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Wednesday, 19 September 2001
Page: 31061


Mr HOCKEY (Minister for Financial Services and Regulation) (10:36 AM) —I thank the member for Corangamite for his words of support for the Commonwealth Inscribed Stock Amendment Bill 2001. The member for Corangamite always participates in these important debates, and that is why he is a damn good local member.


Mr O'Connor —Not for much longer!


Madam DEPUTY SPEAKER (Mrs De-Anne Kelly)—Member for Corio, you will be speaking later. If you want the same courtesies extended to you, I suggest you extend them to others.


Mr HOCKEY —Today is not the day to make a comment like that, sunshine! Today is not the day, buddy! The member for Corangamite is the custodian of the legacy of former member of parliament Bert Kelly, and he does a fantastic job for his constituents in delivering better quality services, particularly in relation to financial services. I also thank the member for Wills for his contribution to the debate. I understand that the member for Wills has raised a number of questions—or that he has been the conduit for a number of questions. I apologise to him for not being here when he asked those questions, but I undertake to take those questions on notice and get him some answers. I have not seen all the questions, but certainly we are prepared to be as helpful as we possibly can in a bipartisan manner to address any concerns that the opposition might have. I undertake to make my officers available to assist the opposition with their detailed queries.

To remind the House, the Commonwealth Inscribed Stock Amendment Bill 2001 takes us into a new age for the trading of debt market securities and, perhaps arguably, it is long overdue. We are enabling a dematerialisation of the market. That is, we are shifting from paper based trading to electronic trading in debt markets. As we have witnessed in relation to other markets, it in fact has a significant positive impact on liquidity. In relation to financial markets there is perhaps no factor more important in a market than ensuring that liquidity is in play. Other factors, obviously, such as transparency and integrity are also vital ingredients for good markets, but for a market to truly reflect developments on a microsecond by microsecond basis you need to be able to have a reasonable level of liquidity in the marketplace. Therefore, anything governments can do to improve liquidity in a market is of vital importance. It is also vitally important to ensure that we protect transparency.

Australian markets are generally very good at being transparent. Transparency is directly linked to the integrity of a market. If the markets are transparent, if investors, traders and agents in the marketplace are able to determine all the factors that can affect a price and, at the same time, there is a reasonable level of liquidity, then the markets develop their own integrity. And if there is some inappropriate practice in a marketplace then everyone needs to have confidence that, through a process of transparency, they are able to identify it and that the appropriate authorities can seek appropriate redress.

This bill will open up the conduct of the Commonwealth government securities market to clearing and settlement facilities involved in the broader operation of the financial markets. It will make it clear that non-government clearing and settlement facilities regulated under the Corporations Act may be appointed by registrars under the Commonwealth Inscribed Stock Act in addition to, or instead of, the Reserve Bank. It will also create equitable interests in Commonwealth government securities. That will hopefully further improve liquidity in the marketplace rather than simply relying on the legal interests held by the Commonwealth. The bill will also provide for regulations to be made that provide for the transfer of legal or equitable interests in Commonwealth securities in accordance with the act or by applying provisions of the Corporations Act to the transfer of interests in Commonwealth government securities. This bill will increase business confidence in the effectiveness and reliability of electronic transfers of Commonwealth government securities and improve the working environment for that trading.

We are obviously entering an overall period where markets are becoming much more sophisticated, where they are becoming 24-hour places of operation, and it is vitally important that governments maintain level heads and retain sovereignty over their markets during these challenging times. I am not just referring, obviously, to what has happened in the United States over the last two weeks, but more generally. Markets rely, as I said a little earlier, on liquidity. Closely linked to liquidity is volume. For example, the greatest threat to equities markets around the world is the fact that the cost of raising capital is higher in a less liquid market than it is in a liquid market. Take, for example, New Zealand.

