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Wednesday, 25 February 1987
Page: 720


Mr MAHER(4.30) —Stock exchanges, in their own way, have an enormous historical link with the functioning of this Parliament. The first question ever asked in a Westminster parliament was directed to a Minister in the House of Lords in 1721. It was about a joint stock company that had gone bust and it is known as the South Sea Bubble scandal. At that time a company supported by King George I, in which an enormous number of people in England had invested money, went insolvent. That produced an incident in Parliament that today has developed into perhaps the highlight of the day's proceedings for honourable members on both sides of the House, that is, Question Time. Today we are still debating the regulation of joint stock companies and their modern day regulators, the stock exchanges.

What we are doing today is quite an extraordinary step forward. We are creating a legal entity of an Australian stock exchange. It will not be in Canberra where the National Gallery, the High Court of Australia and other monuments are but there will be an Australian stock exchange board in the six States where stock exchanges are operating although I am told that there are provisions for stock exchanges in the two Territories-the Northern Territory and the Australian Capital Territory. It is a legal fiction. There is an Australian stock exchange.

This is an important step because imputation is just down the track and this will encourage the transfer of enormous amounts of investments to shares. Government decisions will put shares on a par with real estate investment because capital gains are being taxed and the tax advantages and tax hedges of negative gearing have been abolished. As the honourable member for Bendigo (Mr Brumby) said, members of the community have, for many reasons, avoided investing their savings, lump sum superannuation payments or any money they may have inherited, in shares or debentures. Australians have been frightened and suspicious of shares. Nevertheless, the Government in moving quickly to set up the Australian Associated Stock Exchanges has done much, and is doing much, to encourage investment in shares. That means investment in shares in ordinary companies-in public companies and in private companies. Stock exchanges handling public company shares will receive a great boost out of this legislation.

I notice that the proprietor of Bain and Co. said in Tokyo-he is quoted in the Australian Financial Review-that if this legislation goes through and if stock markets are computerised so that the trading floor is abolished the notion of broker's assistants rushing around in a frenzy will go and trading will be done from computer terminals. Such a move could increase Australia's share of international equity trading from 2 per cent, which we have now, to 4 per cent, which is an enormous jump in business for stock exchanges. Perhaps, unfortunately, it will mean fewer jobs for people down the line but in the long term costs can be reduced and I believe job opportunities also. A survey in Toronto, Canada, showed that the average share purchase or sale transaction cost was $3.22. When computers were introduced, the average transaction cost dropped to 50c. In Melbourne and Sydney it cost $3.50 to enter up a share transaction. While in Toronto the transaction fee has been reduced to 50c for the stock exchange, it is not believed that it will get that low in Australia. Nevertheless, there will be an enormous saving for brokers, overheads and for members of the general public who are prudently going into share buying.

The legislation embraces the notion of a National Guarantee Fund. At present there are six fidelity funds, one in each of the States. A National Guarantee Fund will bring in $50m which is held in the various States. It is not necessarily held in equal amounts. The brokers in their wisdom are not taking points. The whole lot will come in from the States where there were only weak funds and from the States where there were strong funds-the States that had investments, assets and money put aside perhaps for calls. It will be a no-fault fund which is a fair concept. Anyone who has practised law and has had to try to make a claim against, say, a solicitor's fidelity fund will know the problems that arise. It may have been a client who had a solicitor for years and that solicitor went bad or bankrupt or absconded. One case I had when I was in practice in Sydney involved a client who had had an old solicitor who had committed suicide. All my client's money, documents and old system title deeds were missing. Everything was gone. For the three years I was in that firm I never resolved my client's claim against the fidelity fund because he did not believe that things were missing. He could not remember what he had given to his former solicitor. Making claims under fidelity schemes is very difficult. One has to establish what was lost. One has to have proof that the solicitor had custody. If he or she was so incompetent that he or she never entered the transaction in the trust account, one got nowhere. The tracing and making of claims under fidelity funds is very difficult and the Law Society is entitled to be pernickety.

This legislation is positive. It has a back-to-back proposal, as it were, which will cover the broker to client relationship and it will also cover dealings between brokers, where a broker sells to another broker and cannot produce the share script. It is a no-fault fidelity scheme. The legislation is urgent because there are factors in the Trade Practices Commission's annual report which makes action by April essential. Certain restrictive trade practices in broking have been brought to the attention of the Trade Practices Commission and have been frowned on because the means for entering into the stock broking industry have been very restricted. Australia's stock brokers and stock exchanges have been moving to take action in this regard but their right to continue as they have been will run out on 1 April next.

It is not my wish to delay the House. The funds that I mentioned will come from the six States will total about $50m. Some $15m of that will be held for a fidelity guarantee scheme. A large part of the residue will be used to computerise the Australian stock exchanges and this will put Australia on a par with other nations. As the honourable member for Bendigo said, we have followed the recommendations of the Campbell Committee of Inquiry into the Australian Financial System. We have deregulated the stock market; we have done a lot, and are doing a lot, to encourage investment in Australian companies. We are encouraging small investors to place their savings with confidence in shares and public companies listed on stock exchanges. This legislation will go a long way towards allowing them to invest with reasonable security and allowing stock exchanges to operate in our nation with greater efficiency.