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Lateline Business -

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Tonight - State business, the business issues in the NSW State election.

We've got people now that spend an enormous amount of time complying with regulation. Regulation
time costs money.

Power plays - the AGL Origin merger has collapsed. Are there other deals to be done. And attempts
to toughen insider trading laws.

The problem with the lack of insider trading convictions is both a combination of the very
difficult circumstances that are required in order to prove it and also, perhaps a lack of vigour
amongst the regulator.

Straight to the markets now, and after tracking a fall on Wall Street, nervous traders locked in
profits. The All Ordinaries shed just three points and the benchmark ASX200 managed to regain most
of its earlier losses. There was no such worry in Japan, though, the Nikkei gained nearly 2% after
a drop in the yen sparked a rally in exporters. Hong Kong's Hang Seng also finished in the black,
with Chinese financial stocks leading the way. And in early trading the FTSE has opened stronger
and we'll be speaking to London shortly. It had the potential to be the biggest deal in the energy
sector in a decade. The so-called merger of equals between AGL and Origin saw AGL rebuffed in its
bid to create a company that would control half of the retail market on the Eastern Seaboard. But
as Scott Alle reports there's no shortage of other takeover possibilities in this rapidly
transforming sector. The fallout from the failed proposed marriage between the nation's two largest
energy retailers has seen Origin bearing the brunt of market displeasure. Its shares recovered
little from yesterday's demise and spurned suitor AGL is already eyeing other opportunities.

We continue growing our business, dust ourselves off and carry on. We have a number of other
transactions we're pursuing.

Analysts agree AGL won't have much trouble in acquiring more assets in the sector.

I'm quite sure that AGL management believes there are lots of Plan Bs and plan Cs and other
opportunities that ultimately may offer even more value.

Indeed the NSW electricity industry - way overdue for reform - would present a prime target.

The inherent conflicts of interest in the NSW Government owning all of the electricity industry in
NSW, means that NSW voters, consumers and taxpayers are all paying more for their electricity than
they do in other States.

Meantime, though, the action is firmly centred on the scramble for Queensland's power assets. AGL
snapped up the Queensland Government's retailer Power Direct for $1.2 billion just over a fortnight
ago. After it missed out on another retailer Sun which was I picked up by Origin. It's systematic
of a sector that's experiencing high turnover.

From the seller side there are a number of players in the market who have relatively small
positions in the market. From the buyer's side there are a number of drivers. First of all I think
quite importantly there's an opportunity to grow the business in the Australian market.

And the same's true internationally. Just last week the biggest private equity takeover in US
corporate history saw Texas electricity provider TXU bought by a consortium, including KKR. As part
of that deal the buyers agreed to sharply scale back plans for more coal-fired power stations.
Within the industry here, Canberra's lack of clear policy direction on carbon trading is regarded
as slowing the investment rate.

Arguably as a result of lack of Federal Government initiatives on carbon trading, there hasn't been
any substantial new generation built in Australia for some years. There's a general belief by
nearly all the industry that there will be a price paid for carbon and that will certainly increase
the likelihood that more gas-fired generation will be built.

With rising domestic and regional demand, Australian energy companies are poised for further
expansion. Providing the Government continues to flick the switches on many out of date regulatory
circuit breakers. Scott Alle reporting. Still on energy and crude oil production has halved and
iron ore exports have been severely disrupted as Tropical Cyclone George approaches north-western
Australia. Hardest hit has been the North West Shelf where oil production will be affected for a
number of days. The cyclone has cut output by over 150,000 barrels of oil each day, representing
43% of national production. Iron ore loading has also been badly interrupted at Port Headland, the
country's largest port and Dampier. Cyclone George is expected to across the Pilbara coast early
tomorrow morning with gusts of over 200km/h. The resources boom has created a well-documented
2-speed economy with the commodity rich States of Queensland and Western Australia booming, while
traditional heavyweights, NSW and Victoria, have been struggling. In just over two weeks, voters in
NSW go to the polls and business leaders are calling on whoever wins to do more to secure the
State's long-term economic future. Andrew Robertson reports. NSW Premier Morris Iemma breathed a
sigh of relief yesterday when national accounts figures showed Australia's largest State avoided
the R word. The business community was also relieved arguing the economy is one of the biggest
issues Government needs to tackle. Others include pay role tax, skills shortages and workplace
reform and on that issue, Kevin McDonald from NSW Business Chamber says it's time for State Labour
Governments to stop playing politics.

