approach Human Resources.
All staff must notify the Executive Director of their business unit if they are
invited to serve as a director of an external company. However, notification
need not be given where the directorship is for a company as trustee for a
family trust or is voluntary and in relation to a school, religious
organisation, club, charity or similar organisation where the major involvement
is in the staff member's own time. Any staff who are directors of, or have been
offered a directorship of any NAM client, should report this to the Compliance
Division.
In all cases, the three conditions for outside employment should be satisfied.
CONFLICTS OF INTEREST
Staff must ensure that their personal business, investment and other activities
(including those of family members and other close associates) do not place then
in a position where their own interests may influence judgements or actions they
take on NAM's or clients behalf. Any potential conflicts of interest must be
reported to immediately to the Compliance Division.
CHAPTER 6 AND FINALLY...
VIGILANCE
NAM's success to date has been based on a number of features from service to
performance and product innovation. Innovation comes from having a breadth of
experience upon which we can draw - our staff. Staff often have ideas which can
improve the way we operate.
Part of the role of all staff is to be vigilant.
Issues arise for all of us everyday which require questioning of what is "right
and proper". We must always be alert for situations which may put either
ourselves or the company at risk.
If at any time you come across a matter where you feel the propriety of our
actions could be questioned or where we can do our job better, you should speak
to the Compliance Division. Such communication will be treated with due
confidentiality.
THE COMPLIANCE DIVISION
Pam Hauser
Head of Technical Services
Tel: 03 9611 3756 - Ext: 43756
Matthew Kilbride
Corporate Solicitor
Tel: 03 9611 3726 - Ext: 43726
Ron Chee
Compliance Manager
Ext: 43432
Linda Piscioneri
Compliance Officer
Ext: 43431
Tony Burrill
Compliance Manager
Ext: 43428
It is the function of the Compliance Division to identify NAM's obligations to
our clients, our shareholder, staff and the Law, to communicate these
obligations to staff and to assist staff with the tools, resources and training
necessary to understand and complete these obligations.
Whilst responsibility to meet our obligations rests with the management and
staff of the company as a whole, Compliance will assist, advise and facilitate
on all matters requiring legal and compliance input wherever required.
121023/6320(17)/Access & Code
40
APPENDIX 1
DEALING CONDUCT AND LAW
The role of each and every staff member of NAM is directly or indirectly related
to our business of dealing in securities. At the very least, an understanding of
these legal requirements will enable you to understand why some of the internal
procedures have been implemented at NAM, particularly with respect to the rules
of staff dealing.
The following are prohibited practices.
MARKET MANIPULATION (Section 997 Corporations Law)
Transactions entered into with the likely effect of increasing the price of
securities of a listed company and with the intention of inducing people to buy
these securities, are prohibited. This prohibition also applies where the
transaction is likely to reduce or stabilise the price of those securities with
the intention of inducing dealing in those securities.
There is no requirement however, that the transactions are actually to occur "on
market".
FALSE TRADING AND MARKET RIGGING (Section 998 Corporations Law)
This section prohibits a person from creating, causing to be created, or from
doing something which is calculated to create a false or misleading appearance
of active trading in listed stock, or the market for, or price of any
securities.
It also prohibits a person from maintaining, inflating, causing fluctuations in
or reducing the market price by means of purchases or sales of securities that
do not involve a change in the underlying beneficial ownership of those
securities.
The section therefore aims to prevent, for example, the situation where a
selling order for shares in a particular company is given to one broker, and
then a buying order for the same stock, to another broker. (A variant but also
illegal practice is to offer to sell and to have an associate buy.)
It also prevents the purchase of securities at an agreed level for the purpose
of setting and maintaining a market price for those securities.
Also prohibited is the creation of a false market by the use of a syndicate of
members who arrange to sell the same parcel of securities around to each of the
members in turn, with the intent to create a false impression of the market
activity relating to those shares.
FALSE OR MISLEADING STATEMENTS (Section 999 Corporations Law)
This section prohibits the making of a statement or the communication of
information which is false or misleading, if such information is likely to:
(i) induce the sale or purchase of securities; or
(ii) increase, reduce, maintain or stabilise the market price of
securities.
This prohibition is very wide in its application, for it is not necessary to
show that anyone was in fact induced to sell or to buy the securities. All that
is required is to show that the statement had the potential to induce the person
to do so. It is not necessary either to show that the statement did in fact
affect the market price. The real question is whether the statement, when
objectively judged, is LIKELY TO affect market price.
However, to prove the offence it still must be shown that the statement was
false or misleading and that the person making it ought reasonably have known
that it was false or misleading, or did not care whether the statement was true
or false.
FRAUDULENT INDUCEMENTS TO DEAL (Section 1000 Corporations Law)
In its attempt to cover the field, the Corporations Law also prohibits a person
from inducing, or attempting to induce, another person to deal in securities by;
(i) making or publishing a statement, promise or forecast which the
person knows to be misleading, false or deceptive;
(ii) dishonestly concealing material facts;
(iii)recklessly making or publishing a statement, promise or forecast
that is misleading, false or deceptive (whether it was done
dishonestly or not);
(iv) recording or storing information that the person knows to be
false or materially misleading.
