The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

8 April 2011

Press Conference

Canberra

8 April 2011

SUBJECTS: SGX-ASX Decision; Reserve Bank; Sovereign Wealth Funds

TREASURER:

A few days ago I did make a commitment to give a detailed statement of my reasons for my decision in the SGX-ASX takeover.  So this is going to take some time, so I'd just ask you to bear with me as I go through all of the detail and, of course then I'm happy to take all of your questions.

Now, after long and careful consideration and consultation, I have today made orders under the Foreign Acquisitions and Takeovers Act to prohibit the proposal by Singapore Exchange to acquire ASX Limited on national interest grounds.

I want to be upfront about the fact that Australia's policy is, and always will be, to welcome foreign investment when it's in our national interest.  No proposal has been rejected since 2001, and since we came to Government, over 99 per cent of applications have been approved without conditions.  I take my responsibility as Treasurer very seriously and my job here is to protect Australia's national interest. 

In making my decision, I've drawn on a broad range of market perspectives, from a wide range of sources since this proposal was first announced in October last year.  My decision to disallow the proposal was based on clear, unambiguous and unanimous advice from the Foreign Investment Review Board that this takeover would be contrary to our national interest.  It's exceptionally rare, exceptionally rare for the FIRB to give unanimous advice to a government to reject an application of this nature.

I want to make it very clear that FIRB is independent of the Government, serving governments of both persuasions with the utmost professionalism.  The FIRB is chaired by a former Deputy Governor of the Reserve Bank, John Phillips, and its members include very highly regarded and experienced Australians from across our financial markets.  FIRB's advice reflected the views of the Australian Treasury, ASIC and the Reserve Bank of Australia, and follows some five months consideration of all of the issues involved.

I came to this matter with an open mind but the reality is that the overwhelming weight of advice, unanimous from the FIRB, was that we should outright reject this deal because it isn't in our national interest.  It's my job to consider these matters in the national interest. 

First it's in Australia's national interest to ensure the ongoing strength and stability of our financial system so that it remains well placed to support our economy into the future.  It's in our national interest to ensure our financial markets link into global capital markets.  It's in our national interest to maximise the benefits of our world class superannuation savings system and it's in our national interest to continue to build our reputation as a financial services centre in Asia.  This deal fails on all of those counts. 

It's not the right deal for Australia if we want to ensure the strength and stability of our financial system and it's not the right deal for Australia if we want to enhance our links into global capital markets.

It's not the right deal for Australia if we want to grow our role as a financial services hub in Asia and that is the strong advice that I received from the Foreign Investment Review Board but it is also a view that is widely held within markets from a wide range of sources that I've heard from since this proposal was first floated last October and I would make this point, it's the overwhelming view of all of those people that don't have a financial interest directly in this deal.

To diminish Australia's economic and regulatory sovereignty over the ASX could only be justified if there were very substantial benefits to our nation and this deal does not meet that very important test.

Now, there quite a few issues that are very important here to understand.  The first one is this - that the deal would make ASX the junior partner to a smaller regional exchange who is our direct competitor in boosting our reputation as a financial services centre in Asia.

The deal would not provide Australia greater access to global capital markets.  SGX is a much smaller exchange by the number of companies listed and the value of those listings, and the deal would not provide, I repeat, not provide, a gateway to Asian capital flows, as SGX has limited flows to the rest of Asia.

There is limited evidence the deal would boost access to capital for the majority of Australian companies listed on the ASX or to lower their cost of capital.

There's no clear evidence that this deal will enhance the operation of our exchange, as SGX is a smaller, less efficient securities exchange.  Becoming a junior partner to a smaller regional exchange through this deal would risk us losing many of our financial sector jobs.

So let's be clear, let's be very clear here, this is not a merger, it's a takeover that would see Australia's financial sector become a subsidiary to a competitor in Asia.  As my detailed consideration of these facts went on, it became clear to me that it was a no-brainer that this deal is not in Australia's national interest.  This takeover would not enhance our access to global financial markets.  This takeover would not deliver high quality financial services jobs for Australia.  This takeover would not build Australia as a financial services hub within Asia.  The proposed takeover would risk seeing jobs and capital move to Singapore and I'm not going to stand by and let that happen.