Taking six systems and bringing them into one, introducing simplicity and flexibility and also a
more equitable unfair dismissal regime. So I think the State Government by resisting that change,
particularly in the public service and in their procurement policies, is not helping the situation
for business in NSW.

NSW Business Chamber is one of the biggest places of apprentices in the State. Kevin McDonald
believes NSW must come into line with other States if skills shortages are to be addressed.

We have been pushing hard for competency-based assessment rather than time-based apprenticeships.
We've been pushing hard for recognition of prior learning.

Heather Ridout is head of the Australian Industry Group which represents manufacturing, the second
biggest industry in NSW behind the services sector. She believes whoever wins on 24 March could do
worse than look at Victoria, which like NSW, has been left behind by the resources boom.

Victoria's been training more apprentices, Victoria has a more competitive tax base for business
than NSW. Victoria has got its teeth into regulatory reform.

Like Victoria, NSW has a big rural sector which directly employs more than 100,000 people. Among
other demands, farmers want the next government to make life a lot simpler.

We've got people that spend time complying with regulation. Regulation, time costs money and people
need to be out working at their business at a time of one of the worst droughts in history.

There is a poor state of infrastructure in NSW which it says is holding back the economy. It's
called on whoever wins the State election to abandon the rhetoric that deficit budgets are bad so
truck can be invested in fixing the infrastructure problem. On this issue at least the signs from
both sides of politics look encouraging.

As long as they're spending it on projects that have intergenerational benefits, it's good spending
and I think they have selfed that.

If you look at the Sydney Harbour Bridge as an example, there was quite a lot of vision in the
creation of that infrastructure project and it didn't have a payback period for some 23 years.

Business leaders say Morris Iemma has made a big effort to engage, and they've applauded the
abolition of the vendor tax as well as cuts to workers' compensation premiums and a review of red
tape. The coalition's enthusiasm for workplace reform and its pledge to streamline the public
service have also been welcomed. Andrew Robertson reporting. The Australian Competition and
Consumer Commission has cleared the way for transport and logistics group Toll to sell its Bass
Strait shipping and Tasmanian freight forwarding operations. The sale is part of the undertaking
Toll struck with the competition regulator after last year's takeover of Patrick Corporation. The
shipping business is being sold to the Chas Kelly Shipping Group. Toll's shares closed 2.5% higher
at $19.08. Markets in Europe are open and trading and for the latest we're joined by Tom Hougaard
from City Index. Welcome back. London's not had a bad session so far?

No, you know over the last three or four days every time we came into the morning we got our clue
from Asia and in particular Australia as well what sectors were doing well there. So when we yet
again saw a very positive session in Asia with the Nikkei being up above 7,000 we knew we were
going to be in for a good day. Some of the more cynics among us who have been around for a while we
also know after a sharp selloff it's very natural to see a bounce as we are seeing for three or
four days. But we believe that the true test of the strength of the equity market on a global basis
is probably going to come in the latter part of this week or the early part of next week and we'll
find out if there are big distress sellers out there or if it was a one-off blip. There's rarely
smoke without fire and I've rarely seen a severe selloff without seeing a follow-through in the
weeks afterwards. I'm cautious in saying that was a one-off blip.

We've got US unemployment numbers on Friday. Are they the next key?

I think they are. That's probably where traders in particular are going to take their clue from
where we are headed over the next week or so. Even such an important number as the employment
number fades into insignificance after a sharp selloff. We lost the better part of 800 Dow points
in the space of three to four days and no amount of good news or unemployment report is going to
take away from the fact people are sitting on negative portfolios. Anyone who's bought over the
last three or four weeks is sitting on a losing position.

What about interest rates? You've got key decisions in London about now and in Frankfurt coming up,
how important are they going to be?

I've it on my ear piece that the Bank of England has held rates. We were largely expecting no
change. It's a slightly different matter for Europe. We are slightly 50/50 on 25 basis points. But
I don't think that's going to change the mood in the equity market. That equity market - we're
happy that the equity market is bouncing after the sharp selloff. We're keeping one eye on that
button in case things look jittery. I think everyone will share that sentiment with me.

How are the big miners going?

The big miners like the Rio Tinto and the Billiton are up 1.5% right now and good trading volume as
well. That's very encouraging mid-day because it is these basic staples that need to rally in order
to give this rally any credibility and also we're also seeing basic metals especially oil, BP and
Shell doing tremendously well. As long as that may continue then I think we're going to have a very
positive close to the equity market today and then a true test tomorrow and Monday.

