Australasia Credit Conference for Australasia Institutional Investors

It is a great pleasure for me to address this audience tonight. International credit markets continue to experience explosive growth and continue to provide great opportunities and challenges for all of us.

Further developments in technology appear certain to drive costs lower and to increase the range of financial products available.

The Government wants to set Australia up so that we can make the most of the opportunities that the continuing strong growth in financial markets will provide. This is the theme of my address tonight.

It is instructive to begin with a short check-list of the economic fundamentals in Australia.

• Inflation in Australia is at historically low levels — after a long period as a relatively "high inflation" country, Australia has decisively re-joined the league of low inflation nations. Underlying inflation is the lowest it has been since records began a quarter century ago. Underlying inflation through the year to December was just 1.4 per cent.
• Interest rates have fallen substantially, as has the risk premium on Australian debt. Home mortgage rates are at their lowest level in 30 years, due to both low inflation and increased competitive pressures. The yield premium of Australian Government long-term debt over US 10 year bonds has fallen very substantially.
• Australia's growth is forecast to be among the strongest in the developed world. Australia's budgetary position is very good by world standards, and our own historical standards. The underlying budget balance, ie, the balance adjusted for net advances (mainly asset sales) is forecast to swing back into surplus in 1998-99. Commonwealth net debt to GDP ratio is expected to halve by 2001.
• A Charter of Budget Honesty has been introduced and the independence of the Reserve Bank has been entrenched with the monetary policy agreement between the Government and the Governor of the Bank.
• Government spending has been restrained, with underlying outlays as a share of GDP soon to be at the lowest levels for a quarter century.
• And this is occurring despite a financial crisis in our region.

The Government also recognised on coming to office that major microeconomic reform was needed to position Australia for the 21st Century. To that end, the Government has:

• Introduced significant industrial relations reform through the Workplace Relations Act.
• Placed one-third of Telstra, the nation's largest telecommunications carrier, into private hands via the largest float in Australia's history.
• Announced major reforms to the regulation of Australia's financial system.
• Announced a major review of Australia's taxation system to make it more efficient and to provide greater incentives for work and saving.
• Embarked on a major reform of corporate law.

Some of these points I wish to elaborate on a little later, but I thought it worth recapping the excellent economic fundamentals we have in Australia and the major reforms which are taking place.

A particularly important sector for Australia, and indeed for the world, is the financial sector, broadly defined.

There is no doubt that the Australian financial sector has matured in recent years and is experiencing strong growth. The financial system has grown explosively throughout the world over the last three decades. While new technology is increasingly having an impact on the cost and range of financial products, competition is a major driver for change.

An important component of competition is the increased level of global trade in financial services. Trade is a constraint to monopoly power and provides lower priced capital to service the needs of businesses and consumers. Lower borrowing costs, for example, lead to increased investment and ultimately higher standards of living for Australians.

Australia is a major participant in the global trade of financial services. Exports of financial and insurance services reached $1.3 billion in 1996-97.

Australia's superannuation and managed funds sectors have grown very rapidly, with superannuation assets growing more than 20 per cent in the year to September 1997 to over $300 billion.

Our financial activities generate total annual revenues exceeding $40 billion and employ around 320,000 people.

Our currency is around the eighth most traded in the world.

An example of the growth within is the Australian stock market which has grown strongly over the past ten years, with domestic capitalisation reaching $454 billion in December 1997, about 87 per cent of GDP.

There is no reason not to believe that the very rapid growth in financial services that has been experienced globally and in Australia in recent years will not continue. If Australia can continue to strengthen as a regional financial centre, we can create jobs and wealth, not just within the sector, more broadly through the economy.

Australian financial markets continue to develop and provide a wider array of products. A good example is the significant growth in the past year of corporate debt markets.

The Government believes we have a strong base, but that we can do better.

Australia, too, is an attractive location for investments in financial services. We have a stable political system, with an excellent macroeconomic base, now that the budget will be in underlying surplus in 1998-99, including low and stable inflation.

