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§ Market Supervision Arrangements § ACH to Adopt RBA Recommendation on Margin Requirements for Cash Equities § Cooper Review Recommends No Action on Fund Stock Lending § ASIC Consultation Paper 128 – Handling Confidential Information § ASIC Proposals to Encourage Listed Corporate Bond Market § Australian Financial Centre Forum – Final Report Issued § Recent Stockbrokers Association Press Releases § Margin Lending Accreditation § NEW WORKSHOP: Surveillance & Monitoring – 1.5 CPD Hours (Compliance) § NSW Government Targets Growth in Sydney Finance Sector § Margin Lending Licensing Commences
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Dear Member
Welcome back from your summer break and to the first 2010 edition of Stockbrokers Monthly. I hope you all had a lovely Christmas and New Year and are looking forward to a prosperous 2010.
Introducing the Professional Stockbrokers Program… Many of you will have received notification that the SDIA Professional Program has been renamed to the Professional Stockbrokers Program. Whilst updating and changing the name of the Program, we have also revised the prices of the course fees. Please see the last page of this newsletter or visit www.stockbrokers.org.au. You will note that we now have a Margin Lending Accreditation that forms part of the Professional Stockbrokers Program.
2010 Annual Stockbrokers Conference… I would like to draw your attention to the forthcoming Annual Stockbrokers Conference, which will be held in Melbourne on Tuesday 8 & Wednesday 9 June at the Crown Promenade Hotel. Conference delegates will receive 15CPD hours (including 6 Compliance hours) for attending the Conference this year. Online registrations will be commencing soon so be sure to visit the www.stockbrokers.org.au site in the coming month for details. Conference registration fees will remain at 2008 prices.
The Early Bird discount will be valid until Friday 30 April and prices are as follows (GST included): Practitioner (Individual) Members $1550 early bird $1650 standard Principal (Organisational) Members $1780 early bird $1880 standard Non-members $2750 early bird $2850 standard
Be sure to get your Practitioner Membership application in on time to qualify for Practitioner Member rates. Contact Gauri ‘G’ Wallia at the Stockbrokers Association on (612) 8080 3200 or gwallia@stockbrokers.org.au. Group discounts will be available again in 2010. If you would like to be involved in the conference as a sponsor or an exhibitor, please contact Ivana Collura on (612) 8080 3206 or at icollura@stockbrokers.org.au
7th Annual Stockbrokers Charity Golf Day… Registrations for the Annual Stockbrokers Charity Golf Day will be commencing soon at www.stockbrokers.org.au – be sure to check this site in the coming month so you don’t miss out. The 2010 Golf Day will be at Royal Melbourne Golf Club (ranked in the top 10 golf courses in the world) and places will be strictly limited. Entry fees are $250 ex gst per person or $1000 ex gst per team of 4 players.
2010 Delegation to China... The proposed dates for the Stockbrokers Association Delegation to China trip are 20 – 30 March 2010. For those who have expressed interest, we will be in touch shortly with details. For anyone who is interested in attending but has not yet contacted us with your details, please email Lillian Khoury at lkhoury@stockbrokers.org.au
David W Horsfield MSAA Managing Director & CEO
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Market Supervision Arrangements Following the Government’s announcement in August that market supervision would move from ASX to ASIC in the third quarter of 2010, the draft legislation to achieve this was released for comment in December. The Association has met with Treasury and ASIC and is making submissions as part of the consultation. Some key points are: § ASIC is to be given the power to promulgate new ‘market integrity rules’ which will apply to all exchanges § ASIC is to have a panel of experts to decide on rule breaches § ASIC will have the power to levy infringement notices on participants for breach of the market integrity rules of up to $800,000 for individuals and $4m for corporates, or take matters to court seeking civil penalties of up to $1m for individuals and $5m for corporates § Like the current ASX Disciplinary Tribunal, ASIC will also have the power to order other remedial measures, including the disgorgement of profits, and a new power to order compensation § ASIC hearings are to be held in public § Market operators (including ASX) will maintain their own ‘operating rules’ for their exchange, and may continue to enforce them (or could refer matters to ASIC for enforcement) § Much of the detail remains to be seen in regulations and ASIC rules to be released next year § The Government has stated that the new regime is to be in place by the third quarter of 2010
In December we made a submission to Treasury on the draft legislation, the main points of which were: § While much detail remains to be seen, the Stockbrokers Association supports the proposed model of market regulation, especially given the possibility of new entrants as market operators.
