Business Associations II

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Business Associations II

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Title: Business Associations II


1
Business Associations II
  • Paul Ali
  • LAWS1092

2
Class 2
  • Key participants in the regulation of Australias
    securities markets
  • Demutualised exchanges

3
Key participants
  • ASIC
  • Takeovers Panel
  • CAMAC
  • ASX
  • ASXSR

4
ASIC
  • ?Established under the Australian Securities and
    Investments Commission Act 2001
  • ?National regulator of Australian companies
  • ?Also regulates
  • Auditors
  • Insurance agents and brokers
  • Investment advisers
  • Fund managers
  • Liquidators
  • Financial markets eg ASX, BSX, NSX and SFE

5
ASIC (cont)
  • ?Principal aims (section 1(2), ASIC Act)
  • maintain and improve the performance of the
    Australian financial system in the interests of
    commercial certainty, reducing business costs and
    the efficiency and development of the Australian
    economy
  • promote the confident and informed participation
    of investors and consumers in the Australian
    financial system

6
ASIC (cont)
  • ?Principal functions
  • registration of companies
  • maintaining a public register of corporate
    information
  • licensing of participants in the Australian
    financial markets
  • enforcing the Corporations Act
  • exercising discretions (ie granting relief from
    or modifying the application of certain
    provisions of the Corporations Act)

7
Takeovers Panel
  • ?Corporations and Securities Panel
  • established under ASIC Act
  • given certain powers under Part 6.10, Corps Act
  • principal forum for resolving disputes about
    live takeover bids
  • peer review
  • can make binding orders regulating the conduct of
    a bid
  • modelled on the UK, HK and Singapore takeovers
    panels
  • www.takeovers.gov.au

8
CAMAC
  • ?Corporations and Markets Advisory Committee
    (CAMAC)
  • established under the ASIC Act
  • advises the Federal Treasurer on corporate law
    reform
  • www.camac.gov.au

9
ASX
  • Australian Stock Exchange (ASX)
  • principal stock exchange in Australia
  • ASX Ltd is a company registered under the Corps
    Act and licensed to operate the ASX under Ch 7 of
    that Act
  • ASX Ltd regulates membership of the ASX (only
    members can access the ASXs trading facilities)
  • ASX Ltd regulates the listing of companies on the
    ASX
  • www.asx.com.au

10
ASXSR
  • ?ASX Supervisory Review Pty Ltd (ASXSR)
  • wholly-owned subsidiary of ASX Ltd
  • independent of ASX Ltd (majority of independent
    directors)
  • monitors ASX Ltds compliance with its licence
  • reviews ASX Ltds supervision of the ASX
  • www.asxsr.com.au

11
ASX
  • Converted from a company limited by guarantee to
    a company limited by shares in 1998
  • - Corporations Law Amendment (ASX) Act 1997 (Cth)
  • Shares in ASX Ltd are listed on the ASX, the
    market that ASX Ltd supervises
  • ASX is a for-profit entity
  • Other demutualised listed exchanges include
  • Bursa Malaysia (Kuala Lumpur Stock Exchange)
  • Deutsche Borse (Frankfurt Stock Exchange and
    Xetra)
  • Euronext (Amsterdam, Brussels, Lisbon and Paris
    Stock Exchanges) (2000) (listed on Amsterdam,
    Brussels and Paris Stock Exchanges)
  • Hong Kong Stock Exchange
  • London Stock Exchange
  • Nasdaq
  • NZ Stock Exchange
  • OMX (Copenhagen, Helsinki and Stockholm Stock
    Exchanges and also the Baltic exchanges) (listed
    on Helsinki and Stockholm Stock Exchanges)
  • Singapore Stock Exchange
  • Toronto Stock Exchange

12
Demutualised exchanges
  • Are the norm
  • One major exception NYSE
  • Question Would Richard Grasso be facing law
    suits over his remuneration if the NYSE was a
    listed company?
  • Historically, most exchanges were non-profit
    organisations. Demutualisation has converted them
    into for-profit companies (that are listed on the
    very exchanges that they operate)

13
Dual roles of the exchange
  • The demutualised exchange is a for-profit entity
  • Main sources of revenue
  • initial and annual listing fees
  • fees charged for individual buy and sell sides of
    trades in securities and other listed instruments
  • sale of market data
  • The exchange is also entrusted with ensuring a
    fair and transparent market

14
Question
  • What problems might be posed by
  • the conversion of a non-profit exchange into a
    for-profit company?
  • the self-listing of the exchange?

