SUBJECTS: Market Supervision, ASIC, Australian Securities Exchange.
ROSS GREENWOOD:
The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, has announced that ASIC is going to take over the supervision and surveillance of financial markets in Australia and therefore effectively be the watchdog and the prosecutor as well.
Chris Bowen joins me on the line now.
CHRIS BOWEN:
Good evening to you Ross, good to be with you.
GREENWOOD:
One point about this, it is generations that the Stock Exchange effectively looked after its own or tried to chase down its own. The prime reasons for this change today, what would they be?
BOWEN:
Look two reasons Ross, as you say this is a role that the ASX has had for quite some time. You've got to remember the ASX or its equivalents – its predecessors were at one stage government entities – they were privatised. Those governments decided to leave the supervision with them when they were privatised. I don't think that's a sustainable model going forward.
I think if you're going to have supervision of market operators, detection of insider trading, I think that's best undertaken by a government organisation. Secondly, as you would be aware, we do have a number of applications before us for competition to the stock exchange – the securities exchange – and it wouldn't be possible to consider those on their merits while you have the ASX doing its own supervision because then you'd either have the situation that the ASX would be supervising itself but these other operators would be supervised by the Government and that wouldn't be fair, or the ASX would supervise itself and then their competitors and that wouldn't be fair. So this is the only way that we could consider these applications for competition to the ASX on their merits.
GREENWOOD:
And so therefore, is there any evidence to suggest that ASIC is going to be sufficiently competent and skilled in the observance of the financial markets to be able to take this role on quickly and efficiently and to be able to bring potentially even more prosecutions forward into the Department of Public Prosecutions?
BOWEN:
Certainly I've got confidence in ASIC to do that. They've recently restructured and they're now a lot closer to the market. Their structure now better reflects what's going on in markets so more in touch with the information. There's also a number of Directors, Commissioners of ASIC that do have that experience as well so I do have confidence in that. I obviously wouldn't have made that decision if I didn't have confidence.
This isn't a reflection on the ASX as such; this is more a decision about what's the right structure. We've had a good look at what happens around the world in the United States et cetera and our structure with the ASX sharing the supervision with ASIC was really sort of out of line, really couldn't be justified, and this brings us much closer to international best practice.
GREENWOOD:
It is suggested that a self-regulated, privately-owned market may not necessarily be in the public interest. Is there something of the global financial crisis and Governments trying, if you like, to impose more regulations on markets? Is that seen to be partly behind the motivation to bring this to ASIC?
BOWEN:
No, I certainly wouldn't characterise it as more regulation, it's not that. Certainly the G20 leaders agreed that supervision should be as transparent as possible and should be free of conflicts of interest and there's certainly been a conflict of interest perception with the ASX, given there profit model depends on lots of people trading at the same time that they're supervising.
So some people say that's a conflict of interest – I'm not saying that – the ASX would reject that. I'm saying there is a perception of that and that's one of the reasons for cleaning this up, but more importantly the other two reasons, that it's better done by a Government instrumentality and that this will enable us to consider those applications for competitors to the ASX on their merits, without having to think about how it would suit, how it would fit into the current regulatory regime.
GREENWOOD:
The Australian Stock Exchange, over the past twenty years has been renowned for being a global leader, one of the very first to actually introduce fully electronic trading, one of the first to reduce the amount of time it takes for trades to be settled, it has been seen to be at the forefront of much of the innovation. Does this move today potentially weaken what has been a strong stock exchange in Australia, and, if you like, a strong platform for our economy? Does it potentially weaken its position long term?
BOWEN:
I think on the contrary Ross. I think this brings Australia's regulatory regime into line with best practice in the world. It means the ASX can get on with what it does best – its core responsibility which is helping people trade, without the regulatory burden it has of supervising stock brokers – that's something more appropriately done by Government. So I see this as the right structure going forward to let the ASX flourish. I want a strong healthy ASX, that's in everybody's interest.
We want a strong health financial system but sometimes you need to refurbish your regulatory arrangements to make sure that they're up to scratch and this is what we've done in this particular instance.
GREENWOOD:
Chris Bowen there, Minister for Financial services, Superannuation and Corporate law on a significant change, a historic change that has taken place today.