ANZ will restrict the distribution of an upcoming issue of capital notes, as it adjusts the marketing and sale of its hybrid securities to take account of requirements under the new Design and Distribution Obligation.
The bank announced yesterday that it is considering the launch of a new capital notes offer next month, which may include a reinvestment offer for holders of ANZ Capital Notes 2. But any reinvestment offer will be limited to certain holders only.
The bank said that with the implementation of DDO in October last year, future capital note offers will be limited to wholesale investors and investors receiving personal advice.
Future offers “are unlikely to include a securityholder offer under which existing ANZ securityholders can apply to ANZ directly for those notes”.
The bank said Capital Notes 2 holders interested in participating in future capital notes issues should speak to a broker or financial adviser. It also cautioned that not all brokers and advisers will have access to new capital note issues.
Under DDO, financial services companies are required to identify the target market for their product and must design the product for that market. They have to select appropriate distribution channels and periodically review those arrangements to ensure they continue to be appropriate.
The scheme is aimed at reducing the harm of mis-selling.
The DDO rules specify that a target market determination must describe the class of retail clients that comprise the target market for the product, specify any conditions or restrictions on sale, specify events and circumstances that would suggest that the determination is no longer appropriate, and specify review periods.
A product cannot be distributed until a target market determination has been made. Distributors of financial products will be required to take reasonable steps to ensure that products are distributed in accordance with the identified target markets.
The law gives ASIC power to enforce the new arrangements, including stop orders and exemption powers.
ASIC has had concerns about hybrids for years, seeing them as complex products that are not well understood by the majority of retail investors who buy them.
Under DDO, the potential market for new hybrids may become much smaller.