15
Conflict of interest?
  • Potential areas of conflict
  • Is motivation to maximise profit through
    attracting new listings and facilitating the
    increase in turnover consistent with the
    exchanges role in maintaining market integrity?
  • Can the exchange act effectively as its own
    regulator, when it is self-listed and is now a
    for-profit company that may be in competition
    with other companies listed on the exchange?

16
Difficulties for exchanges
  • Dec. 1998 Demutualised ASX makes a takeover bid
    for SFE
  • May 1999 Computershare, a company listed on the
    ASX, makes a competing bid
  • Problem
  • Conflict between ASXs interest in purchasing SFE
    and its obligations to administer the listing
    rules in relation to Computershare
  • Solution
  • ASX, Computershare and ASIC entered into an
    agreement
  • ASX not to make any substantive decisions about
    the listing of Computershare without first
    consulting ASIC
  • ASX to act in accordance with advice received
    from ASIC in relation to Computershare
  • Agreement to remain in force until competing bids
    for SFE resolved (ACCC rejected ASXs takeover
    bid, and Computershare also withdrew its bid)

17
Constraints
  • Competition amongst exchanges
  • Reputational risk
  • BUT does the fact that demutualised exchanges are
    now the norm promote a race to the bottom?

18
Pre-conditions for fair and efficient securities
markets
  • Good information about the value of the companies
    whose securities are traded in the market
  • How much information should be disclosed? And how
    timely should the disclosure be?
  • Constraints on tunnelling by corporate
    controllers
  • State-enforced vs market-enforced remedies
  • See further B S Black, The Legal and
    Institutional Preconditions for Strong Securities
    Markets (2001) 48 UCLA L Rev 781

19
Current model of securities regulation
  • Australia Jurisdictional nexus
  • 1 Offers
  • Primary offers offers of securities for issue
    and inviting applications for the issue of
    securities
  • Secondary offers offers of securities for sale
    and inviting offers to purchase securities
  • Corporations Act applies to all such offers
    received in Australia, regardless of where the
    issue or sale occurs
  • 2 Markets
  • Corporations Act applies to facilities through
    which offers or invitations (received in
    Australia) to acquire or dispose of securities
    are regularly made or accepted
  • Corporations Act applies to markets operated by
    bodies corporate registered under the
    Corporations Act

20
New models of regulation
  • 1 Letting issuers of securities choose the most
    favourable law
  • Issuers to choose governing jurisdiction
  • R Romano, Empowering Investors A Market
    Approach to Securities Regulation (1998) 107
    Yale LJ 2359
  • S J Choi and A T Guzman, Portable Reciprocity
    Rethinking the International Reach of Securities
    Regulation (1998) 71 So Calif L Rev 903
  • Nationality of issuers determines jurisdiction
  • M B Fox, The Political Economy of Statutory
    Reach US Disclosure Rules in a Globalizing
    Market for Securities (1998) 97 Mich L Rev 696
  • M B Fox, Retaining Mandatory Securities
    Disclosure Why Issuer Choice is Not Investor
    Empowerment (1999) 85 Va L Rev 1335

21
New models (cont)
  • 2 Transferring power from the regulator to the
    market
  • Investors regulated based on their level of
    knowledge of securities (issuers can deal
    directly with sophisticated investors and opt out
    of securities regime, but less sophisticated
    investors must deal via market intermediaries and
    unsophisticated investors are limited in what
    they can invest in unless they fulfil certain
    knowledge-related criteria)
  • S J Choi, Regulating Investors Not Issuers A
    Market-Based Proposal (2000) 88 Calif L Rev 279
  • Transfer regulatory authority to the exchanges
  • P Mahoney, The Exchange as Regulator (1997) 83
    Va L Rev 1453
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