After long and careful deliberations, I have today made an order under the Foreign Acquisitions and Takeovers Act 1975 (the Act) prohibiting the acquisition of ASX Limited (ASX) by Singapore Exchange Limited (SGX).
The proposed acquisition has been subject to an ongoing examination by the Foreign Investment Review Board (FIRB), the Government's independent advisory body, since it was announced on 25 October 2010 and has been under formal consideration since the application was lodged on 11 March 2011. The FIRB members also considered a further response provided by the SGX on 7 April and have advised that this material does not cause them to change their advice.
The Australian Government's longstanding policy is to welcome foreign investment in Australia. Such investments are subject to review on a case-by-case basis under the Act, which allows the Treasurer to prohibit a particular acquisition on national interest grounds. It is important to emphasise that this occurs very rarely. However on this occasion I have decided that the proposal would not be in the national interest.
I have considered carefully the proposal's potential benefits and implications for Australian businesses, investors and the community. My broad assessment took into account the central role the ASX plays – as Australia's primary equities and derivatives exchange and sole clearing house for equities, derivatives and bonds – in our long-term economic wellbeing and development, including of our rich natural resource endowment. I took into account our high regulatory standards, social and economic stability and our objective to build Australia's reputation as a global financial services centre. I also had regard to the strategic implications of this proposed acquisition and other alternatives that might emerge in a fast-changing global exchange landscape.
I have considered the proposal as it stands and changes that might be made to it, and whether such changes would reliably and durably address possible national interest issues. However I consider that this proposal would need to be substantially and fundamentally altered in order for the national interest to be safeguarded.
My decision was based on unambiguous and unanimous advice from FIRB that the proposed transaction was contrary to the national interest. I have also drawn on a broad range of stakeholder perspectives in the five months since the transaction was publicly announced in October 2010.
It is in the national interest for Australia to maintain the ongoing strength and stability of our financial system, and ensure it is well placed to support the Australian economy into the future. It is important that we continue to build Australia's standing as a global financial services centre in Asia to take best advantage of the benefits of our superannuation savings system. I had strong concerns that the proposed acquisition would be contrary to these objectives.
I have been advised that many of the claimed benefits of this transaction are likely to be overstated. To diminish Australia's economic and regulatory sovereignty over the ASX could only be justified if there were very substantial benefits for our nation, such as greatly enhanced opportunities for Australian businesses and investors to access capital markets. Given the size and nature of the SGX – which is a smaller exchange with a smaller equities market than the ASX – the opportunities that were offered under the proposal were clearly not sufficient to justify this loss of sovereignty.
The ASX also operates infrastructure that is critically important for the orderly and stable operation of Australia's capital markets. Both the Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC), carefully review the operations of the ASX on an ongoing basis and have been satisfied that it is meeting its obligations and remains a robust operation. However, FIRB's recommendation, which incorporated advice from ASIC, the RBA and the Australian Treasury, was that not having full regulatory sovereignty over the ASX-SGX holding company would present material risks and supervisory issues impacting on the effective regulation of the ASX's operations, particularly its clearing and settlement functions. Australia's financial regulators have advised me that reforms to strengthen our regulatory framework should be a condition of any foreign ownership of the ASX to remove these risks.
To address these issues, I have asked our Council of Financial Regulators to establish a working group to consider potential measures which could be introduced to ensure our regulators can continue protecting the interests of Australian issuers, investors and market participants. A key consideration would be preserving the integrity of our financial infrastructure and the strong ability of our supervisors to maintain robust oversight in all market conditions, including in the event of a future commercial arrangement between the ASX and another exchange.
Subject to regulatory reform, I do not in principle oppose commercial arrangements involving the ASX and a global exchange that would:
- Protect the integrity of Australia's financial architecture and regulatory framework;
- Build Australia's standing as a significant financial services centre in Asia;
- Increase Australia's integration into global capital markets and exchange networks;
- Meaningfully boost access to capital for Australian businesses;
- Support growth in high quality financial services jobs in Australia; and
- Be consistent with increased competition between financial exchanges in Australia.
I thank the parties, the SGX and the ASX, for their constructive engagement and cooperation throughout this process.