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The new model needs to support moves to grow Australia § The transition presents an ideal opportunity to eliminate regulatory duplication of the markets and market participants § The delineation of ASIC Market Integrity Rules from the licensed market Operating Rules is a crucial exercise may enhance clarity in regulation § The proposed level of civil penalties for contraventions of the Market Integrity Rules of $5m for corporations is excessive, inconsistent with any other civil penalty provision under the Corporations Act, and may lead to serious anomalies in enforcement outcomes
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The new Market Integrity Rules should remove the need for § Public hearings by ASIC for contraventions of the Market Integrity Rules is unjustified, inconsistent with any other disciplinary or administrative hearings held by ASIC, and would not lead to good regulatory outcomes § Review mechanisms need to be established to ensure that the changes will be cost neutral to Participants § Management and supervision requirements for Participants ought to be the responsibility of ASIC
Further detail of the Bill will be released shortly. We are hopeful of some movement, particularly on the level of penalties.
Meanwhile, in January the Government announced increases in criminal penalties for market misconduct offences. According to the announcement, the changes will increase the maximum penalties for market manipulation and insider trading for individuals to 10 years imprisonment and/or a fine of the greater of $500,000 or three times the profit made or loss avoided. For corporations, the maximum fine would be the greater of $5 million, three times the profit made or loss avoided, or 10 per cent of the annual turnover of the corporation. We await further details, expected later in the year.
ACH to Adopt RBA Recommendation on Margin Requirements for Cash Equities In September, the Reserve Bank released its 2008/9 Assessment of Clearing and Settlement Facilities in Australia. While assessing ACH’s risk management procedures to have been appropriate through the market turbulence of late 2008, it suggests that “…further enhancement to ACH’s risk-management framework should be considered, and in particular the routine margining of cash equities”. (p.21)
However, the RBA acknowledges in the Report that imposing cash equities margin requirements may create liquidity problems for participants, and lead to a reduction in trading activity. (p.23) Following the RBA proposals, in October ACH released a consultation paper on risk management measures including margin requirements for cash equities, and a new default fund.
In December, the Association made a submission in response to the paper, the main points of which were: § At the industry level, The Stockbrokers Association is concerned about the ACH risk management proposals, particularly in relation to the margining of cash equities trading § While international comparisons appear to be persuasive, questions have been raised as to whether we are comparing like-for-like. § The proposals may lead to other markets in the region gaining a competitive advantage over Australia
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Australia already has a world standard settlement and § As flagged by RBA, there are concerns at the negative effects the measures may have on market liquidity and trading activity § Additional costs to Members are a real concern, both in terms of cash margining, and in terms of funding a new default fund § The justification for the creation of a new default fund was not properly made out
Cooper Review Recommends No Action on Fund Stock Lending The preliminary report of the review of superannuation released in December has not recommended any action on funds’ stock lending activities.
‘Stock lending: The Panel does not believe that there should be a restriction on stock lending and makes no recommendation in that regard. However, the Panel believes that there should be better disclosure to members about the trustee’s policy on stock lending, the risks involved (if any) and the fees it derives from and pays for that practice. Disclosure should also be made about who retains voting power over the securities. (Phase One – Preliminary Report p18 www.supersystemreview.gov.au)
ASIC Consultation Paper 128 – Handling Confidential Information On 21 December 2009, ASIC released its foreshadowed Consultation Paper CP 128 and Draft Regulatory Guide entitled Handling Confidential Information. The paper is the result of the project established early in 2009 to examine this area, particularly in relation to the practice known as ‘market sounding’. The documents deal with managing confidential information, principally in the context of capital raising and takeovers.
The documents set out proposed Best Practice Guidelines to be followed by the Issuer and also by its advisers including brokers, corporate advisers and legal advisers. These include a considerable number of administrative procedures, including: § Registering staff as insiders and keeping insider lists § Personal account dealing policies, including approval arrangements § Scripts to be followed before divulging confidential information as part of a market sounding § Obtaining the company’s consent before sounding out an institution § Confidentiality agreements to be signed by individuals
Stockbrokers and investment banks are likely to have in place arrangements substantially to this effect already. However, there are some proposals which are new including a proposed requirement that an investment bank must notify ASIC within 48 hours of a market sounding certain details including times, dates and names of those approached and whether consent to become an insider was given.
