The Australian government has released exposure draft legislation amending the Corporations Act 2001, the Competition and Consumer Act 2010 and the ASIC Act 2001 to facilitate competitive outcomes in the provision of clearing and settlement (CS) services for Australia’s financial markets.
CS facilities are facilities that provide mechanisms for parties to transactions related to financial products to meet their obligations to each other that arise from entering into those transactions. They include central counterparties, securities settlement facilities and central securities depositories. These facilities are crucial to supporting confident and informed participation by investors in Australia’s financial markets and are critical to the functioning and stability of financial markets.
The Corporations Act permits more than one CS facility to handle the clearing and settlement of transactions executed on the one financial market. However, the current market structure is a monopoly where ASX (through its subsidiaries ASX Clear Pty Ltd and ASX Settlement Pty Ltd) is the sole provider of cash equity CS facility services and CS services.
The current regulatory settings for CS facilities in the Australian cash equity market, while reflecting an openness to competition, lack mechanisms to facilitate competitive outcomes.
The amendments presented today provide the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) with new powers that would allow the regulators to enforce the CFR’s policy statements governing the monopoly provision of CS services and competition in clearing and settlement.
According to the proposals, ASIC may make rules to facilitate outcomes that are consistent with those expected in a competitive market for CS services, and ensure that competition, should it emerge, is safe and effective.
Further, ASIC may make rules that deal with the activities, conduct or governance of CS facility licensees, their associated entities and other persons specified by regulations, in relation to the provision of CS services. This includes rules with respect to the governance arrangements of the licensee or related entities providing the service, such as the composition of its board of directors.
Also, ASIC may only make such rules dealing with the activities, conduct or governance of the above-mentioned entities in relation CS services (or governance more broadly) if the CS services the entity provides are covered by a determination made by the Minister. It is expected that the rule making power will initially cover cash equities with the flexibility to expand to other financial products if the need arises in the future.
The proposed rules envisage that a compliance and enforcement regime is established in regards to rules made by ASIC, including a directions power for ASIC, civil penalties and alternatives to civil penalties, such as enforceable undertakings.
ACCC may make binding arbitration decisions to resolve disputes regarding access to CS services. Negotiation and arbitration apply where the provider of the CS services is the licensee of a CS facility, or a related entity of a CS facility licensee, and the CS service can only operate because it has access to the CS facility the licensee is authorised to operate.
The arbitration power is to provide for resolution of disputes where parties are unable to agree on the terms of access to those CS services through commercial negotiation.
You can submit responses to this consultation up until 20 April 2023.
