Business Associations II

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Business Associations II

• Paul Ali
• LAWS1092

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Class 2

• Key participants in the regulation of Australias
  securities markets
• Demutualised exchanges

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Key participants

• ASIC
• Takeovers Panel
• CAMAC
• ASX
• ASXSR

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ASIC

• ?Established under the Australian Securities and
  Investments Commission Act 2001
• ?National regulator of Australian companies
• ?Also regulates
• Auditors
• Insurance agents and brokers
• Investment advisers
• Fund managers
• Liquidators
• Financial markets eg ASX, BSX, NSX and SFE

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ASIC (cont)

• ?Principal aims (section 1(2), ASIC Act)
• maintain and improve the performance of the
  Australian financial system in the interests of
  commercial certainty, reducing business costs and
  the efficiency and development of the Australian
  economy
• promote the confident and informed participation
  of investors and consumers in the Australian
  financial system

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ASIC (cont)

• ?Principal functions
• registration of companies
• maintaining a public register of corporate
  information
• licensing of participants in the Australian
  financial markets
• enforcing the Corporations Act
• exercising discretions (ie granting relief from
  or modifying the application of certain
  provisions of the Corporations Act)

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Takeovers Panel

• ?Corporations and Securities Panel
• established under ASIC Act
• given certain powers under Part 6.10, Corps Act
• principal forum for resolving disputes about
  live takeover bids
• peer review
• can make binding orders regulating the conduct of
  a bid
• modelled on the UK, HK and Singapore takeovers
  panels
• www.takeovers.gov.au

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CAMAC

• ?Corporations and Markets Advisory Committee
  (CAMAC)
• established under the ASIC Act
• advises the Federal Treasurer on corporate law
  reform
• www.camac.gov.au

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ASX

• Australian Stock Exchange (ASX)
• principal stock exchange in Australia
• ASX Ltd is a company registered under the Corps
  Act and licensed to operate the ASX under Ch 7 of
  that Act
• ASX Ltd regulates membership of the ASX (only
  members can access the ASXs trading facilities)
• ASX Ltd regulates the listing of companies on the
  ASX
• www.asx.com.au

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ASXSR

• ?ASX Supervisory Review Pty Ltd (ASXSR)
• wholly-owned subsidiary of ASX Ltd
• independent of ASX Ltd (majority of independent
  directors)
• monitors ASX Ltds compliance with its licence
• reviews ASX Ltds supervision of the ASX
• www.asxsr.com.au

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ASX

• Converted from a company limited by guarantee to
  a company limited by shares in 1998
• - Corporations Law Amendment (ASX) Act 1997 (Cth)
• Shares in ASX Ltd are listed on the ASX, the
  market that ASX Ltd supervises
• ASX is a for-profit entity
• Other demutualised listed exchanges include
• Bursa Malaysia (Kuala Lumpur Stock Exchange)
• Deutsche Borse (Frankfurt Stock Exchange and
  Xetra)
• Euronext (Amsterdam, Brussels, Lisbon and Paris
  Stock Exchanges) (2000) (listed on Amsterdam,
  Brussels and Paris Stock Exchanges)
• Hong Kong Stock Exchange
• London Stock Exchange
• Nasdaq
• NZ Stock Exchange
• OMX (Copenhagen, Helsinki and Stockholm Stock
  Exchanges and also the Baltic exchanges) (listed
  on Helsinki and Stockholm Stock Exchanges)
• Singapore Stock Exchange
• Toronto Stock Exchange

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Demutualised exchanges

• Are the norm
• One major exception NYSE
• Question Would Richard Grasso be facing law
  suits over his remuneration if the NYSE was a
  listed company?
• Historically, most exchanges were non-profit
  organisations. Demutualisation has converted them
  into for-profit companies (that are listed on the
  very exchanges that they operate)

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Dual roles of the exchange

• The demutualised exchange is a for-profit entity
• Main sources of revenue
• initial and annual listing fees
• fees charged for individual buy and sell sides of
  trades in securities and other listed instruments
• sale of market data
• The exchange is also entrusted with ensuring a
  fair and transparent market

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Question

• What problems might be posed by
• the conversion of a non-profit exchange into a
  for-profit company?
• the self-listing of the exchange?