The Paper is currently under consideration by the Stockbrokers Association. We invite comment from members regarding any of the proposals in Consultation Paper CP 128.
ASIC Proposals to Encourage Listed Corporate Bond Market ASIC released Consultation Paper CP 126 on 7 December 2009, dealing with Proposals designed to foster the development of the market for Listed Corporate Bonds.
The Paper outlines proposals to grant certain relief from the full prospectus requirements under the Corporations Act. The relief would include the ability to use a shorter prospectus for bond offers, which would focus mainly on the terms of the offer and the issuer’s ability to meet its interest and repayment obligations. There is also a proposal for the use of a two-part prospectus for successive bond offers. This would involve a base prospectus and short offer documents relating to each particular offer.
The proposed relief would be limited to simple, vanilla bonds which are offered to retail and wholesale investors at the same price, are issued by companies that are listed and have a good continuous disclosure history, and where the size of the bond offer is at least $100 million so as to increase the prospects of a liquid secondary market. There are also continuing disclosure obligations proposed in order to keep investors informed about their investment.
The Consultation Paper also proposes some prospectus relief for offers of certain convertible securities to wholesale investors. This involves relief from the on-sale provisions of the Corporations Act, which would enable the underlying quoted securities to be sold on exchange after conversion without the need for a prospectus, provided that a cleansing notice with prospectus-like disclosure is lodged by the issuer at the time the convertible notes are issued.
The Stockbrokers Association is currently preparing a Submission on the Proposals and welcomes the views of members on any issue arising from CP 126.
Australian Financial Centre Forum – Final Report Issued The Australian Financial Centre Forum, chaired by Mark Johnson, released its Final Report on 15 January 2010.
The Report is entitled Australia as a Financial Centre: Building on Our Strengths and predominantly contains high level recommendations aimed at promoting Australia as a leading financial centre.
Some of the key recommendations include: § An ‘Asian Region Funds Passport’, involving mutual recognition arrangements that would allow complying funds registered in one jurisdiction to be offered in multiple jurisdictions § An ‘Investment Manager Regime’ to remove tax uncertainties that exist in relation to the treatment of funds invested on behalf of non-resident investors with an Australian fund manager or intermediary § Government commitment to the Offshore Banking Unit regime, removal of tax uncertainty about ‘choice’ and a streamlined vetting process for new OBU applications § Early consideration of licences for alternative trading platforms and exchanges to increase competition § Removal of withholding tax on interest paid to foreign banks by Australian branches; on financial institutions’ related party borrowings; and on interested paid on foreign-raised funding by Australian backs, including offshore deposits and deposits in Australia by non-residents § Removing the LIBOR cap on deductibility of interest paid on branch-parent funding § Foster growth of Islamic finance products by reviewing Commonwealth tax provisions to ensure that a level playing field exists in relation to such products § Establish a Financial Centre Task Force to carry forward the work of the project on an ongoing basis
Recent Stockbrokers Association Press Releases § 21 December 2009: Stockbrokers Support Market Integrity Moves – Provided They Don’t Slow the Pace of Transactions § 23 December 2009: Stockbrokers Question Need for Public Hearings on Market Integrity § 28 January 2010: Greater Penalties and Enforcement Powers for Market Misconduct Offences a Strong Deterrent
To see these press releases in their entirety, please visit the media section at www.stockbrokers.org.au
NEW: Margin Lending Accreditation Stay ahead with the Stockbrokers Association’s Margin Lending Accreditation. The Accreditation will be administered through DeakinPrime, the corporate arm of Deakin University.
For further information or to enquire about group discounts for your organisation, please contact Gillian Gilmore at ggilmore@stockbrokers.org.au
The listed fixed income sector (mostly hybrid securities and some listed corporate bonds) had a market cap at the end of 2009 of $20.2bn, compared with $14.0bn at the end of 2008. As indicted in the table, the change is comprised of $5.3bn of new issues, less $1.2bn of redemptions and conversions, plus $2.1bn of price appreciation as most fixed income assets recovered in line with the recovery in most financial assets across the market. The sector has largely provided defensible income and capital price stability, although not without its own sources of pain with issues from Allco, Great Southern and Babcock & Brown all costing investors.
* table above uses issue date values for additions and values as at 31 December 2008 for removals from the market
The outlook for future issuance into the market is currently affected by a number of developments – both positive and more challenging. On a positive front, ASIC is consulting on simplified prospectus requirements for ‘vanilla’ corporate bond issues (CP 126), and if measures as proposed are enacted this will clearly facilitate growth in listed corporate bonds, particularly coupled with a renewed focus by companies on diversifying their funding sources away from banks.
