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Thursday, 26 February 1987
Page: 664


Senator ALSTON(10.39) —The Opposition supports the Australian Stock Exchange and National Guarantee Fund Bill. A number of matters are dealt with by the legislation and we find no fault with any of them. The essential purpose of the Bill is to provide legislative support for the reorganisation of stock exchanges in Australia into a single national stock exchange with each of the six capital city exchanges as subsidiaries. That will occur, and needs to occur, before 31 March this year as a result of the Trade Practices Commission having refused to authorise certain existing stock exchange practices beyond that time. The Bill will also create a National Guarantee Fund made up of the pooled assets of existing fidelity funds operated by the separate capital city exchanges to provide protection to investors in respect of the failure of contracting parties to meet their transaction obligations or in respect of dealer insolvency.

There are a number of desirable aspects which deserve brief mention. The additional benefits and differences between existing arrangements mean that henceforth a person's right to make a claim on the Guarantee Fund will not depend on proof of defalcation or fraud by a broker; there will be one central fund rather than six separate funds, and a person will be able to claim directly against the Fund in respect of a dealer insolvency. In speaking to the Bill in the House, the shadow Attorney-General, Mr Spender, drew attention to the provision that places a limit on the amount that can be claimed in respect of defalcation. Certainly, the Australian stock exchanges would prefer increased investor protection by extending the limit of the cover to a maximum of 14 per cent of the minimum value of assets, whilst retaining the provision in respect of individual claims at $50,000.

The Bill has been widely canvassed in the stock exchange community and it has the support of the Australian Associated Stock Exchanges. The Exchanges took the matter before the Ministerial Council for Companies and Securities, under the co-operative scheme, in March 1986. So it is almost 12 months since the proposal was put before the Ministerial Council. I think that is indicative of the real problems that exist whilst we retain the co-operative scheme. It is certainly a great advance on the arrangements that existed prior to the co-operative scheme coming into effect. Nonetheless, there are still some very real impediments to change.

A recent opinion of the former Solicitor- General, Sir Maurice Byers, on the corporations power and ability to extend national control over companies and securities legislation indicates that the time for such control is now. Because State Labor governments took a different view until recently, the Commonwealth probably will not be able to acquire that national jurisdiction. I regard that as unfortunate, but it seems to be a political fact of life. I think that in many ways the business community finds the current scheme workable, but it would prefer a national scheme and one that would not require the degree of extensive consultation that is presently necessary.

I think it is fair to say that under the present arrangements the greatest need will be to provide for additional funding for the National Companies and Securities Commission to ensure that it is able to operate effectively. That will increase and maintain investor confidence, which is a very vital and necessary aspect of the operations of the stock market, and avoid a casino mentality developing which would frighten away many of the smaller investors. It is worth noting that the 1986 Australian share ownership survey conducted by the Australian Associated Stock Exchanges indicated that almost 90 per cent of adult Australians do not own shares. The United Kingdom Government has been doing its best to ensure that there are worker capitalists and it has encouraged many ordinary people to take a plunge into the stock market. That has not happened to date. In part that is because there has not been a sufficient feeling of confidence in the operation of the system.

One of the aspects of guaranteeing confidence is to ensure that one has an efficient and effective national scheme. In many ways even that is inadequate in the present environment. It is fair to say that global transactions are the order of the day. The internationalisation of capital markets is irreversible. Australia to date has been left behind very quickly. It has been suggested by the former Chairman of the National Companies and Securities Commission, Mr Leigh Masel, that in future Australia will need to negotiate bilateral or multilateral treaties in relation to capital arrangements and certainly in relation to the operation of stock exchanges. That will certainly require the ability to move quickly and at a national level rather than at a ministerial council level.

Mr Masel also estimates that as much as 40 per cent of trade in domestic securities is occurring in overseas markets in London and New York. That is a matter for considerable concern. Some members of the Australian stock exchanges have estimated that between 30 and 50 per cent of potential business is going overseas either in the trade of Australian securities or for investment in overseas securities. Whatever the exchanges or the private sector can do to recapture any part of the overseas market will be a net gain to Australia. Certainly one of the principal concerns of the stock exchanges is that they will, as a result of this legislation, be in a much better position to act quickly. Certainly we still seem to be a fair way away from having a 24-hour market.