This section, therefore, has application in respect of a prospectus issued by a
company, a broker advising in respect of the purchase or sale of securities, or
in relation to takeover offers.
GENERAL PROHIBITION ON MISLEADING OR DECEPTIVE CONDUCT (Section 995
Corporations Law)
Section 995 is borrowed from Section 52 of the Trade Practices Act. It is a
general prohibition against conduct which is misleading or deceptive, or is
likely to mislead or deceive, where the conduct relates to:
o the dealing in or issue of securities;
o the making of takeover offers or takeover announcements;
o the making of an evaluation or recommendation in relation to
takeover offers or announcements;
o the issue of a prospectus;
o conduct which is effectively the conduct of negotiations or
arrangements, or any act which is preparatory to any of the
above.
FUTURES (Chapter 8 Corporations Law)
The legislation for futures dealers also provides similar prohibitions on
futures market manipulation, false trading and market rigging, false or
misleading statements, fraudulently inducing to deal, etc. These are effectively
repeated in the Rules of the Sydney Futures Exchange.
INVESTMENTS WHICH ARE NOT MADE AT ARM'S LENGTH (Section 109 Superannuation
Industry (Supervision) Act)
In respect of all SIS regulated funds, i.e. the Approved Deposit Funds and
Pooled Superannuation Trust funds, all investments made by the fund must be made
on an arm's length basis.
MISLEADING OR DECEPTIVE CONDUCT: TRADE PRACTICES ACT
Section 52 of the Trade Practices Act is very broadly worded. It provides that
"a corporation shall not in trade or commerce, engage in conduct that is
misleading or deceptive or is likely to mislead or deceive".
A mere representation can, by virtue of Section 51A of the Act, also be treated
as conduct capable of falling within the application of Section 52. Similarly,
the making of a forecast if not made on reasonable grounds, can fall within the
ambit of the Trade Practices Act.
Half truths, silence and non-disclosure can give grounds for an action when
refraining from making a comment conveys an erroneous impression.
The immediate broad categories in which Section 52 will apply are:
o misleading or deceptive conduct where it relates to "unfair
competition";
o misleading or deceptive conduct action where it relates to
advertising;
o misleading or deceptive conduct where it relates to
misrepresentation in pre-contractual negotiations;
o misleading or deceptive conduct where it relates to "advice" or
"information" in other contents.
It is also important to remember that a person cannot by contract exclude
liability for pre-contractual representations or statements made before
execution of the contract. For example, a person preparing a submission for a
wholesale mandate cannot rely on a written disclaimer to avoid liability.
Fair Trading Acts in New South Wales, Victoria, South Australia and Western
Australia also support the Trade Practices Act.
INSIDER TRADING (Sections 1002 and 1253 Corporations Law)
"INSIDER TRADING" REFERS GENERALLY TO THE TRADING IN SECURITIES BY A PERSON WHO
POSSESSES INFORMATION NOT AVAILABLE TO THE PUBLIC AND WHICH IS OF A MATERIAL
NATURE ABOUT THE COMPANY WHOSE SECURITIES ARE TRADED, OR ABOUT THE MARKET FOR
THOSE SECURITIES.
"INSIDE INFORMATION" IS ESSENTIALLY INFORMATION NOT GENERALLY AVAILABLE IN THE
MARKET PLACE AND WHICH, IF IT WAS GENERALLY AVAILABLE, WOULD HAVE A MATERIAL
EFFECT ON THE PRICE OF SECURITIES. It includes matters of supposition and
matters insufficiently definite to warrant being made known to the public.
Individual circumstances will decide when the private information becomes
public. As a general rule, the information can be regarded as public when:
(i) it is readily observable in the market place; or
(ii) when it has been made known in a manner which is likely to bring
it to the attention of people commonly investing (for example, by
ASX announcement); or
(iii)when a reasonable period sufficient to enable the information to
be circulated has elapsed.
The test of the 'materiality' of the information rests upon whether the decision
of a person to trade or not trade a security would be influenced if the
information became generally available.
The insider trading provisions of the Corporations Law carry significant
criminal penalties. The penalties apply to a company as well as to the
individual. The penalty for an individual can be $200,000 and/or five years'
imprisonment, and $1 million for a company. In addition, a conviction could lead
to a company officer being barred from management for five years, and the
company as a licensed dealer, could lose its licence. For NAM, this equates to
losing its livelihood. In addition, the trauma of publicity and litigation even
if the defence of the proceedings was successful, could have a severe impact on
both NAM and the individual concerned.