Another true test is what happens on Wall Street. What are the futures telling us?

The futures are telling us the Dow is going to open up around 60 points. That's a very positive
start to the day.

Tom Hougaard, nice to talk to you again.

Thank you.

Now for a quick look at the major movers on our market today.

Govt plans insider trading review

Govt plans insider trading review

Broadcast: 08/03/2007

Reporter: Neal Woolrich

The Federal Government is planning to review Australian insider trading rules.

Transcript

ALI MOORE: The Federal Government is putting insider trading back on the agenda with a review of
the contentious rules governing such trading. Ordinary shareholders are worried inside traders
continue to flout the law, while regulators fail to act. Now a study estimates that up to 1 per
cent of transactions on the local market could be based on inside knowledge. Neal Woolrich reports.

NEAL WOOLRICH: Rene Rivkin remains Australia's most high-profile convicted inside trader. The late
stockbroker was sentenced to nine months jail in 2003 for improperly dealing in 50,000 Qantas
shares. Despite suspicions that insider trading is rife, successful prosecutions are rare.

STUART WILSON, AUSTRALIAN SHAREHOLDERS' ASSOC: From a retail, investors point of view, the insider
trading laws are very important. They ensure a level playing field for investors and it means that
people that don't perceive that others with insider knowledge are taking advantage and making
profits at the expense of them.

NEAL WOOLRICH: A preliminary study by the capital markets research centre estimates that up to 1 in
100 share trades could be based on inside knowledge and while equity markets are moving at a rapid
base, reform of Australia's insider trading law is not.

STUART WILSON: I think with insider trading it's a perennial problem. So it's going to be around
for years. I think that rushing the job is never going to be the best thing to do here. I think we
need to make sure that it's done properly.

NEAL WOOLRICH: A report in 2003 by the Corporations and Market Advisory Committee made 38
recommendations on improving the law. The Federal Government has now endorsed most of those but is
also seeking submissions on key issues, including the definition of inside information, what
constitutes generally available information and how the rules should apply in a buyback or
placement.

STUART WILSON: The problem with the lack of insider trading convictions is both a combination of
the very difficult circumstances that are required in order to prove it and also perhaps a lack of
vigour amongst the regulator to actively pursue these all the way to the end.

NEAL WOOLRICH: Stuart Wilson says the stock exchange has a robust system of detection and
surveillance that's identified numerous examples of abnormal share price movement before a public
announcement. But this has translated into very few convictions, feeding the perception that the
vast majority of illegal trades go unpunished.

Ali Moore speaks with Chris Pearce

Ali Moore speaks with Chris Pearce

Broadcast: 08/03/2007

Reporter: Ali Moore

Ali Moore discusses insider trading rules with the Parliamentary Secretary to the Treasurer, Chris
Pearce.

Transcript

ALI MOORE: The man in charge of calling for submissions over the insider trading laws is the
Parliamentary Secretary to the Treasurer, Chris Pearce. I spoke to Chris Pearce earlier tonight
about the review of the recommendations of the Corporations and Market Advisory Committee or CAMAC.
Chris Pearce, welcome to Lateline Business.

CHRIS PEARCE, PARLIAMENTARY SEC. TO TREASURER: Good evening, Ali.

ALI MOORE: When you look at the numerous cases where company shares have surged ahead of major
announcements - Qantas and Coles are just two examples - do you think insider trading is alive and
well in this country?

CHRIS PEARCE: Well, insider trading is an issue potentially all over the world. What I've announced
with this consultation and discussion paper is a review of some of the recommendations that CAMAC
have made about how we can continue to ensure that in Australia we lead the world when it comes to
insider trading laws.

ALI MOORE: A problem around the world, but is it alive and well in this country. I can give you one
estimate from the Capital Markets Cooperative Research Centre which says, "As many as one in every
100 trades on the Australian market could be insider trading." Do you think it's alive and well
here?

CHRIS PEARCE: Well, Ali what I think is important is that we do stay at the forefront of the world
with our laws. It's important that our regulator is well-funded to ensure they can enforce the
laws. This Government has continued to ensure that ASIC has the levels of appropriate funding to do
that. We're committed to that into the future.

ALI MOORE: What in this latest round of recommendations that you're seeking comment on will make it
harder to get away with it?