It is instructive to note that in the United Kingdom the London Stock Exchange and the International Securities Regulatory Organisation have recently merged to form a 24-hour global electronic share market. This has not happened overnight. It has been debated for several years. The ISRO is the self-regulatory body for about 200 firms in the Eurobond market and over the counter trading that takes place in leading and international securities, including more than 100 blue chip United States stocks. These two bodies will unite to form a single, self-regulatory organisation to be called the Securities Association. That means that the United Kingdom is moving in the wake of the so-called big bang, the deregulation of its capital markets and the ways in which the stock exchanges have operated there to ensure that London is very well placed to operate around the clock. It confidently expects that the United Kingdom will become the main centre for trading in international shares. That would clearly seem to be an area that is going to grow over the next decade.

Prominent Australians, such as Sir Roderick Carnegie, have expressed the view that there is no reason why Australia could not become a regional centre of that type. If we had 24-hour trading our time zones are such that we would be well placed to capitalise on trading from Singapore, Japan and Malaysia. We know that there is no shortage of quick money in those areas. Again, to date we have missed the bus because we have not provided the sorts of facilities that are demanded by investors. There has been an explosion of investor-investment instruments in recent years. The world has been awash with credit in many ways, which is what has kept the markets moving. But it is of consider- able concern to us that the bulk of the money which seems to flow into Australia is very short term, speculative money. That is probably one of the reasons why there was a sudden dive of the Australian dollar in January. There was a return of short term Japanese money which had been parked here for a matter of weeks. Once that money was taken out of the country the Reserve Bank of Australia had to step in and underpin the dollar. One would hope that the Bank will not be in the business of managing a float in the way it used to do in years gone by. Given that we only have the equipment of about three months imports in foreign exchange reserve, I do no think we will be able to target the dollar for any length of time.

Again one would have to be concerned that the only reason a lot of this money is coming into Australia is the record level of interest rates which we now know, thanks to Senator Ryan, is not going to fall over the next 12 months. That seems to be underpinning the current level of investment in the Australian stock market. But it is essentially speculative capital. It is not direct investment. Certainly to the extent that there is portfolio money in this country, we hope that it will be invested in longer term equities. That is very fragile. The inevitable downturn in the market will probably force a lot of that money to go back off-shore once again and Australia will be left lamenting. That makes it even more imperative for us to try to develop not only a national market but also a 24-hour market, a system which will enable us to take advantage of the very many types of investments and very great quantities of funds while Australia is still regarded as a relatively safe political haven.

This Bill will go some way towards achieving those objectives. As a result of this Bill, the Australian Stock Exchange, or ASX as it will be known, will be responsible for listing, and all the listing agreements will be direct between ASX and the listed companies. State subsidiaries will continue to conduct stock markets and will exercise delegated powers. Those subsidiaries will remain responsible for the second board options and futures markets, so there will still be a significant role to be played by the States. Again, that would seem to be a necessary result of the present federal system, but it is certainly not a system which commends itself when one is talking about internationalisation of markets. The way in which the stock exchanges have approached the matter is that the Bill will provide a legislative basis for the national restructuring of stock exchanges. They see that as highly desirable because of international trends and the desire to attract back to Australia some of the trading in major listed companies. It is still fair comment that, whilst there will continue to be a high level of investment in the Australian market, it would be enhanced if we could have a more efficient system than even this Bill will provide.

There are very many consequential amendments to other Acts, but I do not wish to touch on those in any detail. It is sufficient to say that the consequential amendments will not change the policy thrust of the Bill but will certainly provide many hours reading for interested lawyers. Whilst I do not think that others would want to read the provisions, one would have hoped that it would not have been necessary to have that quantity of detail. It seems to have come about because we have to provide for arrangements which will operate in the States, which will be reflected in State laws, which will result in amendments to both Federal and State legislation and which in many ways, provide unnecessary complications to a system that certainly should be truly national. I do not think there is anything further I wish to say, other than that the speedy passage of the Bill will go part of the way to providing what we hope will be a more efficient and effective national stock exchange.