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Conflict of interest?

• Potential areas of conflict
• Is motivation to maximise profit through
  attracting new listings and facilitating the
  increase in turnover consistent with the
  exchanges role in maintaining market integrity?
• Can the exchange act effectively as its own
  regulator, when it is self-listed and is now a
  for-profit company that may be in competition
  with other companies listed on the exchange?

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Difficulties for exchanges

• Dec. 1998 Demutualised ASX makes a takeover bid
  for SFE
• May 1999 Computershare, a company listed on the
  ASX, makes a competing bid
• Problem
• Conflict between ASXs interest in purchasing SFE
  and its obligations to administer the listing
  rules in relation to Computershare
• Solution
• ASX, Computershare and ASIC entered into an
  agreement
• ASX not to make any substantive decisions about
  the listing of Computershare without first
  consulting ASIC
• ASX to act in accordance with advice received
  from ASIC in relation to Computershare
• Agreement to remain in force until competing bids
  for SFE resolved (ACCC rejected ASXs takeover
  bid, and Computershare also withdrew its bid)

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Constraints

• Competition amongst exchanges
• Reputational risk
• BUT does the fact that demutualised exchanges are
  now the norm promote a race to the bottom?

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Pre-conditions for fair and efficient securities
markets

• Good information about the value of the companies
  whose securities are traded in the market
• How much information should be disclosed? And how
  timely should the disclosure be?
• Constraints on tunnelling by corporate
  controllers
• State-enforced vs market-enforced remedies
• See further B S Black, The Legal and
  Institutional Preconditions for Strong Securities
  Markets (2001) 48 UCLA L Rev 781

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Current model of securities regulation

• Australia Jurisdictional nexus
• 1 Offers
• Primary offers offers of securities for issue
  and inviting applications for the issue of
  securities
• Secondary offers offers of securities for sale
  and inviting offers to purchase securities
• Corporations Act applies to all such offers
  received in Australia, regardless of where the
  issue or sale occurs
• 2 Markets
• Corporations Act applies to facilities through
  which offers or invitations (received in
  Australia) to acquire or dispose of securities
  are regularly made or accepted
• Corporations Act applies to markets operated by
  bodies corporate registered under the
  Corporations Act

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New models of regulation

• 1 Letting issuers of securities choose the most
  favourable law
• Issuers to choose governing jurisdiction
• R Romano, Empowering Investors A Market
  Approach to Securities Regulation (1998) 107
  Yale LJ 2359
• S J Choi and A T Guzman, Portable Reciprocity
  Rethinking the International Reach of Securities
  Regulation (1998) 71 So Calif L Rev 903
• Nationality of issuers determines jurisdiction
• M B Fox, The Political Economy of Statutory
  Reach US Disclosure Rules in a Globalizing
  Market for Securities (1998) 97 Mich L Rev 696
• M B Fox, Retaining Mandatory Securities
  Disclosure Why Issuer Choice is Not Investor
  Empowerment (1999) 85 Va L Rev 1335

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New models (cont)

• 2 Transferring power from the regulator to the
  market
• Investors regulated based on their level of
  knowledge of securities (issuers can deal
  directly with sophisticated investors and opt out
  of securities regime, but less sophisticated
  investors must deal via market intermediaries and
  unsophisticated investors are limited in what
  they can invest in unless they fulfil certain
  knowledge-related criteria)
• S J Choi, Regulating Investors Not Issuers A
  Market-Based Proposal (2000) 88 Calif L Rev 279
• Transfer regulatory authority to the exchanges
• P Mahoney, The Exchange as Regulator (1997) 83
  Va L Rev 1453