At the end of the day, this takeover was more about growing Singapore's financial sector than Australia's.  The deal just doesn't stack up, whatever yardstick you use.  It would have undermined our growth and stability and Australian jobs.

Now there was another critical consideration in this matter and that is preserving our safe and stable financial system.  Unlike many other global exchanges, the ASX is the sole operator of clearing and settlement systems, financial infrastructure that is critically important for orderly and stable capital markets in Australia.  I received strong advice from our regulators that ceding control of these systems, without reforms to strengthen our regulatory framework, would raise serious risks for the capacity to ensure the stability of Australia's financial system.  That's why I've now asked our Council of Financial Regulators to look carefully at measures which could be introduced to ensure they can continue protecting the interests of Australian issuers, investors and market participants.

It's absolutely critical that we take these steps now to put in place any reforms needed to protect our financial system stability should the ASX find a deal that is right for Australia.  In particular the Council will advise me on what protections around our clearance and settlement systems could be strengthened, with a particular focus on what would be appropriate should the ASX enter into another deal in the future.

Ultimately I want to ensure that the governance and regulatory arrangements remain appropriate in a changing environment, where there is increasing competition between financial exchanges and a trend towards global integration of exchanges and related financial market infrastructure.

So as I said at the very beginning, Australia welcomes foreign capital, 99 per cent of all applications to the Foreign Investment Review Board are approved without conditions.  Foreign capital is vital to grow our economy, to generate jobs and to take advantage of our natural resources

Why I've not approved this application for the reasons I've outlined, I am open to the right deal for Australia if it comes along.  I want to make that very clear.  I've outlined the reasons why this process and application has been rejected but I remain open to the right deal for Australia and that is, of course, why I've asked the Council of Financial Regulators to advise me on how we can continue to ensure the strength and stability of our financial system if there was a fresh application that would be considered.

I want to be clear on the principles that would make such a deal in Australia's national interest and I will outline them clearly.  This would be a deal that firstly, protects the integrity of Australia's financial architecture and regulation; increases Australia's integration into global capital markets and exchange networks; builds Australia's reputation as a premier financial services hub in Asia; meaningfully boosts access to capital for Australian businesses; supports growth in high quality financial services jobs in Australia and is consistent with increased competition between exchanges in Australia.

Australia has always welcomed foreign capital and we will continue to do so, but, as it has been the case under successive governments, it must always occur in our national interest.  Over to you.

JOURNALIST:

Given that you've outlined these principles (inaudible) Treasurer, that seems to suggest that there's virtually no chance that the SGX, if it was to come back with some other deal which would meet those principles given what you've said about Singapore's role in the region and the size of the exchange.

TREASURER:

Well, I've outlined my reasons for rejecting the application.  I've detailed the principles under which we would consider future applications.  I can't speculate about a future application on the SGX or anybody else.  I don't intend to do that.

JOURNALIST:

But, you said essentially that essentially that in assessing the SGX bid that you found that the Singapore exchange did not have that access or was able to promise that access to capital in the region?

TREASURER:

Well, what you've outlined is the reasons that we rejected the application and didn't say, impose conditions, but I can't speculate about the nature of any future bid by anyone including the SGX.

JOURNALIST:

(Inaudible)

TREASURER:

Well, these matters were raised with us very seriously by the Reserve Bank, by ASIC and by the Treasury.  They arose through a consideration of this application.  We have very strong supervision of this system right now.  I want to make that really clear.  But in circumstances where a foreign entity would be in control of the holding company, our regulators advised us that there would need to be substantial regulatory change in this country for systemic financial stability.

JOURNALIST:

Is it possible to do or impossible to do?

TREASURER:

They have made these points to me and I've said to them you should consider these matters and make recommendations to the Government to put in place necessary reforms in case there is a subsequent application which would involve a number of these issues.  But I haven't chosen to reject the application solely on those grounds.  I've also outlined the economic grounds on which I've knocked it back as well.  The two are important.  It's not just one or the other.

JOURNALIST:

(Inaudible)?