The effect of the prohibition against insider trading means that if a person
(the insider) has information not generally available and which if it were
generally available, could be expected to have a material effect upon the value
or price of securities, and the person knows such information is not generally
available, then he or she MUST NOT:
(i) enter into arrangements to purchase or sell the securities; or
(ii) arrange for another person to acquire or sell the securities; or
(iii)where they are securities listed on a stock exchange, communicate the
information to another person where he or she ought to know that this
will cause that other person to attempt to acquire or sell the
securities or even to have some other third party attempt to acquire
or sell the securities.
The main exemptions to this are:
(i) redemption of units under a buy back provision in a trust deed
(since the Trustees are obliged to offer this facility at all
times, it would be illogical to apply the provisions of the
Corporations Law to this situation);
(ii) information provided for the purpose of inducing the entering
into of an underwriting or sub-underwriting agreement;
(iii)trading, procuring or communicating AFTER the information has
been disclosed to the market;
(iv) passing on information where the other party to the transaction
knew of the information; or
(v) the Chinese Wall defence.
The Law also requires that an officer or employee of the company, or a former
officer or employee must not make improper use of information acquired by virtue
of the position held to gain, either directly or indirectly, a personal
advantage or advantage for some other person, or to cause detriment to the
company. This section has broad application, even for junior staff members.
Therefore, equity analysts and dealers should ensure they do not become aware of
unpublished price sensitive information from any source. In private interviews
with companies, the staff member should ensure that it is understood that if
price sensitive information is passed on, NAM may be prevented from dealing in
their stock until the information becomes public.
PLACING A CHINESE WALL AROUND AN INSIDER
If a staff member becomes aware of price sensitive information, then the person
must immediately advise the Compliance Division. In such instances, a note will
be made on a confidential register specifying the name of the securities, the
person in possession of the information, the date it was received, and its
source. The person will be prevented from advising on or dealing in the relevant
stock, be it on behalf of clients or for their own account. Other parts of the
company would, however, be free to continue dealing in the stock as they would
have no knowledge of the price sensitive information. The information must not
be disclosed to any other person.
Such a process effectively places a Chinese Wall around the person with the
inside information.
If NAM becomes an insider because of confidential market soundings on a capital
raising, the whole company and its staff should then be embargoed from dealing
in that stock. This fact will be advised by the Compliance Division on a "need
to know" basis to relevant managers, including those who would customarily
approve staff dealings.
FUTURES CONTRACTS AND INSIDER TRADING
A person is precluded from dealing in a futures contract relating to a company
if he or she acquired inside information in relation to the futures contract by
reason of being connected with that company within the preceding six months.
The Law regards the connection with the company as having been established if
the person:
o has been an officer of the company, or related body corporate;
o was a substantial shareholder in the company or related body
corporate;
o has occupied a position reasonably expected to give the person
access to "inside" information by virtue of:
(i) the professional or business relationship existing between the person
and the company; or;
(ii) the person being an officer of a body corporate which is a substantial
shareholder in the relevant body corporate.
The effect of precluding a NAM staff member from dealing is also to prevent NAM
from dealing unless the actual decision to deal in the futures contract was
taken on behalf of the company by another person unaware of the information, and
the company had arrangements in place to ensure that the information could not
be communicated to the other person, ie. the Chinese Wall defence.
APPENDIX 2
PROPER AUTHORITY HOLDER OBLIGATIONS
1. Each person to whom a proper authority has been granted must maintain his
or her own register of relevant interests. Any changes to the entries in
that form must be effected within seven days of acquisition/disposal of
securities held. The purpose of this form is to maintain an up to date
record of the securities in which that person has an interest.
The ASIC is to be notified of a change in the place where the register is
kept, or where the name or address of the register holder has changed.
Each register is the responsibility of the person holding a proper
authority. Under the Corporations Law, the penalty for failing to keep a
register is a $2,500 fine or 6 months imprisonment.
The Corporations Law specifically requires that the register includes
details of:
(i) date of acquisition or disposal of the interest and the number of
securities concerned;
(ii) the consideration paid or received (whether money or otherwise) on
acquisition / disposal;
(iii)where the securities are not registered in the name of the holder of
the proper authority, the name of the person who actually is, or is
entitled to be, registered, eg. where the securities are registered in
the name of a spouse.
For these purposes, a "relevant interest" amounts to the power to dispose
of the securities or vote in respect of the securities. "Securities" which
must be shown on the register include securities issued by a public
company or by a body corporate or other person listed on a securities
exchange.
All staff are encouraged to keep comprehensive records of their
transactions.
The Compliance Division will conduct spot checks of registers to ensure
compliance with this requirement.
2. The ASIC is able to ask the holder of a proper authority to produce that
proper authority. Therefore, it is the policy of NAM that the proper
authority be kept by each person in a safe and secure place, so as to be
able to be readily produced if required.
3. Proper authority holders should be familiar with this Compliance Manual
and NAM product brochures as they need to be able to show they are aware
of how NAM, as the licence holder, expects them to act and to have an
understanding of the products NAM offers.
4. Training manuals and notes should be retained by proper authority holders
so that the ASIC can be shown methods by which proper authority holders
are trained.