Our financial system is open, with free mobility of capital, and our floating exchange rate has helped important futures markets to develop (incidentally, the Australian dollar is the eighth most traded currency in the world). The legal environment and prudential and corporate regulation are all well developed, in line with international best practice.

Our workforce is talented and well educated.

In short, Australia is a strong and stable economy with great diversity and potential.

However, we must not rest on our laurels. In this rapidly changing environment, it is quite easy to be left behind.

To this end, the Government has sought to reform the financial sector to promote greater efficiency, competition, stability and security.

In 1996, the Government asked Mr Stan Wallis to head an Inquiry charged with undertaking a stocktake of the results arising from the deregulation of the Australian financial system and to make recommendations that would best promote increased efficiency, responsiveness, competition and flexibility within the financial system.

The Inquiry made a wide range of important recommendations that were, by and large, adopted by the Government. Indeed, the Report has been well received overseas, and others such as the UK are taking a similar route.

The Government's response to the Report is a major structural reform that will deliver billions of dollars in benefits for Australian businesses and consumers. It will enhance competition in key areas of the financial system and will reform and enhance financial sector regulatory arrangements.

Right now, the Government is in the process of implementing these reforms. A package of legislation will be introduced to Parliament as soon as possible with the aim of having the major parts of the new regulatory framework in operation as soon as possible, hopefully by 1 July 1998.

The new regulatory structure will be based on three agencies.

The Reserve Bank of Australia will be strengthened and its role focussed on the objectives of monetary policy, overall financial system stability and the regulation of the payments system. As part of this, a new Payments System Board will be appointed within the Reserve Bank with stronger regulatory powers to ensure safety, greater competition and efficiency in the payments system.

The Australian Prudential Regulation Authority will be created to prudentially supervise deposit taking institutions, life and general insurance companies, and superannuation funds.

The Australian Corporations and Financial Services Commission will be created to cover market integrity, disclosure and other consumer protection issues.

The functions of the Insurance and Superannuation Commission and the Australian Securities Commission will be subsumed and extended within the new arrangements.

This new regulatory structure will reduce regulatory duplication and inconsistency and concentrate skills in the areas of specialty within which they best fit. The quality and efficiency of regulation will be improved while the overall stability of the financial system is preserved and extended.

Australia as a Regional Financial Centre

The Wallis reforms will help improve the competitiveness of Australia's financial sector. The Government is also committed to improving Australia's position as a regional financial centre.

In this regard, let us not be too sanguine about these reforms. If the Government failed to act decisively to reform the financial sector, our country, and most importantly our citizens, would be faced with an increasingly costly and inefficient financial system in comparison to other advanced economies.

Australia - A Regional Financial Centre

As I have mentioned earlier, Australia is an attractive location for foreign investment. However, the Government sees an important role for Australia as a regional financial centre. Our location is particularly useful given that our time zone spans the operating hours in London and New York.

You might recall that Australia was chosen by NASA as a location for various tracking stations during the Mercury, Gemini and Apollo missions leading to Neil Armstrong walking on the moon (the last time interest rates were as low as they are today!). Australia was chosen because its location on the planet was ideally suited to providing communications support in conjunction with the stations in the US and in Europe.

So too now as a regional financial centre.

To further improve the business environment, the Prime Minister released the Government's Investing for Growth package on 8 December 1997.

A key part of this package is the 'Australia - A Regional Financial Centre' policy statement. These measures build on our existing advantages and provide further impetus for Australia's financial sector.

The Government has agreed to extend the interest withholding tax exemption for publicly offered debentures to corporate issues of debentures within Australia. This measure will remove a tax discrimination in favour of foreign financial markets over domestic markets, and facilitate the deepening and greater liquidity of the Australian corporate debt market.

A number of other tax measures have also been announced, including a more concessional taxation regime covering Offshore Banking Units.

These initiatives will work to encourage the development of the Australian financial market and its integration into the global financial system.

The Treasurer will shortly be announcing appointments to the Financial Sector Advisory Council. The Council will facilitate communication between Government and the private sector with an objective of improving the responsiveness and quality of financial sector regulation. The Council will report on developments in international financial markets, the effectiveness of measures proposed to date, and further options which could boost Australia's attractiveness as a financial centre.

