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Wednesday, 25 February 1987
Page: 719


Mr BRUMBY(4.21) —I wish to make some brief comments in relation to the Australian Stock Exchange and National Guarantee Fund Bill, which I think is a good one and which in many ways has originated from requests by the industry itself for the twofold changes that are being proposed in this legislation. The first of those changes is that this Bill will provide a legislative backing for a reorganisation of stock exchanges in Australia. So we are establishing a single national stock exchange, to be known as the Australian Stock Exchange Ltd, which will have six capital city exchanges as its subsidiaries. The second aspect is that this Bill also creates the National Guarantee Fund which will consist of the pooled assets of the existing fidelity funds operated by the separate capital city exchanges. That is being done to provide greater protection to investors in respect of the failure of contracting parties to meet their transaction obligations or in relation to dealer insolvency.

By way of background, I say that there are six capital city exchanges which are located around Australia-in Sydney, Melbourne, Brisbane, Perth, Adelaide and Hobart. As it stands at the moment, each of those is a separate body. Although each is a separate body there is a national umbrella group, which is called the Australian Associated Stock Exchanges, which represents the various exchanges. Each exchange has its own fidelity fund out of which are paid claims which are based on misappropriation or fraudulent use of funds or securities. The exchanges contain a number of markets, as I think the honourable member for Charlton (Mr Robert Brown) said this morning-and he gave a fairly good description of those markets. There are board markets, futures markets, options markets and so on.

The regulation of this industry is co-ordinated by a formal agreement between the Commonwealth and the States which was entered into about eight years ago. Under that agreement each party is represented on the Ministerial Council for Companies and Securities, which has responsibility for legislation. Under that agreement the Commonwealth passes the agreed legislation and reciprocal legislation is then enacted by the States. This Bill fulfils the Commonwealth's obligations under that arrangement which I have described.

As I have said before, the proposal, which is to create a national exchange that will own the capital city exchanges, was forwarded to the Ministerial Council by the stock exchanges body and considered at the meeting held in March 1986. The Ministerial Council approved the preparation of this legislation. It is the Bill that will give effect to that. So it is a Bill that has industry support and I believe that it has bipartisan support in this House.

The reasons that we need a national exchange are many. There has been a growing recognition over recent years that the Australian exchanges, as they exist in their present organisational structure, are ill-equipped to meet the needs of a rapidly changing world. In broad terms, it is argued that the exchanges are in many ways overregulated; that they tend to have a multiplicity of structures and committees which review and decide, in general terms, on what are or should be common issues between each of the exchanges. The overregulation that exists, the lack of a national framework for decision making and the mishmash of organisational structures have made many people in the industry query whether the Australian stock exchanges, as they presently exist, are properly or appropriately placed to meet what should be a fundamental objective of our stock exchange; that is, to provide a centre or facilitator for the raising of new capital in the Australian economy. Indeed, over recent years I think there has been a growing recognition that the existing structure belongs to a past era and it is no longer equipped to meet the challenges of the future.

But there are a number of other reasons why there is now a necessity for change in the organisational and decision making structure of the Australian stock exchanges. Over the past few years there have been a number of what could be described as exogenous influences which have imposed enormous change on the exchanges, and the time is now ripe for this sort of positive response to that change. Some of those changes that have occurred have been briefly mentioned in the debate. There have been massive changes in technology, massive changes in the way in which accounting mechanisms are dealt with, massive changes in communications systems, and dramatic changes in information systems that operate throughout the Australian stock exchanges.

There have also been major changes in financial markets in Australia. The adoption by this Government of the recommendations of the Campbell Committee of Inquiry into the Australian Financial System to deregulate aspects of that system has had the effect of removing the segmentation of financial intermediaries, and that has affected exchanges. The abolition of exchange controls has also encouraged the internationalisation of securities dealings. A fourth change that has occurred relates to the Trade Practices Act, which has been the subject of changes relating to unfixed brokerage and many other matters. So all those things have had an impact on the Australian stock exchanges and all have meant that really the time is ripe for change now.

A single exchange is a very sound development. It is certainly in Australia's interests. The proposal will allow the exchanges to meet the challenges and the changes-and there will be more changes-which will affect the Australian financial system in the future. Because we will have a single national exchange it is my view that regulations and efficiencies will be reduced. There are opportunities for territorial competition-as I have heard it described-between many of the exchanges. We know of the unproductive parochialism that often occurs between Melbourne and Sydney. This concept of a single national exchange should lessen the opportunities for that sort of competition. The central role of the Australian exchange as the vehicle for raising capital in the Australian economy will be enhanced by this measure, and I think that is a good thing for the Australian economy. Finally, the opportunity for the Australian exchange to be an important part of a truly international finance market will also be considerably increased by this measure. They are all positive things in what is becoming an increasingly sophisticated and information based international economic environment. Those things are good.

The second part of this legislation deals with the National Guarantee Fund. I do not want to say too much about that because it is a fairly simple concept and, again, a sound development. But I think it is a good thing because currently there is a reluctance by many ordinary Australians to invest in publicly listed Australian companies, or in other financial securities, through the Australian stock exchange. In fact, a survey which has been done by the stock exchange group itself suggests that 90 per cent or more Australians do not own and will not own shares; in other words, they will not have any ownership in Australian public companies. There are many reasons why 90 per cent of Australians do not own shares. An obvious one is that in terms of their income, their disposable income and so on, they do not see shares as particularly viable and they simply do not have the savings to buy them.

But there are other reasons as well. In the surveys that were conducted by the Australian stock exchanges, one of the main reasons that were given by people who do not buy shares in Australian public companies was that they preferred what they believed to be safer and lower risk investments. So the National Guarantee Fund, the contract guarantee and the insolvency protection which will be afforded by this fund may serve, in my view, to alleviate many of those concerns. If they do alleviate many of those concerns, one of the barriers to more Australians owning shares, for instance, will be removed and I think that is a good thing. In summary, this legislation is relatively straightforward; it is supported by the industry; it has bipartisan support in this House and I have pleasure in supporting it.