A number of companies have left the New Zealand Stock Exchange to list either in Australia—I think in one case in Singapore—or offshore. The main driver of that is not particular New Zealand interests; it is the fact that the cost of raising capital in a small equities market is greater than if you were raising capital in a much more liquid or larger market—for example, London. That is one of the reasons the dual listing structure is very attractive to a number of companies in Australia. It means that they can raise capital overseas cheaper but at the same time retain their position on the Australian Stock Exchange. Today the New Zealand Stock Exchange has a total market cap of around four per cent of the Australian Stock Exchange, which is extraordinary.

The Australian Stock Exchange has been greatly buoyed over the years by demutualisation and privatisation. That has helped to significantly increase the cap of the Stock Exchange. Look at some of the companies that are in the top 10 stocks today compared with, say, 10 years ago—the Commonwealth Bank, AMP, Qantas, NRMA and a number of other companies—that were either government owned or mutuals a few years ago and today they are listed, or they are part of larger conglomerates like Woolworths is part of the IEL group. The market has changed quite dramatically over the years, and that is a good thing because it has helped to increase the size and scale of the equities markets in Australia.

But at the same time we face our challenges in our marketplace. Australia is blessed with very sophisticated markets. Our derivatives markets are very sophisticated. We have excellent bond markets, various capital markets and in particular derivatives traders. We in Australia have developed some of the most sophisticated financial products in the world. That is not an idle boast. That is reflected in the fact that a lot of Australians are very highly sought after in foreign markets, particularly London and, as we realised in fairly stark terms quite recently and quite sadly, New York. Australian traders, marketers and researchers are very highly prized because we have a very sophisticated market.

The question is how we develop scale. With governments of all persuasions quite rightly paying down debt, we have seen an enormous reduction in the comparative scale of the government bond market in Australia. But I understand that in only the last two days we have had a massive seachange in the Australian bond markets with the corporate bond market now passing in size the government bond market. As members of parliament, we would all be rejoicing that in fact the government is not the biggest borrower in the marketplace today.


Mr McArthur —Hear, hear! It is due to this government, the Howard government.


Mr HOCKEY —Yes, that is right. We will get to that in a second, but I do not know that today is really the day to really drill into the opposition.


Mr McArthur —The former opposition—Paul Keating's.


Mr HOCKEY —Yes, but there was a paydown. To give them their due, at a state level there have been some state governments of Labor Party persuasion that have been as committed to reducing government debt as the Commonwealth coalition government has been. There was a blip. It was a $96 billion blip whereas, as you would know, Madam Deputy Speaker—I am sorry to paint the chair as partisan and that is not our intention of course—in 1983 there was, I understand, $16 billion of Commonwealth debt accrued over 82 years, and, to the great credit of the Labor Party, they blew that debt out from $16 billion to $96 billion within 13 years. That was the most extensive line of credit I have ever seen for a government; that is why I say all credit to them. But the truth is that we had to pay it back, and we have paid back $50 billion of that $96 billion so far, with more to come, through prudent financial management by a coalition government.

What we have seen is a diminution of the public sector bond market and the semi-government bond market, but bear this in mind: you can have an essentially debt-free jurisdiction and still issue bonds responsibly. The Queensland government has done that over the years to maintain liquidity in the Queensland bond market and in the semi-government bond market, as it is known. But that is certainly not the case when you are just accruing debt and spending it as a government, which, as we all know, is highly irresponsible. It leaves you no room to move on a rainy day.

It is good to see the corporate bond market growing because that is adding liquidity to the marketplace. It means that corporations, instead of borrowing money from overseas, are able to borrow money in the Australian market in Australian dollars and, therefore, are able to finance things here without sending interest offshore. Instead, hopefully they are sending interest to the mums and dads of Australia, whose superannuation funds in many cases are invested in domestic corporate bonds.

So overall I think this is a very good bill. The bill is long overdue. We look forward to a more liquid market. We look forward to improving transparency. We look forward to lowering the costs of trading in this marketplace. Certainly in relation to the questions raised by the opposition we on this side of the House only indicate goodwill. I am prepared to provide them with whatever answers they may require to their specific and detailed questions.

Question resolved in the affirmative.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.