Corporate Law Economic Reform Program

Another Government initiative with which many of you will already be familiar is the Corporate Law Economic Reform Program, announced by the Treasurer in March last year. Corporate law reform has entered a new phase under this Government. On taking office we recognised the impact that business regulation has on economic activity, and hence the importance of a modern and responsive corporate regulatory regime.

Innovation and flexibility in Australia's businesses, large and small, is crucial to securing economic growth and job creation. Providing flexibility yet certainty in the regulatory environment in which business operates is therefore a key objective of economic policy. This is all the more so, given the rapidly changing and increasingly global commercial environment in which business operates.

With these considerations in mind, the Government integrated business regulatory policy within the Treasury portfolio, enabling policy to be considered within the framework of overall economic management.

The Corporate Law Economic Reform Program involves a fundamental rethink of the direction of corporate law reform. This initiative fits squarely within, and complements, the Government's wider mandate of promoting business and economic activity - in particular - job creation.

The fundamental objective of corporate regulation should be to facilitate investment, employment and wealth creation, whilst protecting investors and maintaining confidence in the business environment.

However, this objective has sometimes been lost in the implementation of reform proposals in the past. We intend to re-focus regulation back on this objective.

So what does this mean? It simply means that in looking at corporate law reform we should have regard to a number of key economic principles:

• ensuring that investors are fully informed about the nature and risks associated with investment products, largely by providing for adequate disclosure;
• ensuring that the law encourages competition and that barriers to entry are reduced. The complexity of the current law is one such barrier to competition;
• ensuring that like investment vehicles or products are treated in a like manner;
• not unduly infringing on entrepreneurship and the taking of risk;
• providing certainty and flexibility to reduce costs;
• ensuring that corporate regulation is cost effective and well targeted. The benefits of regulation must demonstrably exceed the costs and regulation must be regularly reviewed to ensure its continued desirability; and
• ensuring that regulation provides clear guidance regarding appropriate corporate behaviour and swift enforcement if breaches occur.

As part of the reform process, the Government released in the second half of last year a number of papers on key areas of corporate law policy - namely, accounting standards, fundraising, directors duties, takeovers, electronic commerce and the financial markets. Comments received on the six reform program papers are being taken into account in developing legislative proposals to implement that reform agenda.

Asian Economic Crisis

I was informed earlier today that people might be disappointed if I did not say a few words about the Asian economic crisis. Obviously, the difficulties being experienced in some countries in our region are very substantial and now go beyond the purely economic.

There is no doubt that there will be a significant effect on Australia, such that Australian growth will be less than it would otherwise and this was taken into account in the Mid-year economic and fiscal outlook. If it were not for the Asian crisis, it is likely that Australian growth in 1998-99 would have been stronger than the 3 and three-quarters per cent forecast for 1997-98.

I would emphasise that we should not be unduly pessimistic. As I noted earlier, our domestic fundamentals are very strong indeed, with the budget swinging into surplus and public debt being repaid. Also, the pace of domestic demand is strong, particularly in cyclical industries such as construction. Accordingly, taking account of all factors, domestic and external, the Government is very confident that good rates of growth will be recorded for both 1997-98 and 1998-99.

Australia is also responding to the crisis with contributions to the various IMF packages. This support is in Australia's national interest as good growth in the region is good for Australia. The Government believes it is very important for the packages to be implemented to restore confidence in the affected economies and to promote much-needed structural reforms.

Another Government initiative with which you will already be familiar is CLERP.

The Corporate Law Economic Reform Program ('CLERP'), announced by the Treasurer in March last year. That program is reviewing key areas of regulation affecting business and investment activity. The underlying theme of the review is to ensure that business regulation is consistent with the Government's wider objectives of promoting a strong and vibrant economy.

The objectives of CLERP

The objective of corporate regulation should be to facilitate investment, employment and wealth creation while protecting investors and maintaining confidence in the business environment.

However, this objective has sometimes been lost in the past.

The current regulatory environment is complex and rigid, and exacerbates the already high compliance burden facing business and market participants in Australia.

