11 February 2013

Clearing and Settlement in the Cash Equity Market

I have today accepted in full the recommendations of the Council of Financial Regulators in relation to competition in the clearing and settlement of the Australian cash equity market.

The Council's advice was based on wide consultations following the release of a discussion paper in June last year, Competition in the Clearing and Settlement of the Australian Cash Equity Market, in collaboration with the Australian Competition and Consumer Commission.

The advice of the Council, which I am releasing today, is that while competition would be expected to deliver efficient outcomes, now may not be the appropriate time for changes that will have further cost implications for the industry, given current market conditions and the magnitude of regulatory change already underway.

The Council recommended that a decision on any licence application from an equities clearing facility seeking to compete in the Australian market be deferred for two years, with the ASX required to develop a code of practice with its key stakeholders to ensure transparent and non-discriminatory access to ASX's infrastructure.

The ASX has committed to the development of a code of practice that implements the principles set out in the Council's advice. The Council will review the effectiveness of these arrangements after the two year period, and consider whether a new entrant should be considered or whether other regulatory responses should be pursued.

The Government has a long-standing commitment to competition in financial markets, however, acknowledges the regulators' concerns on this issue.

The development of the Code will be undertaken in close consultation with industry stakeholders and Council agencies. The Code is expected to be implemented within six months.

The Council's recommendations apply to the clearing of cash equities and do not extend to clearing and settlement services of either exchange-traded or OTC derivative markets or debt markets.

The Government and the Council remain supportive of competition in the clearing of OTC derivatives, noting that these markets are typically global markets with more than one provider.

The advice is available on the Treasury website .