Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

I would like to thank all honourable members who contributed to this debate. The Corporations Amendment (Short Selling) Bill 2008 is particularly important, especially in the current environment. It will improve the regulation of short selling while also enhancing the integrity, fairness and transparency of our markets. Importantly, the bill provides certainty about the powers of the Australian Securities and Investments Commission to regulate short selling, including transactions that have a substantially similar market effect as short sales.

The recent international financial turmoil has highlighted the need for this certainty so that ASIC is able to respond quickly to issues that could potentially threaten the fair and orderly operation of our markets. The bill also puts beyond doubt ASIC’s recent use of its power to make various class orders in relation to short selling. The amendment will importantly provide certainty to business. The bill bans naked short selling. This is subject to ASIC’s ability to grant exemptions from this prohibition. The government foresees the ASIC exemptions may allow some non-speculative naked short sales to ensure ordinary operation of the market. There are concerns around increased settlement risk as there are no available securities earmarked for settlement and naked short sales can cause increased price volatility, potentially facilitating market manipulation. There is also limited evidence of any significant market wide benefits from naked short sale transactions.

Finally, the bill provides for the disclosure of covered short sales with regulations made under the bill to set the time and manner of such disclosures. This measure is primarily about transparency which will enhance confidence and market integrity. The uncertainty surrounding the activity of covered short sellers in the Australian securities market is having a significant impact on Australian capital markets. We have seen a significant price decline in some shares which has caused considerable speculation about the role of short selling. This speculation is affecting confidence in the market, particularly among retail investors. The disclosure of covered short sales will provide useful information to investors and regulators, contribute to pricing efficiency and also promote confidence and integrity.

Let us be very clear. These three interrelated measures, all the measures, including schedule 3 and disclosure, are essential and urgent. These are measures supported by ASIC and the Australian Securities Exchange. They add further to the integrity and clarity of our market. It is particularly disappointing that the opposition is being so irresponsible on this matter. It is particularly disappointing that they have chosen to continue their grave irresponsibility in the face of this crisis. They have undertaken a number of steps during this financial difficulty which have left the financial markets in Australia shaking their heads at the irresponsibility of the opposition, and we see another instance of that this evening.

The shadow minister has foreshadowed that he will move to remove schedule 3, which is the schedule relating to disclosure. The opposition seem to think it is fine to let the current temporary arrangements continue. They seem to think it is fine to let the ASIC imposed emergency arrangements continue ad infinitum. What they do not recognise, or they choose to ignore, is that there is no legislative backing for those and therefore there is no penalty regime. So there is a regime in place which is appropriate for an emergency situation, but is not appropriate ongoing. What is appropriate ongoing is that we have a situation where there are penalties for ignoring the law. At the moment the opposition want to continue the situation where there is a set of arrangements in place with no penalties. They ignore the views of ASIC, they ignore the views of the Australian Securities Exchange and they ignore the views of ASFA, the peak body which represents APRA regulated superannuation institutions in this country, and instead search around desperately trying to find an area in which they can differentiate themselves from the government. They try and find an area to score cheap political points, and that says more about them than it says about anything in this bill.

Every day that this legislative gap remains open, every day that this anomaly remains, every day that ASIC’s powers remain unclear or unlimited and every day that we rely only on a potentially non-legal suspension of naked short selling is another day of market uncertainty. This bill stands to protect retail investors and Australian companies. If the opposition had succeeded in delaying the consideration of this bill, as they attempted to do in the other place, presumably authorised by the shadow minister and the Leader of the Opposition, then we would have seen this bill delayed even further, and we see the shadow minister moving in this place to remove a very important schedule, schedule 3. He deserves to be condemned, as I am sure the market will condemn him, for doing so. It is critical that this bill is passed to deliver certainty to the market and allow the Treasury to commence further detailed consultations with industry about the regulations.

The shadow minister says the bill is far too broad and that it allows too much scope for moving within the regulations. What he does not recognise is that it is appropriate for the regulations to be the main mechanism for setting the detailed regulation of this matter. We need to have a situation where the government, on the advice of regulators, can respond flexibly to what is a very fluid situation. The shadow minister would like a situation where the parliament needs to consider any changes. Presumably, if there were an emergency situation, he would like to see the parliament recalled in order to change the legislation and not give the minister the power to change the regulations. That is a view we reject completely in this House and we will reject it in the other house. We will continue to vigorously argue for the legislation. I commend the bill to the House.

Question agreed to.

Bill read a second time.

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