SUBJECTS: Market Supervision, ASIC, Australian Securities Exchange.
ALI MOORE, PRESENTER:
For more on today's decision on market regulation I was joined earlier by the Minister for Financial Services, Chris Bowen from his Sydney office.
Chris Bowen, welcome to Lateline Business.
CHRIS BOWEN:
Good evening, Ali.
MOORE:
The supervisory role of the ASX has long been debated, why change the process now?
BOWEN:
Look, we've made a decision that this is an important structural change going forward. The Government has been looking at this issue for some time. We have been considering for some time and we don't believe it's appropriate any longer for a private-sector entity to have supervisory powers over brokers.
So this is important in terms of the perception of conflict of interest, to ensure there's no perception that there's a conflict of interest. Also as you know we have a number of applications before us for other market licences. We want to be able to consider those on their merits.
It wasn't sustainable to have the ASX doing supervision of brokers where other market participants or operators would have ASIC doing it, or alternatively the ASX supervising the new market operator.
So this is an important reform to enable that decision to be taken on its merits in relation to the applications we have before us, which we'll proceed to do.
MOORE:
It really is just about perception, or do you think there are also issues of shortcomings with the current structure?
BOWEN:
Well I think there are certainly issues with the shortcomings with the structure. I'm not particularly critical of the ASX as such. They would defend their role and I'm not particularly critical of that role, but I think that it is not appropriate, certainly going forward, to have a private sector interest - in the ASX - supervising market participants. I think that's a role best undertaken by ASIC. I think that's the only sustainable model going forward.
MOORE:
So the structure may not be right, but do you feel the system is working? You're comfortable that issues such as insider trading are not rife, even though there's a number of occasions where share prices have moved quite dramatically and for no apparent reason, but it's usually just prior to a market-sensitive announcement.
You don't feel that's indicative of a broader problem?
BOWEN:
Well, I do have concerns about insider trading, of course, across the board and I certainly encourage ASIC to be very proactive as I know they are and I know they will be with these new responsibilities. But I don't link any operation of insider trading with ASX's role in the past.
What I do say is going forward I don't think it's a sustainable model for a private-sector entity to be involved in the supervision of market participants.
MOORE:
Do you think the model, though, has affected the quality of the supervision?
BOWEN:
Well, I think that it's more appropriate going forward that it be done by one single, unified supervisor. I think there are issues where wherever there's a perception of a conflict of interest, I think that's a real problem and I also think there are issues where you have two regulators if you like, the ASX predominantly and ASIC. There are concerns about things falling through the cracks; about grey areas.
Now the ASX and ASIC have worked very cooperatively together to ensure that's not the case. But I think it's more sustainable going forward that we have one single, supervisor and particularly as the Government will be considering other market participants without in any way pre-empting that decision, to enable those decisions to be made on those merits it's important that we resolve this issue, because you can't have any form of competition under the old arrangements.
MOORE:
Those grey areas and potentially falling through the cracks. Could they help explain some of the controversies we've had in recent times and some of the exceptions to the system working well - the debate about short-selling, Tricom, Opes Prime, Babcock & Brown. Just today Babcock & Brown went into liquidation with continuing questions about the level of disclosure. Could any of those issues be explained by grey areas or falling through the cracks?
BOWEN:
Well, look people will have different views on that. There are a number of people who would have different views on that. I simply make the point that going forward, this is the model which the Government believes best minimises the opportunities for anything falling through the cracks, and also best minimises the opportunity for any conflict of interest or perceived conflict of interest.
The fact that there's a perceived conflict of interest is a fact. The fact that the ASX is an operator in the market and also has a supervision role is a perceived conflict of interest for many. Whether that conflict of interest is real is something the ASX would vigorously reject and I respect their position, but for a range of reasons, as I outlined, the Government's taken the decision on the recommendation of the Treasurer and I that this is the best regulatory model going forward.
MOORE:
But that list of exceptions that I just read to you, that doesn't give you cause for concern? It doesn't lead you to believe that there may be some shortcomings?
BOWEN:
Well no, what I'm saying Ali is this, of course the Government considered all recent events in the decision but we weren't motivated by any of those events in transferring the supervisory role from the ASX to ASIC.
Can I say this Ali, I know that you will point correctly to these high-profile cases which have caused some people some concern, but Australia's regulatory framework has seen us through this crisis in very good shape, and for that reason, I say while it can be improved, by for example by the decision we've announced today, there is not the need for widespread concern that other nations have been facing.
MOORE:
Part of the ASX argument that they should keep the supervisory role, is that they have the experience, they have the people in there, closest to the market. Will ASIC replicate that? It's fair to say they don't have a reputation for speed?
BOWEN:
Well ASIC has recently embarked on a restructure to link its organisation more directly with the market. I think that's working. They've also made very clear in their appointment, or the Government made it very clear in its appointments to ASIC that we believe in understanding the market and that has been the case.
So I don't think that's an issue going forward. I understand that concern perhaps traditionally and historically, but with ASIC's new structure I don't think that's an accurate reflection of the current situation.
MOORE:
How much extra funding will they get?
BOWEN:
Well at the moment the brokers pay the ASIC for supervision through fees to the ASX. The ASX and ASIC will need to sit down and share information on the cost and then ASIC will again recoup those costs from brokers and market participants as the ASX does now, and I would expect the ASX to reduce their fees as they no longer will have the supervisory role and that shortfall will be made up by ASIC recouping that from market participants.
MOORE:
Chris Bowen, many thanks for talking to Lateline Business.
BOWEN:
Great pleasure.