House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Minister for Financial Services, Superannuation and Corporate Law, the Hon Chris Bowen MP)

General outline and financial impact

Outline

The Corporations Amendment (Financial Market Supervision) Bill 2010 (the Bill) amends the Corporations Act 2001 (the Act) to provide for the Australian Securities and Investment Commission (ASIC) to supervise trading on financial markets with a domestic Australian market licence. The Bill contains three key measures:

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The Bill removes the obligation on Australian market licensees to supervise their markets, replacing it with an obligation to monitor and enforce compliance with the markets' operating rules.

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The Bill provides ASIC with the function of supervising domestic Australian market licensees.

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The Bill provides ASIC with additional powers including the power to make rules with respect to trading on such markets and additional powers to enforce such rules.

The Corporations (Fees) Amendment Bill 2010 (the Fees Bill) is a supporting Bill which contains amendments regarding chargeable matters in support of the measures in the main Bill. This is required to be in a separate Bill for constitutional reasons.

Date of effect: The Bill commences on a single day fixed by Proclamation. If commencement does not take place within 12 months of the day the Act receives Royal Assent, then the provisions are repealed. Commencement of the Fees Bill takes place on the date the main Bill commences.

Proposal announced: The measures are based on proposals announced by the Government in a media release on 24 August 2009, and included in an exposure draft and consultation paper released on 2 December 2009.

Financial impact: Nil. The Government will incur capital costs of approximately $6 million associated with the acquisition of the relevant market supervision software and fitout requirements. The total operating costs associated with ASIC's new responsibility are expected to be $53.5 million over the five years to 2013-14. The costs associated with preparing ASIC for the performance of the supervisory function and the ongoing performance of supervision by ASIC will be fully recoverable by ASIC over the forward estimates via a levy on market operators.

Compliance cost impact: The Bill will have a compliance cost impact on market operators and participants who will be required to comply with the new ASIC-set market integrity rules. The amount of compliance cost impact will depend on the rules to be set by ASIC. As such, it is not possible to quantify the costs until the rules are made. Also, there will be levies applied to market operators under the Fees Bill, the details of which will be set out in the Regulations. The cost as a result of this levy will to some degree be offset by the fact that market operators will have lower operational costs as a result of the removal of the obligation on market operators to supervise trading on their markets.

Summary of regulation impact statement

Regulation impact on business

Impact: The amendments will have an ongoing regulatory impact on market operators and participants in Australia's financial markets.

Main points:

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Supervision by ASIC will consolidate the current individual supervisory responsibilities into one entity, streamlining supervision and enforcement, and providing unified supervision of trading on the market. ASIC's role as a whole-of-market supervisor is expected to enhance the stability and integrity of the market.

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The amendments will remove the regulatory obligation currently imposed on market operators to supervise their markets.

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The amendments will require market operators and participants to comply with the ASIC-set 'market integrity rules'.

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The amendments provide for ASIC to levy market operators to recover the cost of supervision.