Michelle Huckel, Policy Manager, SIAA
ASIC has provided its response to its discussion paper on Australia’s evolving capital markets including a roadmap for Australia’s public and private markets.
ASIC has highlighted that Australia needs both private and public markets that are strong and well-functioning.
While most of ASIC’s response deals with issues concerning private markets, in particular private credit and managed investment schemes, its responses relating to public markets shows evidence that there will be activity in public markets as well. ASIC will continue its work with industry and government to modernise public markets so they remain fit for purpose for companies of all sizes and support growth and innovation and engage with ASX on its commitment to consult on changes to the listing rules to enhance the attractiveness of its public market.
Key takeaways from ASIC’s public markets road map include:
- Reviewing sell-side research guidelines. Some respondents (including SIAA) suggested that Regulatory Guide 264: Sell-side research is too prescriptive when compared to overseas regimes. ASIC has already started reviewing this guidance, undertaking international comparisons and engaging with stakeholders and overseas regulators to assess the impact of the guidance on the quality and availability of research. ASIC has stated that it is open to simplifying its guidance while preserving research independence and conflict management and will shortly provide an update to the market on its next steps.
- Reconsidering policy to streamline dual listings aimed to attract international businesses to public markets. ASIC supports the ASX and other market operators consulting on whether adjustments to foreign exempt listing requirements would be beneficial, considering market developments.
- Supporting broader efforts of government and industry to streamline and simplify the corporate governance framework. ASIC encourages the ASX and its advisory group to promptly turn their attention to refreshing the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations, which were last updated in 2019.
- Engaging with industry on whether consistent listing requirements remain appropriate across all publicly listed companies. ASIC considers that there is merit in exploring tailored, potentially lighter disclosure and governance frameworks for SMEs seeking to list. Any change could include a transitional period of pathway to full requirements similar to the approach in the US under the Jumpstart Our Business Startups (JOBS) Act 2012.
What is likely to happen in the next 10 years?
To inform its response ASIC commissioned a report on the future state of Australia’s capital markets by Dr Carole Comerton-Forde who developed the following four scenarios to capture the main possibilities of how Australia’s capital markets might look in five to ten years and what reforms or innovations would be needed to sustain their contribution to the economy:
- Dual expansion: an environment where both public and private markets flourish, public listings are active, while private capital also grows as a complementary channel.
- Private dominance: a continuation of the recent trends, with private markets expanding their share of capital markets and public markets becoming thinner over time.
- Public revival: public markets regain primacy as the default option for raising capital, driven by reforms, investor preference for liquidity and transparency, and renewed listing activity.
- Dual contraction: both channels stagnate – either through outright declines in issuance and fundraising in a downturn, or through a long period of subdued activity that leaves neither channel functioning at full strength.
While the report states that it is not feasible to assign probabilities, it concludes that private dominance is the most natural continuation of the status quo and that public revival would require decisive reforms and innovation.
How to revive public markets
The Comerton-Forde report outlined the need for radical reform for public markets to be revitalised on their own terms and included the following potential reform ideas:
- Competition in listings. However, there are challenges to be addressed to foster genuine competition. For example, inclusion in the ASX/S&P indices is only available for companies listed on the ASX and ASX does not trade Cboe-listed exchange traded products. The recent announcement that Cboe Australia is up for sale provides a further challenge to listings competition.
- The introduction of dual-class share structures, which are already permitted for foreign exempt listings. The report states that clear guardrails (such as a maximum voting ratio, mandatory sunset provisions, non-transferability of superior voting rights, stronger board independence, carve-outs for fundamental resolutions where one-share-one-vote applies and enhanced disclosures of the control wedge) would be essential to preserve market integrity.
- A rethink of disclosure and trading mechanisms for small and mid-cap firms. Instead of continuous disclosure tied to continuous trading, issuers could disclose information and provide liquidity only in periodic windows – monthly or quarterly – when trading could occur via batch auctions. Alternatively, continuous trading in illiquid small-cap stocks could be replaced with a single daily call auction, concentrating liquidity at one point in the trading day.
- Addressing the chronic lack of research coverage for small-cap companies. Building on ASX’s Equity Research Scheme (that subsidises independent analyst coverage for a set of small-cap companies each year that would otherwise be overlooked by most broker research) by complementing it with new approaches such as AI-driven research generation.
- Development of small-cap indices and index products. There may be merit in exploring an expansion of the range of small-cap benchmarks and associated exchange traded products to help channel more capital towards a more diverse set of listed firms.
These reform ideas are outside of ASIC’s remit and will rely on industry and government to push them forward.
The link to ASICs response report is here and the Comerton-Forde report is here.