On the more challenging front, the credit rating agencies will no longer provide credit ratings for retail distributed products, as a consequence of the terms of the revised financial services licensing requirements for the agencies.
Also creating uncertainty on the market outlook are global developments seeking to improve the quality of hybrid regulatory capital for banks and insurers. While details will only emerge slowly over the course of the year, the initial release last December has thrown into question the required terms for these structures. In particular, the often used step-up perpetual structure will not qualify as regulatory capital, while the Australian contingent mandatory convertible structure (e.g. the ANZPA issue of December 2009 and similar) may fit the requirements with minimal modification.
One minor but unfortunate variation to terms required already announced by APRA is that the contingent conversion price in future issues will no longer be able to be adjusted for a number of common dilutive events e.g. discounted entitlement offers. Existing issues are to be grandfathered.
Accordingly, bank issuance will be slowed or absent while the rules are decided, while hopefully straightforward corporate bonds could start to emerge in greater volume. Finally, with the credit rating agencies fading into the background the role of advisers will remain critical in guiding investors in this asset class.
NEW WORKSHOP: Surveillance & Monitoring – 1.5 CPD Hours (Compliance) The recent shift in the regulatory landscape, and the issues exposed during the global financial crisis, demonstrate the importance of an internal surveillance and monitoring program in managing risk in a broking firm and raising compliance awareness within the firm.
This workshop will provide you with an overview of best practice and give you ideas on how to tailor a program to suit the particular characteristic of your firm.
Whether you are considering purchasing an off the shelf surveillance system, or designing your own, the workshop will help you make informed decisions about the direction you may wish to take.
Details: Sydney, Wed 31 March, 12:30pm – 2:00pm To register: Visit www.stockbrokers.org.au
NSW Government Targets Growth in Sydney Finance Sector
The NSW Government is working to promote the growth of Sydney as a leading financial services centre in the Asia Pacific region.
Industry and Investment NSW has a dedicated finance team ready to help financial service companies establish and expand in Sydney, to help create jobs and investment for NSW.
Industry & Investment NSW offers a range of assistance programs and can help companies with: § Market data to develop business plans § Business statistics benchmarking Sydney and NSW against other locations § Advice on registering a business in Australia § Business migration assistance § Market visits for your business in Sydney to help you recognise investment opportunities § Assistance with planning issues § Introductions to potential business partners, training institutions such as universities and technical colleges, property agents, management, legal and financial services firms, regulatory and government authorities § Meeting rooms in Sydney’s CBD, to help companies meet potential clients other assistance on a case-by-case basis.
For further information contact Claire Pamenter at Industry & Investment NSW on claire.pamenter@business.nsw.gov.au or phone +61 2 9338 6953.
Also visit the department’s website at www.business.nsw.gov.au/industry/financialservices
Industry & Investment NSW says there are many good reasons for financial service companies and workers to choose Australia and Sydney as their Asia Pacific base.
Australia is currently ranked No 1 in the Asia region (and No 2 in the world behind the United Kingdom) as a global financial centre by the World Economic Forum – above Hong Kong and Singapore – in recognition of its performance, efficiency, stability and low-risk profile.
As Australia’s finance base, Sydney is best positioned to capitalise on national industry performance and growth.
Sydney offers Australia’s largest finance sector; a time-zone bridging the close of the US and opening of London markets; a highly educated and multilingual workforce; close links to growing Asian markets, and a quality lifestyle second to none.
The growing NSW financial services industry includes banking, non-deposit financing, funds management, financial asset investment, insurance and superannuation funds, auxiliary finance and insurance services.
Growth in the NSW industry has been driven by: § the globalisation of financial transactions § development of new and more sophisticated financial services and products § increased international activity by NSW institutions § significant growth in the funds management industry, partly due to compulsory superannuation in Australia and increasing funds under management worldwide.
Today, finance and insurance is the second largest industry in NSW (behind property and business services) contributing $36 billion to the State’s economy in 2007-08 and accounting for over 7 per cent of Australia’s GDP, making it the fifth largest industry in the national economy.
Sydney’s financial services workforce is now more than 40 per cent the size of London’s and New York City’s.
In 2008-09, approximately 173,000 people were employed in NSW’s finance and insurance services industry, representing 5 per cent of the NSW workforce, and 44 per cent of all people employed in finance and insurance services across Australia.
