SUBJECTS: Government decision to support competition in financial markets, Andrew Robb's comments on Dr Ken Henry, insulation, BHP deal and tax revenues, Stern Hu case, Rio Tinto and ASIC investigations
CHRIS BOWEN:
Good morning. Thanks for coming everybody.
Earlier today, before the opening of the markets, I announced the Government's support for competition in Australia's financial markets. I also announced the Government's in principle approval of an application for a licence to operate in Australia from Chi-X. This is based on advice from ASIC that Chi-X is well advanced, has already met the principal requirements for the issuing of a licence and is well advanced to meet the other, more minor requirements for the issuing of a licence.
This is an important development in the operation of Australia's financial markets. There are six million direct shareholders in Australia and of course, almost every working Australian owns shares indirectly through their superannuation funds.
This development means that we know that Australian investors, consumers of stockbroking services, will be getting the best possible value for money. This means that there'll be more than one stock exchange in Australia fighting for the business of Australia's investors.
This announcement is important for Australia's ambition to be a financial services centre. One of the recommendations of the Johnson Report into Australia as a financial services hub was that the Government embrace competition as soon as practical. So this announcement today represents the implementation of another of the recommendations of the Johnson Report into Australia as a financial services centre.
Let me turn to some implementation and practical measures. When I announced the transfer of supervision of Australia's financial markets from the ASX to ASIC last August, I said that a decision, that that decision, would enable competition to be considered on its merits and that is what has occurred.
I also said at the time that any alternative market operator could not begin operation until after the transfer of supervision had occurred and that remains the Government's position. The transfer of supervision is well advanced and remains on track to occur in the third quarter of this year. I'll make an announcement closer to the time as to the exact date of the transfer of supervision.
Once ASIC has taken over supervision of Australia's financial markets, and once an appropriate period of settling in has occurred for the new arrangements to take place, I anticipate that Chi-X would then begin operation.
It's appropriate to announce in principle support for Chi-X's application now. One: to allow ASIC to prepare the appropriate regulatory guidance for competition, and two: to allow Chi-X to, in a more detailed fashion, enter into discussions and negotiations with participants, with the ASX and with ASIC, about how they will operate in the Australian market.
In conclusion, I know today's announcement will be disappointing to some. But it's the right decision. It's the right decision for Australia's investors and consumers of stockbroking services. It's the right decision to promote Australia as a financial services centre.
Canada, Europe, the UK and the US have all had competition on their financial and capital markets. Australia will now join them in that development. If Australia seriously wants to be considered as a financial centre, if we seriously want to be regarded as a global financial services hub, then the days of having a monopoly in our capital and financial markets need to come to an end, and that's what I'm announcing today.
The message we are sending today is that Australia's financial markets are increasingly dynamic and competitive, and the Government supports and welcomes moves to make them even more so.
I'm more than happy to take some questions.
JOURNALIST:
My question is are there still licence applications from other potential share market operators and what's the status of those?
BOWEN:
There are two other applications: one is from Liquidnet and one is from AXE. My understanding is that neither of those applicants are pressing their application at the moment. Liquidnet is considering its position in relation to its application for a market licence. They will no doubt take into consideration today's announcement and will respond accordingly.
JOURNALIST:
Is it your expectation that competition will bring lower fees?
BOWEN:
That's certainly the experience elsewhere. It's certainly the experience in the UK and Canada, for example. I know that Chi-X have made some commentary that they expect their fees to be substantially lower. That's a matter for them. The one thing I do know, David, is that where you have competition in a market the pressure is for reduced fees as opposed to a monopoly.
JOURNALIST:
Do you think our fees are high by an international standard?
BOWEN:
I think that competition should lead to lower fees. Whether they're higher by international standards is a matter for other people to comment on. The only comment I will make is that competition should lead to downward pressure on fees.
JOURNALIST:
Do you think that the new operator would be able to offer lower fees to mum and dad investors or is it going to be primarily aimed at institutional investors? Do you want to see a long term outcome where it's the mum and dad investors who get the benefit of lower prices as well?
BOWEN:
Well, certainly lower prices for, as you would put it, mum and dad investors or certainly smaller investors, would be a welcome development. Chi-X's pricing mechanism, as the ASX's pricing mechanism, is a matter for them. Certainly the lower the fees across the board is something the Government would welcome. But I know this, David: without competition there's no chance of downward pressure on any fees. Competition leads to innovation in product delivery; it leads to more intense pricing policies on behalf of all market operators.
JOURNALIST:
In your view, was it a mistake to allow ASX to take over the futures exchange? That brought a great consolidation of markets.