TREASURER:

Those matters were not, I think, directly raised in the advice that I received.  The concern here was that this is a takeover in which we'd be a very, very junior partner, a junior partner to an exchange which is much, much smaller than ours.  I'll just take you through some of the figures.  The market capitalisation of entities listed on the exchange for the ASX that's $1.5 trillion, for the Singapore Stock Exchange it's $0.672 trillion, a much smaller exchange.  World ranking: ASX [number] 11, Singapore [number] 21.

JOURNALIST:

You've also talked about, sorry – On the Singapore Government, what are the diplomatic issues here?  Given that the Singapore Government (inaudible), did you feel it necessary to just explain your position directly to the Singaporean Government?

TREASURER:

I've informed my Singaporean counterpart of my decisions in this matter but we've considered this in much the same way as I think any other foreign government around the world would consider a foreign application in these circumstances.  I think they understand that.

JOURNALIST:

(Inaudible) ...  you could elaborate on two things for us?  Presumably the FIRB outlined some of these issues on the regulatory side to the SGX during those long conversations since October and were they able to address those in any way?  And secondly, there's been some criticism of the way you announced your initial disposition and I just wonder whether you want to talk about that as well.

TREASURER:

I'd just like to reject the notion that this hasn't been a thorough process and that somehow it's just popped up.  The fact is that this was first announced in October last year.  Since that time both the FIRB, Treasury and myself separately and together on various occasions have engaged in very wide consultation with the sector.  There was very considerable engagement between the FIRB and the applicants through that period at the end of last year, early this year before the formal application was presented, I think in March.  So it's simply not true to say that there hasn't been a long period of consultation and very substantial interaction between the FIRB and the applicants. 

I think that at one stage the FIRB submitted to the applicants a list of 100 questions which they were interested in talking to them about.  So this has been a very thorough and very detailed consideration of all of the matters before the Government in the way in which they have all been handled by the FIRB and by the Government. 

So the FIRB advice to me was absolutely comprehensive.  I've got to say I was frankly surprised how strong it was in its advice to me to reject the application.  This is not normally the attitude of the FIRB, so they had some pretty strong reasons, and those reasons are encompassed by what I call the broader economic questions about access to capital and liquidity and then the second basket of options in the area of the reservations of our regulators.

The reservations of our regulators I take very seriously.  I couldn't stand here as Treasurer and approve an application I think which was advised against by every single regulator that I'm responsible for.  These matters have been discussed with the applicants.  The detail of the discussion between the FIRB and the applicants regarding the regulatory matters is not something that I'm fully aware of.  They may have gone into those; they may not, but that's not something that the applicants could do anything about.

JOURNALIST:

There's parliamentary hurdles that this thing would have had to jump as well like increase (Inaudible)?

TREASURER:

No it didn't.  It most certainly didn't.  I have to take this decision as Treasurer; it's not a whole of Government decision.  Naturally I consult widely and naturally I consult with my colleagues, but I did come to this decision with an open mind.  I spent Christmas reading a lot of material for example.  I recommend to all those in the room that they go away and read the Access Economics report which claims to present the economic case for this takeover.  It is threadbare at best, in my view.  I read it over Christmas.  I was surprised by the lack of empirical evidence in the report when it came to the supposed advantages for access to capital, for example, that amongst many other matters.  There hasn't been, I believe, any compelling evidence to justify the claims made by the applicants for the economic benefits of this deal.  So that is central to my attitude and central to the attitude of the FIRB.  On top of that you have the regulatory issues which have been raised.

I might also note that in recent days I think Mr Bernanke in the United States has spoken about the central importance to the stability of financial systems from settlement and clearance. These are pretty important issues.

JOURNALIST:

Treasurer, I'm just wondering, you talked about  protecting the interests of Australian investors through the Council of Financial Regulators.  What sort of issues do you think (inaudible)?  That's the first thing, and secondly, that really says you don't think the ASX can continue to stay (inaudible).  It is going to be approached by a larger exchange –

TREASURER:

It doesn't say that at all.  It is, as I said, that the regulators have advised us that it is prudent in light of this application for us to review the regulatory arrangements when it comes to settlement and clearance.  What is different here, and I think this needs to be understood, is that the ASX is a sole operator of clearance and settlements in Australia.  That is not the case with many other exchanges around the world.  It is with some and it isn't with others. 

