Jim Chalmers (Rankin, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

I rise today to speak on the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2014—and particularly to follow the wise words of my colleague the member for Oxley. This bill does make it easier for companies to offer relatively simple corporate bonds to retail investors. These measures seek tor educe the regulatory burden on companies issuing bonds in Australia—helping to kick start a deeper and more liquid domestic corporate bonds market. This legislation is almost identical to the legislation that Labor introduced to the last parliament, where it unfortunately lapsed before the election. For this reason, the opposition will be supporting this bill.

This is fundamentally Labor legislation and is built on a very worthy aspiration. Indeed, some people think that developing a deep and liquid corporate bond market in Australia is one of the most important objectives of financial markets policy. I know, from having worked in this area of policy in former roles, that it is a very complex problem and there are not a whole lot of easy solutions.

The lack of liquidity and diversity in Australia's corporate bond market was one of the key focuses of the last Labor government's Johnson report, the report that members would be familiar with, called Australia as a Financial Centre: Building on our Strengths. Developing a deep and liquid corporate bond market in Australia is important also for a couple of other key reasons. The first one is that the experience of the global financial crisis tells us that a diversity of funding sources is key to a stable financial sector. As it stands, local companies are largely reliant on banks and offshore markets for their debt issuance. The corporates are missing out on a key source of diversity in debt funding—namely, the direct issuance of bonds to the domestic market. The direct issuance of bonds by corporates in Australia could act as a partial shock absorber to international economic fluctuations.

The second thing is that a more developed corporate bond market in Australia could see us play a greater role in facilitating non-bank corporate debt issuance in the Asia-Pacific region. We have all been witness to the huge and dynamic changes underway in the Asia-Pacific over the last couple of decades. In this respect I would highly recommend Andrew Charlton's recent quarterly essay called 'Dragon's Tail', which is a particularly good account of the hurtling growth in the region and Australia's role in it. I would also encourage members to check out the contribution by John Edwards which tackles some of the same issues, even though it comes up with some very different conclusions.

The unprecedented investment in the Asia-Pacific region over the last decade or more has been accompanied by a much greater need for access to financial services. As we develop our trade relationships with our neighbours through processes like the Japan-Australia Economic Partnership Agreement, the Korea-Australia Free Trade Agreement and the Trans-Pacific Partnership, there is room for Australia to play a bigger role in the financial services sector. I might just thank some of the representatives of the industry that have spent time with me in the last few weeks as we go through some of the detail of the financial services components of some of the deals that the government is in the process of securing.

A deeper and more liquid corporate bond market is one key aspect of becoming a stronger competitor in the Asia-Pacific region in the financial services sector. The question is how we develop a stronger corporate bond market in Australia. In essence, when you think about it, it is really a classic chicken and egg kind of problem. As it stands, corporates do not issue enough bonds in the domestic Australian market because they can buy more cheaply by issuing bonds overseas. The greater liquidity and sophistication of the overseas bond markets make them more attractive because it means companies can issue larger volumes more easily and for longer tenures.

At the same time I am told investors would be happy to buy more Australian corporate bonds to diversify and balance their portfolios but currently there is not enough issuance here to make the market liquid and to offer a good range of investments at compelling valuations. In essence, corporates do not issue bonds here because there are not enough investors to buy them and provide liquidity, and investors do not generally buy the bonds issued here because there are not enough bonds issued to provide that liquidity and that competition. So the corporate bond market does need a catalyst to encourage corporates to issue bonds here and to encourage investors to buy their bonds here. It is the best way, probably, to develop a bigger and more liquid market in Australia because, like a positive feedback loop, this will lead to more competitive valuations and more interest from overseas markets leading to that greater volume and that greater liquidity that I keep coming back to.

The low interest rate environment over the last few years has been a partial catalyst for greater interest and focus on the Australian corporate domestic bond market. Over the last couple of years a few large multinationals have managed to issue debt locally in Australia after many years of absence from that market. For example, BHP Billiton raised about $1 billion with a tenure of five years in 2012 and Qantas raised $175 million over seven years in May 2013, and neither company had issued debt in Australia for more than a decade.

In a recent speech to the Economic Society of Australia—a fantastic group for advancing the economic debate in Australia—Guy Debelle, the assistant governor of the RBA and a highly respected player in that conversation, described the more significant pick-up in the domestic corporate bond market—namely, in lower-rated issuance at longer maturities than they would normally get from the bank. He is optimistic about the prospect that these developments in the corporate bond market will be long lasting, but he acknowledged that questions remained about the dependence of our bond market on the global interest rate environment.