It impedes small business activity and does not take account of the complexity facing management of large enterprises.

The imposition of unnecessary costs inhibits business start-ups and development.

It increases costs to business and consumers alike.

Corporate regulation also needs to be able to adapt to the rapidly changing environment brought about by developments such as electronic commerce and financial innovation. The review of the regulation of our financial system (Wallis report) identified a number of changes which will lead to greater efficiencies and lower costs for consumers. A number of those changes have been addressed in CLERP the reform program.

On taking office the Howard Government recognised the impact of corporate regulation toon the economy as a whole and to that end integrated corporate law within the Treasurer's portfolio to enable allowing policy to be developed within a wider economic framework.

Regulation has an immediate and pervasive impact on the business environment, and therefore on corporate decision making and investment. By establishing a more favourable climate for investors and business, the reform program promises significant benefits to the business sector and Australia's markets.

CLERP is designed to re-focus regulation back to this objective, and bring a greater economic focus to corporate regulation generally.

Removing existing constraints faced by business, particularly small business and market participants, arising from unnecessary or unduly restrictive regulation, complements the beneficial effects of a wider program of microeconomic reform.

The focus of the new economic approach to business regulation is to ensure that regulation facilitates economic activity, and in particular, job creation. Correctly applied, regulation of Australian business and financial markets is a tool that will ensure Australia has in place a business environment conducive to achieving our economic objectives.

In reviewing corporate law, a number of key principles have been adopted:

• fully informing investors about the nature and risks associated with investment products;
• encouraging competition and reducing barriers to entry; ensuring the consistent treatment of similar investment products;
• promoting entrepreneurship, reducing costs, and encouraging the taking of commercial risks;
• providing a flexible law that takes account of the changing environment in which business operates; and
• ensuring that regulation provides clear guidance on appropriate corporate behaviour and swift enforcement if breaches occur.

Consultation with business

Another key element of CLERP is meaningful consultation with the end users of the law.

To this end the Government has established the Business Regulation Advisory Group ('BRAG'). This group has representatives from the Australian Institutes of Directors, the Business Council, Australian Investment Managers Association, Australian Chamber of Commerce and Industry, the Accounting bodies, the Small Business Coalition, the Australian Stock Exchange, the Sydney Futures Exchange and the Australian Corporate Lawyers Association. This Group has worked closely with the Government in the development of the CLERP Proposals.

The Government has released papers on key areas of corporate law policy which affect business and market activity for public comment.

While the 6 CLERP papers contain detailed proposals for reform, those proposals are not set in concrete. Comments on the issues raised in the papers will be taken into account in finalising the proposals.

Comments on the issues raised in the papers will be taken into account in finalising the proposals.

The Government's aim is to introduce a comprehensive package of legislation covering these key areas in 1998 following an exposure period for its legislative proposals.

I now propose to raise some key issues relating to each of the CLERP papers. I expect that the matters I raise will be the subject of consideration and comment at this conference.

Directors' duties and corporate governance

The paper on directors' duties examines three major issues:

• whether the current rules regulating company directors' conduct inhibit sound business judgements;
• whether shareholders have sufficient opportunity for redress against a corporation; and
• whether the private sector is adequately addressing the issue of corporate governance in light of the importance of international and domestic confidence in Australia's securities markets.

An appropriate balance needs to be struck between ensuring that there is sufficient investor confidence in the management and governance of companies to encourage investment, and ensuring that companies through their directors are not unduly fettered in maximising the return to shareholders on that investment.

It is a fine balance, but one that we have to get right to ensure economic expansion and consequent growth in employment for Australia.

In recent years two possible tools that would assist in achieving the right balance have been debated:

• the introduction of a statutory business judgement rule; and
• the provision of a statutory derivative action.

Neither initiative is intended to impose further prescriptive rules about director behaviour, but combined they would provide incentives for proper behaviour.

Business judgement rule

The objective of a statutory business judgement rule is to protect the authority of directors to manage, not to insulate them from liability.

Such a rule would desirably not lead to any reduction in the level of accountability of directors, but would ensure that they are not liable for decisions made in good faith and with due care.

