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Thursday, 18 August 2011
Page: 8522

Mr SHORTEN (MaribyrnongAssistant Treasurer and Minister for Financial Services and Superannuation) (09:06): I move:

That this bill be now read a second time.

Today I introduce a bill to amend the Corporations (Fees) Act 2001.

The bill amends the entities which may be charged fees for the performance by the Australian Securities and Investments Commission (ASIC) of its financial market supervision functions under the Corporations Act 2001.

The fees act currently only allows market operators (such as licensed entities in the ASX group, and operators of a number of smaller financial markets) to be charged. This amendment would allow fees to be levied on market participants (such as stockbrokers and derivatives traders).

By way of brief background, on 31 March 2010, the government announced its support for competition among markets for trading in listed shares in Australia. At the same time, it also announced in-principle approval of an application for an Australian market licence by Chi-X Australia Pty Ltd (Chi-X). Chi-X is expected to commence trading in competition with the ASX equity market in November 2011 or soon after, subject to satisfying a number of regulatory conditions. he decision of the government to support competition is a vital step in the development of Australia as a financial services centre—and a key recommendation of the Johnson report, which encouraged competitive, efficient and innovative equity markets.

What does 'financial market competition' mean?

The ASX is by far the largest market for companies seeking to raise capital by issuing shares to investors and listing on an exchange. It is also the principal market for trading shares. While other licensed financial markets operate in Australia, these markets do not currently trade ASX listed shares. This means that shares listed on the ASX can only be traded on the ASX. With the coming of competition, ASX listed shares can be traded on alternative markets, depending on which market has the best price.

Competition between financial markets for trade execution services in listed equities is well established in the US, Canada and Europe, but has not been a feature of the Australian financial landscape. International experience shows that competition is expected to deliver lower transaction charges, more innovation, and maintain or improve market quality—all to the benefit of retail and wholesale investors, as well as to corporates seeking to raise capital.

As a key step towards competition, on 1 August 2010 ASIC took over market supervision from market operators. The government's decision to implement market supervision reform provides for a single entity—ASIC—to undertake whole-of-market supervision. This is important to safeguard market integrity, as ASIC will be able to better monitor potential misconduct or manipulative activity across multiple competing markets.

To support these reforms, additional government expenditure has been invested to support ASIC's new role and bolster its capability to undertake this role. It was intended that government funding would be budget neutral, and would be recovered from the financial sector via fees.

As stated, a fee is currently levied on licensed market operators only. To some extent, market operators can be expected to pass on fees to participants. However a fee arrangement based on charging both market participants and market operators is in line with the government's cost recovery guidelines and would allow a more efficient and equitable allocation of ASIC's market supervision cost burden—especially given that a significant portion of ASIC's costs in providing market supervision functions are attributable to interactions with market participants.

The bill does not set out details of the proposed changes to the current cost recovery arrangements; these details will be prescribed in the Corporations (Fees) Regulations 2001 (the fees regulations). This bill simply provides the legislative basis to enable new cost recovery arrangements, which will apply to both market operators and market participants, to be made through the fees regulations.

In the coming months, the government will consult closely with industry on the details of the proposed cost recovery fee model and arrangements before implementing regulations to finalise the cost recovery model. The details will be set out in a consultation paper entitled 'Proposed financial market supervision cost recovery model', to be released shortly.

The draft fees regulations will also be exposed for industry comment in the coming months. It is intended that the proposed market supervision fee model, applicable to both market operators and market participants, will apply from 1 January 2012.

In accordance with the Corporations Agreement 2002, the Legislative and Governance Forum for Corporations (meeting as the Ministerial Council for Corporations) has been consulted in relation to the bill, and will be further consulted regarding the proposed cost recovery fee model and arrangements.

Summing Up

The ability to impose fees in relation to ASIC's market supervision activities on both market operators and participants is central to the design and implementation of a fair, transparent and efficient market supervision and cost recovery framework.

Such a framework is vital to our efforts to support efficient and innovative equity markets in Australia and will ensure that Australia has the right financial market infrastructure capabilities to respond effectively to the challenges of a dynamic market place.

The Australian government has a longstanding commitment to competition in financial services. Competition in Australian equity markets can deliver benefits through innovation, efficiency and reduced costs. This bill is the next milestone along the path to competition.

Debate adjourned.