This legislation is good policy. It is policy that will, hopefully, grow on and consolidate these recent developments in the market. It is, as I said at the outset, Labor legislation, effectively—almost identical to the bill we proposed in government which built on legislation we had passed to allow retail trading of Australian government bonds. Our reforms of Commonwealth government securities made it easier as well for mum and dad investors to buy government bonds. This was part of a general strategy to develop preferences among Australian investors for fixed income products rather than just shares. Australians have long held a bias towards investment in shares because of the long period of high growth in equities—the high returns prior to the global financial crisis, when it was not unusual to see returns greater than 20 per cent on shares.

Fostering demand for fixed income products is important not only to develop a higher volume and more competitive bond market in Australia but also because it leads to that greater diversity among the portfolios of Australian investors. It is still important, of course, for Australians to invest in equity, to grow local businesses and to have high growth products in their portfolios. Investment in growth products is important to Australians so as to grow our superannuation and provide for a more comfortable retirement. But investment in bonds—both of the corporate and the Commonwealth government type—does lower risk in their portfolios and provides a bit more certainty for investors in otherwise uncertain times. The changes that Labor made in 2012 to allow trading of Commonwealth government securities was a good start to develop that domestic market for fixed income products.

The bill that we are discussing today builds on that CGS legislation by making it easier for corporates to issue those bonds. It does a couple of important things in that respect. First of all, it makes it more attractive for corporates to issue bonds to mum and dad investors by cutting out some of the really onerous, expensive and unnecessary disclosure documents they had to prepare each time. Instead, now they will be able to issue a really short and simple statement which tells the investor everything they need to know in very easy terms and references information that is already available to the public. In this way, a shorter and simpler document can actually enhance transparency and make it easier for investors to understand the products that they are investing in. Mum and dad investors are about as likely to read a 200-page bond prospectus as they are to sit down and read the full text of the federal budget papers.

The second important thing this bill does is reduce some of the overly severe liabilities that directors face in the case of inadvertently making incorrect disclosures or omitting certain types of information. In doing so, the drafters of the legislation were very careful to ensure that retail investors were properly protected. There is no reason a director should face a criminal offence for getting something wrong when they have made a genuine good faith attempt to understand and communicate all the risks, including relying on an expert. This type of overkill liability discourages directors from agreeing to their companies undertaking retail corporate bond issuances.

I would like to finish up on a few points. Getting a retail bond market going in Australia is only a very small part of the equation. There is a lot more work needed to kick off the wholesale market as well where the big super funds are the buyers rather than typical punters. But these measures are a step in the right direction. They will provide a clear signal to Australian companies that now is their time to contribute to the development of Australia's corporate bond market. It is for this reason that Labor will be supporting the legislation, and we will continue to support the development of a deeper and more liquid corporate bond market in Australia.

David Coleman (Banks, Liberal Party) Share this | Link to this | Hansard source

I am very pleased to have the opportunity to speak on this important legislation about the simplification of the debt issuance process in Australia. It is an area that I have a little bit of experience in from my previous career in the private sector. What this legislation really does is recognise the inadequacy of legislation currently to support the issuance of bonds to retail investors in Australia. I will come in a moment to how the legislation changes the existing situation.

But it is important to reflect on the reality of what an Australian company faces at the moment if they want to issue debt. Because the retail bond market is pretty much non-existent, you can issue an institutional bond, so to speak. What is more likely is that you would seek to obtain wholesale debt finance, and that basically involves going to banks and asking them for money. A lot of the time that happens overseas, because there is inadequate capital within the Australian market to raise the levels of debt that are often required.

I had occasion last year, on behalf of my former employer, to go to the United States and seek to raise a substantial amount of debt in the New York capital markets. Whilst that is a very important part of the debt equation and will continue to be, it would be a much better situation if Australian companies had a realistic way of accessing debt from Australian households as well, because households have immense wealth in Australia. Our household wealth per capita is right at the top of the world, but virtually none of that wealth is currently accessed by corporations through direct investment by households in bonds.

Sensible policy is: give businesses as many opportunities as possible to access funding. When businesses can access sensible debt funding, they invest more; and, when they invest more, they contribute to greater economic activity. Why do we care about that? Because that means jobs.

Ultimately, whilst this is a technical piece of legislation, what it comes down to is: this helps Australian companies to issue debt and to have access to funding from households which in turn can enable them to grow and employ more people.