The introduction of such a rule could provide real benefits to directors and shareholders alike.

Directors could benefit from the certainty that the rule provides in terms of their liability.

This could lead to higher returns for shareholders as directors are encouraged to take advantage of opportunities that involve risks.

A statutory business judgement rule would effectively clarify and confirm the position reached at common law that courts will rarely review bona fide business decisions.

Unlike the common law, however, it would provide a clear presumption in favour of directors' judgements.

The rule should not insulate directors from liability for negligent, ill informed or fraudulent decisions.

Rather, it should encourage the adoption of appropriate risk management structures.

Statutory derivative action

The aim of a statutory right of derivative action is to provide an incentive for management to act in the interests of shareholders. However, this must be balanced against the effect that such a right would have on managerial risk taking and the overall return to shareholders.

The introduction of such a right of action should not result in the imposition of a new form of liability on directors.

Rather it could provide a new avenue for enforcement of existing obligations of directors overcoming a perceived gap in enforcement.

Enabling shareholders to bring an action on behalf of the company could overcome procedural difficulties that currently exist in relation to shareholders' ability to enforce directors' duties.

While a statutory right to bring a derivative action could provide strong encouragement for company managers to be accountable to shareholders for the decisions they make, the potential for abuse of such a right needs to be recognised.

Clear safeguards would be needed to ensure that company management is not undermined by unjustified litigation, such as criteria for satisfying the court that bringing an action is appropriate, and affording a broad discretion to courts to make orders in relation to costs.

A statutory derivative action could provide an incentive for management to exercise powers appropriately and for the benefit of shareholders, while a business judgement rule could give directors the comfort that informed business judgements would not be challengeable by shareholders.

Corporate governance

The CLERP paper also dealt with the important issue of corporate governance.

Broadly, I see corporate governance as the interaction between investors, managers and the board of directors in public companies arising from the separation of ownership and control or management.

Corporate governance is made up of many interlinking components, too numerous to mention, but can be boiled down to a number of key issues and principles:

• appropriate disclosure;
• codes of conduct for directors; and
• internal structures which provide for independent review of process and decision making within a company.

Good corporate governance practices are essential for the Australian economy which relies on both domestic and foreign investment.

The question is to what extent should regulation be prescribing standards for corporate governance. Or is this an area where business is best able to assess what is required for good corporate governance?

I agree with the Government's position that it will not impose additional mandatory legislative requirements unless there is a failure of the current requirements or the existing regulatory mechanisms. Corporate governance practices should be continuously monitored by the ASX, relevant industry and professional bodies who promote best practice, investors and Government. The maintenance of investor confidence through appropriate level of corporate governance are essential for maintaining confidence in Australia's capital markets.

In summary, the BRAG committee strongly supports the introduction of a business judgement rule, supports the introduction of a statutory devalue derivatives action so long as there are appropriate controls on its availability so as not to indirectly inhibit commercial decision taking. BRAG also supports the Government's policy priorities on a non prescriptive approach to corporate governance.

Accounting Standards

The CLERP paper on accounting standards represents a timely review of the accounting standards setting process. Australian companies are increasingly competing in a global market for goods and services and that it is incumbent upon the Government to ensure that our companies can compete effectively and efficiently in that market.

One means of achieving this would be to ensure that Australia's regulatory requirements, including accounting standards, are in tune with those of our trading partners. There is a very lively debate in the business community as to whether Australia should be moving more quickly to international accounting standards or whether we should adopt US accounting standards in light of the size of the US capital market. The Financial Systems Inquiry's report recommended that Australia should move more quickly to harmonise our standards with international standards.

A key recommendation is the establishment of an advisory group, the Financial Reporting Council, to have broad oversight of the standard setting process. The Council will have membership drawn from organisations who have an interest in accounting standards.

This approach has strong support from the accounting standards users. The more controversial issue as to how quickly Australia should move to adopt accepted international standards. On this issue, the CLERP paper provides that the FRC will report to the Government on the progress that the International Accounting Standards Committee is making on a case core set of international standards and whether Australia should adopt these standards. A good writer pointer for the Government on this issue will be whether the IASC standards have been recognised by major capital markets.