BOWEN:
No, this decision today is not a reflection on that. That was, perhaps, a natural development. What I do know is that another natural development is competition across the Australian trading platforms.
JOURNALIST:
In order to create an alternative exchange, the new operator would have to in some way connect with the ASX. So the ASX becomes, in a sense, an infrastructure owner which is also competing with somebody that needs access to its own infrastructure. How is that going to be worked out and what kind of competition powers will the Government have to make sure not just that the ASX must give access to this other operator, but must also make that access available at a reasonable price.
BOWEN:
My understanding is that there have already been discussions between ASX and Chi-X. I would have thought that today's announcement would bring a particular focus to those discussions. If those discussions are not fruitful, you correctly point out that the Government does have powers, partially under the Trade Practices Act. On behalf of the Government I would reserve the right to use those powers.
JOURNALIST:
Under the TPA?
BOWEN:
Any regulatory powers, I would reserve the right, based on the advice of ASIC or the ACCC, to implement to ensure access to clearing and settlement facilities, which I think is where your question's going.
JOURNALIST:
And just to be really pointy-headed about that, is it something that could fall under Part 3A of the Trade Practices Act, where it's in a sense, it's about open access [inaudible]?
BOWEN:
There are a number of ways that the Trade Practices Act could be implemented; Part 3A is one of them. There are a number of others. There are a range of regulatory options available to the Government. I won't be flagging a preference for any of those. Hopefully none of them are necessary. Hopefully the ASX and Chi-X reach a commercial arrangement. But it is appropriate that I flag that I would reserve the right to use any regulatory option available to the Government to ensure access to those very important services.
JOURNALIST:
Minister, you said that Liquidnet and AXE are not pressing their applications at the moment. Do you think that there will be room or interest in more operators?
BOWEN:
Well, look, that's a matter for the market to determine. Having announced today in principle support for competition, we will approve applications where they meet the requirements of the Corporations Act. I will approve them based on the advice of ASIC. If ASIC advises me that other applicants, whether it be Liquidnet, AXE or any other new participant, meets the requirements to be granted a licence I will grant the licence.
JOURNALIST:
This morning, Minister, Andrew Robb said on radio that he regards Ken Henry as the de facto Treasurer, saying that he's the one that is setting policy and is therefore partisan. What do you make of Mr Robb's comments?
BOWEN:
Well, this is a pattern from the Opposition. When they are under pressure, they attack independent bureaucrats. This is an attack on the integrity of Mr Henry; one which I and the Government reject. The Treasurer has been very assiduous in guiding Australia through the global financial crisis and Mr Henry has been an important adviser to the Government. He's an adviser to the Government, an independent adviser to the Government, and the Opposition should concentrate more on policy development rather than criticising independent public servants.
JOURNALIST:
But do you think that Dr Henry has endorsed Government policy in the past, vigorously endorsed Government policy?
BOWEN:
Dr Henry has called issues as he sees them; that is his right as an independent public servant. If the Opposition doesn't like Dr Henry's views, that is their right, but they should not attack his integrity.
JOURNALIST:
There was a report the other day that ERC was meeting to discuss the future of the insulation program. Is the insulation program going to resume in June? As a member of ERC, can you say that it will resume?
BOWEN:
I don't comment on Cabinet decisions, Cabinet discussions and committees of Cabinet, David. Nice try.
JOURNALIST:
I'll try again on something else. BHP looks like it may get a big win out of the price of iron ore exports to Asia, and there's speculation that that would have an impact on the Budget bottom line because tax revenue would be up. Is that a good sign for the revenue projections in the May Budget?
BOWEN:
Well, of course any positive development for an Australian company is a positive development for the Australian economy. I would point you to the comments of the Treasurer quite recently that some of the speculation about the impact on revenue forecasts from improvements in the Australian economy are, in our view, overly optimistic, but we'll be releasing, of course, all our figures on Budget night.
JOURNALIST:
A short time ago Michael Danby released a press release claiming that Stern Hu gave his bribery claims under duress. Is this unhelpful coming from a Labor MP?
BOWEN:
I haven't seen Mr Danby's comments so I can't comment on them. I've been otherwise engaged; I haven't sent those. The Foreign Minister has made it clear that we regard the sentence of Stern Hu as harsh but we also, of course, respect China's legal processes and system. But we have also reinforced our view that it would have been much better for all concerned if the full trial had been open.
JOURNALIST:
Should ASIC look at Rio Tinto's involvement or business practices in China?
BOWEN:
ASIC would deal with these matters as the independent regulator at arm's length of the Government, as I would expect them to do so. Okay.
No other questions? Thank you very much.