House of Representatives

Explanatory Memorandum

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

Chapter 1 - Amendment of obligations on operators of licensed markets

Outline of chapter

1.1 The Corporations Amendment (Financial Market Supervision) Bill 2010 (the Bill) amends the obligations imposed on operators of licensed markets, and prospective market licensees, under the Corporations Act 2001 (the Act) with respect to supervision of their markets.

Context of amendments

1.2 The amendments contained in the Bill give effect to a decision of the Government to transfer the responsibility for supervising participants in markets from market operators to Australian Securities and Investments Commission (ASIC) as announced jointly by the Treasurer and the Minister for Financial Services, Superannuation and Corporation Law on 24 August 2009 (Media Release No.093).

1.3 To this end, the Bill amends the obligations on Australian market licence holders and prospective licence holders.

Summary of new law

1.4 The Bill amends the obligations on operators of licensed markets with respect to supervision of their markets as set out in section 792A of the Act.

1.5 The Bill also amends the factors to be taken into account when the Minister decides whether to grant a domestic Australian market licence as set out in subsection 795B(1) of the Act.

Comparison of key features of new law and current law

Detailed explanation of new law

1.6 The Bill amends the obligations on market licensees to reflect that ASIC will now have primary responsibility for supervising Australia's financial markets.

1.7 Under the current law, Australian market licence holders are required to have arrangements for supervising their markets, including monitoring the conduct of participants. Australian market licensees are also required to have sufficient resources to, amongst other things, supervise their market.

1.8 The Bill changes these obligations. The Bill instead provides for market licensees to have adequate arrangements for operating their market, including for monitoring and enforcing compliance with the market's operating rules. Market licensees will still need sufficient resources for operating the market. [Schedule 1, items 7 and 9]

1.9 This change reflects the decision of the Government to have ASIC take over responsibility for the supervision of domestic licensed financial markets. However, market operators will retain the responsibility for making sure participants admitted to their market comply with the operating rules. The Bill requires market operators to monitor and enforce compliance with the market's operating rules. Operating rules include the listing rules set by markets, responsibility for the supervision of which has not been transferred to ASIC. [Schedule 1, item 8]

1.10 The Bill extends the changes to the obligations on market operators to the circumstances which are to be considered by the Minister when deciding whether to grant a domestic Australian market licence under subsection 795B(1) of the Act. Specifically, the Bill requires the Minister to consider whether the applicant has adequate arrangements for operating the market, and for monitoring and enforcing compliance with the market's operating rules. [Schedule 1, Item 12] , [Schedule 1, Item 13]

1.11 Changes were not made to subsection 795B(2) of the Act, relating to any application for an Australian market licence in respect of an overseas market, as such operators will be subject to the changes by implication. The Act already provides that an overseas market can only be granted a licence where the Minister is satisfied that the regulatory regime the market is subject to is sufficiently equivalent to Australia's.

Application and transitional provisions

1.12 All provisions in the Bill, including the ones altering the obligations on market operators and applicants, will take effect on a date 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 Corporations (Fees) Amendment Bill 2010 (the Fees Bill) takes place on the date the main Bill commences. [Schedule 1, Item 34, section 1511]

1.13 The 12 month time period for commencement is necessary, as there is a considerable amount of transitional work to be done in order for ASIC to be capable of performing the supervisory functions, including acquiring the necessary systems. This has the potential to take a significant amount of time and possibly longer than six months but less than a year. It is appropriate that the provisions be repealed if the Bill does not commence within a year, as it is not appropriate to have the obligations on market operators amended without ASIC taking over responsibility for supervision.

1.14 The provisions applying to market licence applications apply in relation to applications made before the commencement of the Act, but not yet decided on when the Act takes effect. [Schedule 1, item 34, section 1512]

Consequential amendments

1.15 The Bill makes consequential amendments to the qualified privilege sections of the Act to reflect that markets will now be responsible for operating not supervising their markets. [Schedule 1, items 17 and 18]