The CLERP paper contains proposals aimed at:

• improving institutional arrangements for standard setting to ensure that the process operates in a responsive, efficient and effective manner, enabling all relevant stakeholders to participate while at the same time maintaining independence;
• ensuring that accounting standards are responsive to changes in commercial practices, meet the needs of users without being overly burdensome, and facilitate Australia's international competitiveness; and
• providing for a more equitable spread of the cost burden of funding the standard setting process so that those who benefit from the standards contribute financially to their development.

Fundraising

A number of measures are proposed in the CLERP paper on fundraising which will facilitate the raising of investment capital and reduce the cost of fundraising by Australian companies.

The proposals we are seeking to:

• ensure that the rules provide an appropriate framework for capital raising by small, medium and large companies; and
• that investors are provided with relevant, comprehensible and cost effective information to enable them to make informed investment decisions.

Disclosure

Under the capital raising system in Australia and major overseas markets, fundraisers must, in general, disclose to prospective investors all material information about the product on offer. For this purpose they usually undertake due diligence investigations. This regulation is appropriate provided it serves the needs of investors and enhances market confidence. The CLERP paper proposes a number of changes to our fundraising rules to make them work more effectively.

The CLERP paper concludes that the current general disclosure rule - requiring disclosure of all information "that would reasonably be required" - is preferable to a checklist test under which only prescribed matters must be disclosed. However the paper does propose:

• that there should be alternative ways to supply or package information to ensure investors receive useful information in an easily analysable form.
• that there should be alternative ways to supply or package information to ensure investors receive useful information in an easily analysable form.
• the introduction of short form prospective for retail investors with the fuller prospectives containing technical information in a separate document available on request;
• permitting investors in certain industries to be provided with a short profile statement containing key information rather than the full prospectus (as suggested by the Wallis inquiry); and
• allowing companies to issue prospectuses in electronic form, and distribute them through the Internet or f other media.

The question it seems clear that the existing liability regime results in high transaction costs. In the case of a prospective, the directors, professional advisers and others are made liable to investors for misleading statements whether or not they have acted fraudulently. This results in costly due diligence as those persons seek to avoid any mistakes. In general, imposing personal liability on those directly involved in the making of misleading statements in a prospectus encourages compliance with disclosure requirements thereby maintaining market integrity at high standards. However, the liability of each category of person should be commensurate to their proper role in preparing the prospectus.

Liability

It seems clear that the cost of due diligence investigations and the amount of detail in prospectuses are increased by concerns of directors and professionals who wish to avoid personal liability.

The Government has proposed to remove strict liability under the Trade Practices Act and make due diligence defences available in all cases (as recommended in the Wallis Report).

In Relation to Fundraising by Small and Medium Sized Enterprises (SMEs) the cost of issuing a prospectus is a significant disincentive for SMEs seeking public funding and, when passed on in the offer price, may make an investment unattractive.

The CLERP paper considers whether the costs of public fundraising by SMEs can be reduced without undermining investor protection.

For example, CLERP paper has proposed that the level of disclosure required for fundraising up to $5million should differ than that for a full prospectus. It has proposed the use of an offer information statements. In an OIS, the corporation would state what the funds are required for and disclose material information already known to it, but the corporation would not need to undertake due diligence inquiries or commission experts. The OIS would warn investors of the risks of investing without a prospectus and the desirability of obtaining professional advice. The OIS would also include audited accounts. The normal liability rules would be modified to take account of the reduced disclosure.

The 20 offers in 12 months exemption poses difficulties and uncertainties for fundraisers, because the 20 offers can be used without achieving any sales of securities and there is often uncertainty as to when an offer has been made.

The CLERP paper proposes that a corporation can raise up to $2 million each year from 20 or fewer persons. A corporation can make as many offers as it likes, only a the number of subscribers is to be limited to 20.

It is clear that the current sophisticated investor exemption, which only applies where an investor invests $500,000, does not effectually encapsulate all individuals who are truly sophisticated and does not assist SMEs.

