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Friday, 28 November 1986
Page: 3948


Mr LIONEL BOWEN (Attorney-General)(10.39) —I move:

That the Bill be now read a second time.

This Australian Stock Exchange and National Guarantee Fund Bill provides legislative support for a restructuring of the existing capital city based structure of stock exchanges by the establishment of a single national stock exchange. It also enhances investor protection by establishing a national guarantee fund which will provide no fault contract guarantees for investors on Australian exchanges and protection for those investors in respect of dealer insolvencies. I am introducing this Bill pursuant to the Commonwealth's obligations under the co-operative companies and securities scheme. In accordance with the formal agreement under that scheme, the Ministerial Council for Companies and Securities has approved introduction of the Bill into this Parliament. The measures I have just outlined will be achieved by amendment of the Securities Industry Act 1980. Consequential amendments will also be made to other co- operative scheme legislation. The impetus for change to the structure of the major Australian stock exchanges has come from the stock exchanges themselves. The Australian Associated Stock Exchanges formally requested legislative support for the change from the Ministerial Council in March 1986. Such support is required because of the significant logistic and timing difficulties inherent in separate schemes of arrangement in each State which would otherwise be necessary to facilitate the desired restructuring. It is worth noting briefly the sorts of developments in Australia which have prompted Australian stock exchanges to adopt a more national focus.

One of the major developments in Australia and throughout the world's capital and securities markets has been the trend to internationalisation of securities markets. This has been stimulated by technological advances in communication, increasing sophistication of investors in the management of their financial risks and, of course, this Government's initiatives in abolishing exchange controls as part of its general policy of deregulating the financial system. Accordingly, Australian stock exchanges have been subject to greater competition from overseas exchanges. This development alone suggests that Australia's current fragmented State based stock exchange system is inappropriate. There is also increasing pressure from investors for a national clearing house and depository system to speed up transfer of securities and for the adoption of screen trading. These trends also serve to highlight the need for a more streamlined and integrated system for trading securities and raising capital in Australia. The associated establishment of a national guarantee fund to replace the existing separate fidelity funds of each of the State capital city exchanges will assist in maintaining investor confidence in Australian securities markets. The no fault contract guarantees will ensure that, where a party to a securities transaction does not complete his obligations, those obligations will be met by the National Guarantee Fund. This no fault system of contract guarantees contrasts with claims against existing fidelity funds under the provisions of Part IX of the Securities Industry Act 1980 where defalcation or fraudulent misuse of property is required to establish a claim. Direct access to the National Guarantee Fund for compensation in respect of a dealer insolvency also contrasts with existing fidelity fund provisions which only allow for compensation via formal Bankruptcy Act mechanisms. In addition to these investor protection measures, the establishment of the National Guarantee fund will enable funds to be made available for industry development purposes approved by the Ministerial Council. These funds will comprise the amount of the pooled assets not required for investor protection purposes and it is envisaged that one of the purposes for which such funds will be used is the establishment of a centralised clearing house and depository system.

Contents of the Bill

I now turn to the proposals in slightly more detail.

Australian Stock Exchange Ltd

Clause 5 of the Bill incorporates the Australian Stock Exchange Ltd, ASX, in the Australian Capital Territory as a body corporate limited by guarantee. The existing capital city exchanges will become wholly owned subsidiaries of ASX and their members will cease membership of their particular exchanges and become members of ASX. ASX will be responsible for all listing on main board markets while its subsidiaries will continue to be responsible for their second board, options and futures markets. The State subsidiaries will, however, exercise powers and perform a number of functions delegated to them by ASX. For example, they will, at least in the short term, operate the main board markets on behalf of ASX.

Clause 5 also provides for the transfer of assets from existing capital city exchanges to ASX on these exchanges becoming subsidiaries. This reflects the transfer of main board listing and membership functions to ASX.

National Guarantee Fund

Clause 15 of the Bill establishes the National Guarantee Fund, which will provide investor protection in two ways. First, it will guarantee the performance of all reportable transactions in securities quoted on Australian stock exchanges. Claims against the Fund will be able to be made by a selling or buying dealer in respect of default by his counterpart dealer in the transaction and by clients in respect of default by the dealer who is selling or buying on their behalf. Secondly, the Fund will compensate investors for pecuniary and property loss as a result of the insolvency of a broker member of the Australian Stock Exchange.

Financial Impact Statement

The Bill will not have any financial impact on government revenue and expenditure. Sharemarket investors will benefit from the contract guarantee and insolvency provisions of the National Guarantee Fund. The capital and securities market is expected to become more efficient from the more co-ordinated, centralised Australian Stock Exchange approach. In addition, allocation of excess funds of the National Guarantee Fund to national development purposes approved by Ministerial Council should allow technological advances with resulting efficiencies.

Conclusion

This Bill assists the stock exchanges in their attempt to establish a more co-ordinated nationally oriented securities market and provides additional investor protection to maintain confidence in that market. I commend the Bill to the House. I also present the explanatory memorandum to this Bill.

Debate (on motion by Mr Beale) adjourned.