So as you know we are having a global discussion and there are various takeovers and mergers and so on around the world, but the case of this one is that they are the sole operator of these facilities.  So it's only prudent that the regulators would come to us and say this application does have some implications for the future of our regulatory system and that is why they have advised me not to proceed with it and have also advised me of their reservations about what might be required, their view about of what might be required should we wish to approve an application in the future.  So I'm doing the prudent thing.  I'm getting the Council of Financial Regulators to look at all of those matters, to come back to me and if reform is required we'll put it in place.

JOURNALIST:

Does it also feed in to the whole (inaudible) to the Australian market?

TREASURER:

That is not the principle reason that the regulators have advised us that there needs to be regulatory reform.

JOURNALIST:

But there must be cross over in –

TREASURER:

Well, I think if you speak to the ASX they will say that this is one of the reasons why they are looking for a partner.  They make that point very strongly, but it is not central to the regulators view about the challenges we face should there be foreign control effectively by a holding company of the company in this country which is the sole operator of our clearance and settlement systems. The regulators have said in those circumstances they wish to pursue some regulatory reform.

JOURNALIST:

There's no suggestion also that the ASX (inaudible) settlement concerns should be peeled away from the ASX or sort of set up –

TREASURER:

Well, I'm not going to pre-empt the outcome of that consideration, but that has not been advice which has been tendered to me.

JOURNALIST:

(Inaudible) Do you think the ASX can continue to exist on its own, without a merger, with what's happening with global markets?

TREASURER:

Well, there's a lot of activity in the area and I personally have an open mind as to the future.  It's just that this takeover is not the right deal for Australia for all of the reasons that I've outlined.  It's not in our national interest, and what surprised me as I went through wide consultations particularly in the financial sector, sitting around boardroom tables with  people that you would have thought would be putting their hand up for it, they were not.

Now I know those arguing for it have been loud and I know they've been in the press, but there's a silent group out there that is very large in the financial sector that don't support this deal and share the reservations that the Government shares.  You mightn't be reading about it in the newspapers and they mightn't have their faces on TV, but you would be surprised and I was indeed surprised at the strength of the opposition to this deal.

JOURNALIST:

What (inaudible) actually say about the nature of the lobbying, the political lobbying that's gone on, on behalf of the exchange?

TREASURER:

It hasn't mattered.  It doesn't count with me.  It doesn't count.  I mean, I have worked my way through this issue.  I came to it with an open mind.  I spent a lot of time studying the issues.  As I indicated to you I was having such a great Christmas I read the Access Economics report in all that rain. 

So I spent a lot of time reading material on this, talking to colleagues nationally and internationally.  I acknowledge that this is a very significant issue and I don't rule out necessarily further consideration of further proposals in the future.  I think I've made all that very clear, but this was the wrong deal for Australia.  It's not in our national interest.  The claims made by the applicants don't stack up, that is very clear and anyone who is familiar with the issues involved here only has to read the Access Economics report to see how thin the case for this is.  The fact is that it's not in our national interest for all of the reasons that I've outlined today and I have no hesitation in rejecting it.

JOURNALIST:

Treasurer, just on another question.  Does there need to be more public transparency about how the Reserve Bank Governor is paid?  And on another separate subject, what is the Government's opposition to a sovereign wealth fund?

TREASURER:

Okay well, I think there would be legitimate community concern about the salary of the Reserve Bank Governor, that's a matter that's been there for the Reserve Bank Board – which is independent of the Government – to consider.  I would like to see those salary arrangements more in line with community expectations in the future and that's a matter that's before the Government. 

Secondly, we've got 8 [million] sovereign wealth funds in this country, they're called the superannuation accounts of Australian workers, and at the moment the Government is intent on lifting our national savings in part by lifting the savings of low paid Australians through contribution to their superannuation.

JOURNALIST:

Does it have to be one or the other?

TREASURER:

Not necessarily, but our priority has to be – in an economy which is rapidly coming to capacity – to make sure that we build our national savings, we make the critical investments that we require, particularly in infrastructure, in skills and our people so we can maximise the economic benefits that flow to this country from Mining Boom Mark II.  Thanks very much.

JOURNALIST:

(Inaudible)?

TREASURER:

I couldn't give you that detail I'm happy to follow up for you.