Commonwealth Consolidated Acts Commonwealth Consolidated Acts(1) Subject to section 885D, the compensation rules must cover losses ( Division 3 losses ) of a kind described in the following paragraphs:
(a) a person (the client ) gave money or other property, or authority over property, to a person (the participant ):
(i) who was a participant in the market at that time; or
(ii) who the client reasonably believed to be a participant in the market at that time and who was a participant in the market at some earlier time; and
(b) the money or other property, or the authority, was given to the participant in connection with effecting a transaction, or proposed transaction, covered by provisions of the operating rules of the market relating to transactions effected through the market; and
(c) the effecting of the transaction through the market constitutes or would constitute the provision of a financial service to the client as a retail client; and
(d) the client suffers a loss because of:
(i) if the client gave the participant money or other property--the defalcation or fraudulent misuse of the money or other property by the participant; or
(ii) if the client gave the participant authority over property--the fraudulent misuse of that authority by the participant.
(2) The compensation rules must provide that a claim relating to an alleged loss caused by defalcation or fraudulent misuse may be allowed even if:
(a) the person against whom the defalcation or misuse is alleged has not been convicted or prosecuted; and
(b) the evidence on which the claim is allowed would not be sufficient to establish the guilt of that person on a criminal trial in respect of the defalcation or fraudulent misuse.
(3) The compensation rules may exclude losses of a kind described above that occur in specified situations. However, the compensation arrangements will not be adequate unless ASIC is satisfied that those exclusions are appropriate.