ALAN KOHLER, PRESENTER:
This week the Federal Government wrote to the key financial market regulators, ASIC and the ASX, instructing them to come up with new interim rules on short selling and trading disclosure while it ponders a new permanent fix.
The intervention follows growing alarm by the recent damage wrought on some companies and concerns about a lack of disclosure of short selling.
I spoke to the Minister for Corporate Law, Nick Sherry, about what he's trying to achieve, as well as concerns about what the market slide is doing in his other portfolio responsibility, superannuation.
(To Nick Sherry) Senator Sherry, the Government has written to the heads of both ASIC and ASX this week asking them to work on rule changes at the ASX, to deal with the problems around short selling. So I guess the first thing is that means you think there's a problem.
NICK SHERRY, SUPERANNUATION & CORPORATE LAW MINISTER:
Well there is some relatively minor surgery needed to the Corporations Act because it's not apparent that, in respect to covered short selling, that it does need to be disclosed in a transparent way under the current corporations law. Therefore we intend to change the law in that particular area.
ALAN KOHLER:
But ASX rules already require short selling to be disclosed, do you think it's the rules that need changing, or that the governance of them needs to be improved?
NICK SHERRY:
Well, it isn't clear under the corporations act whether covered short selling needs to be disclosed at the present time, therefore the Corporations Act will be changed to make it very clear that that sort of activity does need to be fully disclosed in a transparent way.
ALAN KOHLER:
No, but I'm talking about ASX rules?
NICK SHERRY:
The Treasury will be working with the ASX to ensure that where their rules need updating in this particular area that will occur as well, so effectively both will need to happen.
ALAN KOHLER:
Are there any other issues around the market turmoil we've seen lately apart from the specific one you're mentioning here? Do you have any broader concerns about what's going on?
NICK SHERRY:
Well, obviously the impact from the US sub-prime has been...we're not immune to that. It's had a significant impact on the market, market volatility and obviously for me as a minister, almost every working day has been preoccupied in some discussion as it should be rightly, with some particular aspect of the sub-prime meltdown. I think medium term we've been through the first stages of the impact. I'm now looking also at the impact on superannuation funds. When they declare their rates of return at the end of the financial year, that's going to pose some medium term challenges as well.
ALAN KOHLER:
Are you talking about liquidity challenges?
NICK SHERRY:
Well, I think the issues for superannuation funds will fall into two broad areas. The trustees governance, particularly the liquidity issue when we have negative rates of return, as they're likely to be, and secondly, in terms of disclosure, how negative rates of return are reported to fund members. Even though there's three months to go until the end of the financial year, I'm advised by most funds that it's highly likely we'll see more widespread negative rates of return than we've seen before, and how that is reported and how that's oversighted by APRA will be important given probably the most widespread negative rates of return since 1987 when superannuation became compulsory.
ALAN KOHLER:
I suppose by definition, the worst performing super funds will need the most liquidity and they're the least likely to have it?
NICK SHERRY:
Well they'll certainly need liquidity cash in the event that individuals choose to exercise portability or switch funds. So there are some important issues around having cash reserves to do that.
ALAN KOHLER:
Just back to the ASX regulation for a moment, do you think that the ASX should continue to regulate the market in the way that it does?
NICK SHERRY:
The general issue of the ASX regulation has come up in the debate concerning the possibility of competitors. There are currently some licence applications to compete against the ASX. I have received the final advice from ASIC on the licence applications, and as I say, part of the debate on this competition, if you like, has concerned the future regulatory arrangements around the markets and the involvement of the ASX as a supervisor, regulator. We'll be considering the advice from ASIC and it'll be a whole of government decision and it will be made in the next month or two. For very obvious reasons I can't go into the details, the final policy has not been concluded and when it is we'll be making it public.
ALAN KOHLER:
Last May, in a senate committee hearing, you criticised the head of ASIC, Tony D'Aloisio, for not being proactive enough. Well, do you think they're being proactive enough now, and for that matter, what about the ASX?
NICK SHERRY:
Well, I think they've both done a solid job, I have to say. If you look around the world at the impact of sub-prime on stock markets, all comparable stock markets, the volatility and the significant drop in value has been right across all leading, all advanced economies. Certainly I did criticise Tony last May, but I also did congratulate him at the same Senate hearing because he had moved speedily and effectively, for example, on issues relating to some of the mortgage fund collapses.
ALAN KOHLER:
Solid is the kind of word, that as a coach might use to build up a team after they lost the game, it sounds like you're damning him with faint praise.
NICK SHERRY:
I think it's been a very good, solid performance in very difficult circumstances and as I've said, if you look around the world at what's happened... I mean just looking at some of the alleged activities, rumour mongering and some of the behaviour in London, it's not an easy time for regulators, it's a tough job.
ALAN KOHLER:
Thanks very much for joining us Senator Sherry.
NICK SHERRY:
Thanks Alan, thanks to your viewers.