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A revolution in stock exchange supervision

A revolution in stock exchange supervision

Brisbane barrister and The New Lawyer contributor, David Topp, questions whether recently announced changes to market supervision regimes might generate some unfavourable side-effects

Brisbane barrister and The New Lawyer contributor, David Topp, questions whether recently announced changes to market supervision regimes might generate some unfavourable side-effects.

MUCH has been written about mooted regulatory changes that will result in the Australian Securities and Investments Commission (ASIC) supervising real-time trading on licensed markets. 

The main effect of this change on Australia’s largest market, the Australian Securities Exchange (ASX), is that ASIC will supplant the supervision role that the ASX has always performed, up until now.


The changes have stemmed from an oft-cited criticism: that the ASX has an obvious conflict of interest in being, simultaneously, the regulator of trading on the ASX while itself being a listed entity on its own exchange.


Media comment about the change has in the main been positive. And why wouldn’t it be? The removal of any conflict of interest in any context is an argument that starts from a default position of being entirely positive.


Therefore this article, which takes a contrary view, commences from a very difficult stand point.


In this writer’s view the so-called ASX regulatory conflict of interest “cure” stands to be worse than the disease. As someone who has been continuously engaged in the practice of law for just under 10 years now – in various capacities including articled clerk, solicitor and barrister – time and time again I have come across many sad cases of people who have lost everything in business ventures. Often there were many antecedent breaches of the Corporations Act and/or the Trade Practices Act perpetrated on these persons by others.


The victims had more than enough in the way of statutory and common law causes of action. Also as the factual scenarios themselves were largely not in dispute, they had more than reasonable prospects of favourable post trial judgments.


However, as all lawyers know, possessing a viable cause of action is one thing, possessing the means to litigate is quite another. Hardly surprisingly the victims were bereft of money; the very reason they were seeking legal advice was also the root cause of why they had no legal recourse in real terms.


Entreaties would then be made to the ASIC and ACCC for those bodies to take on the cases. 


And the invariable response was that as government bodies tasked with many differing roles, it was simply not possible for each and every breach of their respective enabling Acts to be investigated, let alone litigated.


Hence the thesis of this article: the investing of a substantially greater remit to ASIC, in substitution for the ASX, will result in an already limited litigation/enforcement ability being limited even further.


In effect, the “improvements” to market regulation will have a reaction of lower, in both quantity and quality terms, off market regulation.


Besides, whatever arguments can be mounted against the ASX’s conflicted role, the inherently public nature of companies listed on the ASX should not be overlooked. This provides a separate, though unofficial, supervisory regime: that of the media. Determined journalism has exposed many a corporate scandal. Do the words James and Hardie ring a bell?


And there are of course many other examples.


Whereas the converse is also true since the inherently private nature of off market companies gives unscrupulous operators much scope to operate in the shadows. If privately funded party/party civil litigation is considered by such persons as being too insufficient a risk to be a deterrent, how much greater freedom must they be feeling now given that even less ASIC scrutiny will be drawn their way?


Therefore before we all get too absorbed in a collective frenzy of self congratulation about all of our problems being miraculously solved by virtue of the ASX losing a conflicted regulatory role, the sage advice of be careful what you wish for looms large in this writer’s mind anyway.


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