Most SMEs require less than $500,000 in total.

This exemption does not allow 'business angels' to take advantage of the exemption, unless they are willing to invest amounts of $500,000 or more.

The CLERP paper proposes a new appropriate regime that may be used in order to facilitate investment by sophisticated investors in SMEs. It is proposed that a corporation be free to raise funds from sophisticated investors without preparing a prospective or OIS.

Sophisticated investors are those:

• who are investing at least $500,000 or
• who have net assets of $2.5 million, or
• whose gross income in the previous two years was at least $250,000 per annum.

Takeovers

The CLERP papers on takeovers analyses:

• whether Australian business is best served by the current takeover provisions; and
• how regulation can best achieve an appropriate balance between facilitating efficient changes in management and control while ensuring that shareholders are adequately protected.

More specifically, the paper focus as on a number of key aspects of the takeover rules bearing.

The CLERP paper recommends that the equal opportunity principle should be retained as the touchstone of the takeover code. This will ensure that all shareholders of a target company have reasonable and equal opportunities to participate in any benefits under a change in corporate control. Without the investor protection provided by the equal opportunity principle it may be less likely that matter smaller investors would invest directly in the market, which could affect market liquidity and confidence.

However the paper raises for consideration whether changes in control could be facilitated by allowing acquisitions which would exceed the statutory threshold provided that the acquisition was immediately followed by the announcement of a full takeover bid. This would provide market participants with an additional mechanism to acquire and relinquish corporate control. The possible introduction of a mandatory bid has stimulated a lively debate among a market participant and financial journalists. To my way of thinking it does remove uncertainties for holders and overall minority shareholders will benefit through more bids being made.

The paper sets out various rules for a mandatory bid which ensures that all shareholders receive the same price for their shares and are not backed locked in.

The CLERP paper also seeks to propose changes to the rules governing compulsory acquisitions. As a matter of policy once a person has acquired an overwhelming interest in a company, the takeover code should facilitate compulsory acquisition of the remaining shares if the overwhelming owner wants to obtain the significant benefits of 100 per cent control. The takeover rules would be changed to facilitate the acquisition of the outstanding securities in a class by any person who already hold 90 per cent of the class. If 10 per cent by value of the minority security holders obsented, the acquisition would only be able to proceed with court approval of the fairness of the price.

The Government has also proposed to facilitate compulsory acquisitions of all securities in a company where a person has at least 90 per cent by value of all shares and securities and they have at least 90 per cent of the voting rights of the company.

The other major proposal canvassed in the CLERP takeover paper was to address concerns that the litigation and the courts were being used to stymie legitimate takeover activity.

It is proposed that the existing takeover panel should be reconstituted and replace the courts as the primary forum for resolving takeover disputes under the Corporations Law. The Panel would retain its existing jurisdiction to enforce compliance with the spirit of the Law. All interested parties would be able to bring matters before the Panel not just the ASC. The courts would only be able to grant an injunction having e the effect of delaying or stopping a bid on the application of the ASC. The removal of the capacity of the court to grant injunctions other than on the application of the ASC will remove the major source of current tactical litigation. The capacity of the courts to review decisions of the Panel would be restricted. The courts would have a discretion not to hear legal actions in the course of a takeover where they can be resolved effectively by the Panel. to where.

The CLERP paper also proposes new rules dealing with takeovers of managed investments. In particular, the paper responds to various reports eg the ALRC/CASAC on managed investments and the Financial System Inquiry in proposing to apply the takeover provisions to managed investment.

The current takeover rules are complex and impose excessive costs on bidders and target firms. It is expected that if the proposed changes to the takeovers code are proceeded with that takeovers will be less costly and while retaining the compliance confidence of investors. in the market.

Securities and Derivatives Financial Markets

Of the 6 areas proposed for reform, the two I anticipate will be of most interest to you will be those addressing the financial markets and electronic commerce.

A range of issues are being considered have been covered in the CLERP paper on financial markets and investment products:

• The paper deals with the regulation of derivatives. It reviews regulation to facilitate the development of new financial products, foster competition and promote the adoption of appropriate risk management practices.
• The paper addresses what is the appropriate level of regulation of over the counter markets and financial instrument exchanges; and proposes arrangements for co-regulation between self regulatory organisations and the ASC.