Finance and insurance has been the second fastest growing industry in NSW, recording annual average growth of 4.7 per cent per annum between 1997-98 and 2007-08.
NSW’s financial services exports also increased by more than 45 per cent between 1997-98 and 2007-08, growing at an annual average rate of 3.8 per cent.
Margin Lending Licensing Commences
In late 2009, the Commonwealth Parliament passed the Corporations Legislation Amendment (Financial Modernisation) Act making margin lending facilities a financial product and, amongst other things, requiring issuers and advisers of margin lending facilities to hold an Australian Financial Services Licence (AFSL). The regime also imposes new responsible lending requirements on issuers of margin lending facilities and clarifies responsibility for providing notification of margin calls. Issuers and advisers of margin lending facilities will be able to apply for an AFSL, or a variation to an existing licence, from 1 February 2010 until 30 June 2010.
Existing margin lenders and advisers on margin loans must apply to ASIC for an AFSL authorisation within this timeframe if they intend to continue to provide a margin lending financial service after the application period closes on 30 June 2010. Industry participants who fail to do so will have to cease providing such services.
Amongst other things, the Corporations Legislation Amendment (Financial Modernisation) Act requires: § Issuers and advisers of margin lending facilities to be licensed by ASIC under an AFSL § Advisers to only provide advice that is appropriate to the client’s individual circumstances § Margin lenders to meet new responsible lending requirements § Consumers to have access to external dispute resolution services § Clarity around responsibility for notifying clients in the case of a margin call
The new conduct and disclosure requirements for issuers and advisers of margin lending facilities, and the new responsible lending and margin call notification requirements, will take effect from 1 January 2011.
Industry participants are encouraged to consider if they are captured by the new requirements.
It is important people consider their situation early and make any necessary changes to ensure they can continue carrying on business after 30 June 2010.
The same licensing, conduct and disclosure requirements that currently apply to financial services will apply to providers and financial advisers in relation to margin lending facilities. The changes are part of the Government’s plan to regulate credit nationally.
ASIC has released updated regulatory guidance to assist issuers and advisers of margin lending facilities comply with their new requirements:
§ Regulatory Guide 2 AFS Licensing Kit: Part 2 — Preparing your AFS licence application and Regulatory Guide 3 AFS Licensing Kit: Part 3 — Preparing your additional proofs ASIC has updated RG 2 and RG 3 to assist entities to apply for an AFSL authorisation to cover margin lending facilities. The updates to the Licensing Kit will assist applicants understand what they need to do when applying for an AFSL, or a variation to an existing AFSL. These updates should be read with RG 1.
§ Regulatory Guide 146 Licensing: Training of financial product advisers The updated regulatory guide includes margin lending facilities as Tier 1 products, and requires that courses on margin lending facilities be placed on the ASIC Training Register.
§ Regulatory Guide 166 Licensing: Financial requirements The updated Regulatory Guide 166 follows consultation on the financial requirements for issuers and advisers of margin lending facilities. The updated guide generally applies the current financial requirements (with some amendments).
These changes impose: § The base level requirements in Section B on issuers and advisers of margin lending facilities § The Net Tangible Asset (NTA) requirements in Section C on issuers of margin lending facilities § The surplus liquid funds requirement in Section E on issuers of margin lending facilities where they hold client money or property § The Adjusted Surplus Liquid Funds (ASLF) requirements in Section F to issuers of non-standard margin lending facilities who have a liability to transfer marketable securities to the client
§ Pro Forma 209 Australian financial services licence conditions Pro Forma 209 sets out the standard licence conditions that will usually be applied to licences authorising a person to provide financial services under an Australian financial services licence.
ASIC’s existing policies and regulatory documents on financial services and products will apply to margin lending facilities and to licensees that provide financial services in relation to a margin lending facility. Copies of all regulatory guides are available from the ASIC website at www.asic.gov.au/rg.
More information Issuers and advisers of margin lending facilities, or any other entities seeking to become licensed to issue or advise on margin lending facilities can contact ASIC’s Infoline on 1300 300 630 or email infoline@asic.gov.au. To complete your online application go to the ASIC website at www.asic.gov.au/afslicensing.
Further information about the reforms to the regulation of margin lending facilities is available from ASIC’s website at www.asic.gov.au/credit.
Transition Timeline for Margin Lending Reforms
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