In our last piece, we looked at how Australia’s reforms pull cash-settled derivatives into the substantial holding regime for the first time. But getting a derivative into scope is only half the problem. Once it’s in, how it settles determines how it’s counted, and under the new rules, that distinction does real work.
From 4 December 2026, equity derivatives count toward Australia’s 5% substantial holding threshold, and how a derivative settles decides which bucket the exposure falls into. Each bucket is reported separately on the new Substantial Holding Notice.
If a derivative carries any right to physical delivery, it’s treated as physically settleable, to the full extent of that right. From there, the question is whether the counterparty itself holds a relevant interest in the underlying shares. That answer decides whether the exposure belongs in your relatable derivative-based holding percentage or your deemed physically settleable derivative-based holding percentage, two very different places the same instrument can land.
Where there’s no right to physical delivery, the exposure goes into your deemed non-physically settleable derivative-based holding percentage, the bucket that captures the cash-settled positions that sat outside the regime until now.
This is where it gets genuinely hard. For a derivative over a basket or index, you calculate the full notional amount of securities based on the weight by value of that class within the basket or index. But not always. The exposure is treated as zero where the security is under 5% of its class and makes up under 30% of the basket, and where the derivative references a major index. Working out which exposures count and which fall away means looking through to the constituents of every basket and index you hold, continuously.
The notice reports each bucket as its own percentage, and a 1% movement in any of them triggers its own filing obligation. Every notice is measured against your last and must list every transaction since. So a misclassification isn’t a contained error, it distorts the movement calculations and transaction history in every notice that follows. Get the bucket wrong once, and the mistake compounds.
Classifying each derivative by settlement type, tracing the counterparty behind the physically settleable ones, looking through baskets and indices to apply the exceptions, and holding it all together as positions move, this is not work that survives being done by hand for long. It’s also not something every compliance system is built to do. Handling derivatives at this granularity, including multi-level constructions and the look-through baskets and indices demand, has long been a core strength of the FundApps platform, and it’s precisely what the Australian reforms now put a premium on.
That’s the difference between a system that flags the obligation and one that leaves your team to reconstruct it. As December approaches, it’s worth asking which one you’re relying on.
For a fuller walkthrough of the reforms, our webinar with aosphere is available to watch on demand - Australian Resource Page. More to come in this series, including look-through in depth and how to operationalise it all before December.