The global bond market is immense. It is about US$100 trillion, which is a hard number to conceptualise. It is an enormous number. About half of that is government, and about half of it is private sector. Within the private sector component much of that is issued by banks and financial institutions, but about 12 per cent of that total US$100 trillion is issued by corporations. Around the world, especially in the US, corporations are able to access funding from households. It is quite common for households in the US to purchase corporate bonds in well-established names. We are hopeful that the propensity of Australian households to invest in these products will increase following the passage of this legislation.

At the moment, according to the ABS financial accounts data, households provide only about one per cent of debt issued by Australian companies. When you contrast that to the huge investment in superannuation by Australian households, the huge equity investment, it frankly does not make sense that Australian households are so leveraged to equity products and to institutional products as opposed to directly investing in the debt of Australian companies, because giving those companies the capacity to raise debt is good for the investor. It is another investment opportunity, and it is good for the company itself.

In 2012 corporations issued only seven per cent as much debt as our financial institutions did overseas, whereas in the United States 40 per cent as much debt was issued by corporates as financial institutions. So that is a much lower ratio of corporate debt issuance relative to financial institutions—that is banks, basically, in Australia and the US. That again points to the difficulty of issuing bonds in Australia.

It is very interesting when you look back over a number of decades at the way the bond market in Australia has developed. If you go back 50 or 60 years, households were the biggest purchasers of corporate bonds in the Australian market. The ABS research by Susan Black, Josh Kirkwood, Alan Rye and Thomas Williams on this topic that was published in 2012 found that, back in the 50s, households took about 45 per cent of all corporate bonds. But then legislation started to make it a lot more complicated for households to invest in corporate bonds. There started to be very onerous disclosure requirements, sophisticated investor requirements and so on. So households basically said, 'This is all a bit too hard.' Between 1990 and 2010, households reduced the total amount that they invested in corporate bonds. When you look at a financial product, you look at the flow into that—how much money is flowing in and from what sources. Households over the last 20 years had a negative flow of investment into corporate bonds. That means they took money out of corporate bonds over the last 20 years, and that is not something that anyone wants to see.

Because households basically vacated this space, the slack was taken up by foreign investors, who in that 20 year period accounted for about 70 per cent of the entire Australian corporate bond market. So, whilst we of course want to encourage foreign investors to take up Australian bonds, we certainly also want Australian households to do so. There is clearly a need to do something here, and this is a very sensible and overdue effort to do just that.

Because of the way the rules work at present, it is very hard for someone to invest in a corporate bond unless they were described as a sophisticated investor. Sophisticated investors are almost always companies or institutions. The limit on investment is $500,000—the minimum. So, unless you have $500,000 to invest and unless you comply with the definition of a sophisticated investor, you basically do not proceed and, as a consequence, next to no investment in corporate bonds by households actually occurs.

There are other issues in the existing law where directors are deemed to have a liability for any misleading or inaccurate statement that might be in a prospectus that accompanies a corporate bond, as opposed to the general principle of needing to establish that the person was in fact involved in the production of the prospectus. That is a problem as well because, for obvious reasons, a director is going to be very reluctant to authorise the issuance of corporate debt to households if they will be personally liable for things that might go wrong in that process. That is why the government has moved in this legislation to introduce some important changes.

The very first change is to the disclosure regime. At the moment, if a corporate bond is to be issued, a very detailed document is required to be lodged with ASIC. That document has to be specifically tailored to the circumstance of that particular issuance and must be comprehensive in nature. If there are 200 matters that are relevant to the company in the issue of the bond, then all 200 of those matters need to be disclosed in the prospectus. As you can imagine, it is often the case that preparing all that information is very onerous. It will often already exist in some other form—on the company's website or through the continuous disclosure requirements to ASIC or, indeed, in a prospectus that has been lodged for other purposes. So it should be possible for a company to simply refer to those pre-existing documents in its prospectus for a corporate bond issue rather than having to reinvent the wheel every time it seeks to raise debt in this market.

Basically, under the legislation the precise terms of the particular offer need to be covered in the offer-specific prospectus. But, beyond the points that are very specifically related to that prospectus, the prospectus may refer to a broader base prospectus that has been previously lodged with ASIC. That is a good thing because, again, it means that the corporation is not required to reinvent the wheel, go back to page 1 and gather a whole lot of information that has in fact already been stated.