CHRIS PEARCE: CAMAC have presented and Government with 38 recommendations. We have accepted 31 of
those, they're largely housekeeping, clarifying and improving the law recommendations. What I've
announced with the release of this discussion paper is a consultation process on seven of the
recommendations. I guess the bottom line, Ali, is that what we're looking at here is trying to
ensure that the law continues to protect Australians, that we simplify it, that we clarify the law
to make sure that Australians are protected from insider trading.

ALI MOORE: So the problem I presume at the moment is the perception is the law is simply not good
enough, otherwise we wouldn't need to change it?

CHRIS PEARCE: Well, Australia does lead the world, as I say. We have some of the most stringent
insider trading laws. Our job is to make sure we stay ahead of the pack. I want to make sure that
we have in Australia the best insider trading laws in Australia. The Government is committed to
ensuring the market operates in a fair way, that consumers are protected. We do not support insider
trading. What I'm seeking to do through this consultation process is to ensure that if we are going
to change the law we change it in the right way to make sure those objectives are maintained.

ALI MOORE: But if it ain't broken, don't fix it. Where are the weaknesses that are leading to a
requirement to review the law?

CHRIS PEARCE: It's always important to continually look at our law to make sure that it is
up-to-date, that it is being efficient, that it is being effective. As I've said, we've accepted a
lot of the recommendations to improve the law and this consultation round in relation to these
other recommendations is making sure that the law matches the reality of the marketplace. The world
is changing all the time and what I want to do is to make sure that we stay ahead of the pack. We
have very good insider trading prohibition laws in Australia. Our regulator is well-funded to make
sure that there is surveillance, there is enforcement and I think we have to make sure that we
ensure that that continues.

ALI MOORE: If we have very good legislation, if we have a well-funded regulator, why do we get
barely any successful prosecutions?

CHRIS PEARCE: Well, the regulator is responsible for enforcing the law. Our commitment, the
Government's commitment is to make sure they have the level of funding they need to ensure that
they can enforce the law.

ALI MOORE: Do you think ASIC is doing a good job?

CHRIS PEARCE: I think ASIC does a very good job and my job and the Government's job is to continue
to support them.

ALI MOORE: One of the most controversial recommendations among those that you're seeking comment on
deals with amending the test of generally available information. And that goes to the heart of what
is insider trading. How do you change it to make it clearer?

CHRIS PEARCE: Well, that's what we're going through the consultation process for. CAMAC have put
forward a series of recommendations. I looked at the recommendations. I got advice from the
Department of Treasury on these recommendations. CAMAC themselves were divided - - -

ALI MOORE: Indeed the recommendation from CAMAC was to use a definition of disclosable or
announceable information. Surely that's just opening up a whole new Pandora's box of possibilities.

CHRIS PEARCE: That's why we're going through the consultation process. I want to make sure we've
got everybody's view on the table, Ali, before we do change the law. That's why we're taking this
consultation in a very serious way. I've asked people to come back to us with their submissions by
mid-May. We'll have a look at the feedback we get from that. If we decide to change the law then I
think we'll be in a much better position to actually know what the best approach to take is.

ALI MOORE: Do you think it's possible you won't decide to change the law? I'm trying to draw you
out on what could be a possible solution to what's well-considered in the legal fraternity, in the
broking and corporate industry to be a very difficult to pin-point description, generally available
information?

CHRIS PEARCE: I accept that and your proposition is right, we may not change the law. We are going
about this consultation process in a sincere and serious way and that's why I don't want to
presuppose any particular position. I want to look at the options, I want to ask the stakeholders -
you talked about the legal fraternity earlier - I want them to give us their views to make sure
we've got all the views on the table. And then if we don't think that the law can be improved in
this area we will not change the law.

ALI MOORE: Chris Pearce, many thanks for talking to Lateline Business.

CHRIS PEARCE: Thanks, Ali.

A look at what's making news in the business sections of tomorrow's papers. The 'Age' saz rising
prices is putting home ownership out of the reach of many people. The 'Australian' leads on coal
producers securing contracts. And that's all for tonight. As I leave you the FTSE is up 52 and the
Dow futures are up 71. I'll be back on Monday night. In the meantime if you'd like to review
stories from tonight or earlier programs, you can visit our website and watch the whole thing
online or download it as a Podcast. If you'd like to contact us, you can do so via email. I'm Ali
Moore, goodnight.

Closed Captions by CSI.