In developing an appropriate regime for the regulation of securities and futures markets the Government is proposing the adoption of a more flexible and efficient regulatory framework that is able to respond to innovation and will permit market participants to adapt to challenges presented by technological developments, innovation and integration with world markets.

Under the CLERP proposals for reform, financial products including securities, derivatives, superannuation, life and general insurance and bank deposit products would be subject to comparable regulation.

The paper includes proposed responses to a number of key recommendations of the Financial System Inquiry Final Report and the Companies and Securities Advisory Committee report on the regulation of derivatives markets.

The CLERP paper responds to the fact that major changes the finance industry experienced as a result of is experiencing major changes because of technological developments, globalisation and increased competition. These forces are blurring traditional boundaries between different institutions as well as between different financial products, and presenting greater choices for investors, many of whom are entering the retail market for the first time.

To address these changes in the market place key proposals in the CLERP paper include:

• Providing comparable regulation of all financial products, including securities, derivatives, superannuation, life and general insurance and bank-deposit products;
• Licensing financial markets and providing consistent and comparable regulation for similar financial products;
• Licensing all financial advisers and dealers and imposing statutory obligations on these intermediaries which are designed to protect retail investors, and
• Ensuring that 'promoters' or issuers of financial products provide comprehensible disclosure documents which assist investors to compare different investment products and to make informed decisions.

The Government has also canvassed proposals for appropriate mechanisms for responsibility for the proposed regulatory framework, and implementation of a general disclosure standard to assist investors to make comparisons across all investment products.

Electronic Commerce

The reform program gives particular attention to the issue of electronic commerce, in recognition that Australian law could be improved in the way it treats the impact of technological innovation on business transactions.

The CLERP work on electronic commerce focuses on matters within the Treasurer's responsibility where there is a distinctive role for the Government to play in either providing a more certain legal environment or removing legal or regulatory impediments to electronic commerce.

The CLERP electronic commerce paper recommends:

• the development of the legislative framework to underpin the Real Time Gross Settlement system and to secure the legal basis to multilateral netting in the payments system to cover the failure of a participant in the payments system, and
• the adoption of the recent report of the Companies and Securities Advisory Committee, (CASAC), which recommended the enactment by the Commonwealth of a Close-out and Market Netting Act to resolve doubts about the effectiveness of financial markets netting arrangements under Australian law.

Government action in each of these areas has the potential to reduce uncertainty and transaction costs, and foster more efficient commercial practices.

Draft Legislation Re-write program

Finally, I'd like to make a few comments concerning the Re-Write Program.

Bills to re-write the Law arising from the policy reform agenda will be prepared in a style which is consistent with the earlier work done on simplifying the text and structure of the Law.

In addition to the substantive policy reform areas outlined above, we will be working towards a more readable Corporations Law as a whole.

As a result, the Law will be easier to use, which will no doubt be of interest to the company secretaries amongst you, with your professional interest in technical and compliance issues arising from the Law.

An example would be directors' duties - in addition to the specific policy proposals in the CLERP paper on this topic, we will be looking at revisiting the text in this area to make it easier to se read as a whole.

Timetable

From discussions with Treasury, I understand that the Treasurer and the Parliamentary Secretary are keen to keep the momentum up on the CLERP program. BRAG and Treasury have examined the feedback from the business community on the proposals. I expect that draft legislation implementing the CLERP proposals will be released next month for public exposure. Once that is completed legislation will be introduced into the Parliament, hopefully in the first half of this year.

Conclusion

Let me conclude by reiterating that the Government is very optimistic about the future of Australia's financial sector. Tonight I have outlined just some of the reforms which we believe will help make the sector more efficient, innovative and competitive and thus help promote Australia as a vibrant regional financial sector. Ultimately, of course, it will be the skill and endeavour of those in the industry that will determine Australia's success in that regard. I wish you all the best in your endeavours and thank you again for the opportunity to speak tonight.