There is an important time period here. Within 13 months of the issue of the offer-specific prospectus, if the company wants to issue a further amount of bonds under that same offer, it can do so without having to go through a whole new process. It can also refer to a base prospectus for up to three years. So it needs to publish a base prospectus, and then, as the offer-specific prospectuses are subsequently published, as long as they are within a three-year period of that base prospectus, that is all well and good and can be proceeded with. It is a very sensible change, stopping the need for companies to reinvent the wheel and get involved in a whole lot of very onerous activity.

The other important change in the legislation is the change to directors liability provisions. Previously, directors were personally liable for any defects in bond issue documentation, even if those directors had in fact no involvement with the preparation of the prospectus at all. As I said before, that did not lead to a lot of enthusiasm on the part of directors to issue such a prospectus if they were going to be personally liable for anything that went wrong. This bill sensibly says that, if something is inappropriate, if something is unlawful, either through a statement or omission in the prospectus, then absolutely there is an action on the part of any wronged parties, but that action is against the company itself—anyone who underwrote the prospectus or was otherwise involved in the creation of it. There is no strict liability of the directors. That is a sensible reform because the consequence of that strict liability was that prospectuses were not getting issued and corporate bonds were not circulating in the market.

The other important thing that this bill says is: 'In order to comply with these provisions and these simple rules, you need to issue at least $50 million worth of bonds.' We want to encourage the trading of bonds in a secondary market and we do not want a situation of lots of dribs and drabs of very small issuances without the capacity to really foster a strong secondary market, which is so important.

It is a very good piece of legislation. It will hopefully get us to a situation where Australian families can once again look at investing in corporate bonds. Fifty years ago, they invested very heavily in corporate bonds. They basically stopped doing that for various reasons, including the failure of the previous legislation, so it is a good thing for Australian companies. Rather than being so much at the mercy of banks, be they foreign or domestic, Australian companies will now have a much more serious option of accessing the immense wealth of Australian households by issuing corporate bonds. I am very pleased to speak in support of the legislation.

Andrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

The Australian Financial Centre Forum's report, Australia as a Financial Centre: Building on Our Strengths, generally known as the Johnson review, recommended that government should reduce the regulatory requirements on corporate debt issuance to retail investors. The rationale for that is that the Australian corporate bond market has traditionally been too shallow. The number of Australian companies issuing bonds is quite small. On average, over recent times only around 30 bonds have been issued in the domestic market every year, with just a few more being issued in the offshore market. On the benefits to Australian corporations, the Johnson review argued that non-bank corporate debt financing within the Asia-Pacific region would increase over time and that Australia could potentially play a role in facilitating the issuance of this type of debt and in managing Asia-Pacific corporate debt portfolios. So this bill is to be welcomed.

The total Australian corporate bond market is currently too small and Australian corporations could benefit from a larger corporate bond market. This is an issue which was important to the former Labor government. I had the privilege as Parliamentary Secretary to the Prime Minister of officially launching exchange traded Australian government bonds at the Australian Stock Exchange on 20 May 2013. The government's rationale for encouraging the ASX to relaunch exchange traded Australian government bonds was in order to assist the creation of a deeper and more liquid domestic corporate bond market. That, in our view, allowed Australian banks to reduce their reliance on offshore funding markets and, in turn, had benefits for Australian investors and consumers. The 2010 competitive and sustainable banking reform platform that Labor put forward had as a major plank the creation of a deeper and more liquid domestic corporate bond market. The creation of exchange traded Australian government bonds created an instrument against which corporate bonds could be pegged, as well as, of course, providing an investment opportunity for superannuation funds and allowing another way for Australian investors to diversify risks.

Regarding the bill before the House, the former Labor government introduced many of these changes in schedule 1 of the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013, which lapsed with the 2013 election. Schedule 1 of that bill was virtually identical to the bill that the House is debating today. The key difference is that, under the bill Labor introduced, the term of a bond could be no more than 10 years and this bill changes that to no more than 15 years. But both bills are grounded in the Johnson report and the bipartisanship that that report enjoys in this House. Both sides of the House are keen to reduce the regulatory burden on the issuers of corporate bonds, while making sure that fair standards of consumer protection are maintained. Under the changes in this bill, the issuance of certain corporate bonds to retail investors requires the provision of a two-part simple corporate bond prospectus and that simple corporate bonds be able to be traded using simple retail corporate bond depository interests. The bill also makes changes so that directors and proposed directors of a body making an offer have liability for any misstatement in, or omission from, the disclosure document only when they are involved in a contravention of section 728(1).

The measures in the bill, as I have noted, are part of Labor's broad commitment to a stronger corporate bond market, which is part of ensuring that Australia plays an important role as a regional financial centre. Australia has many strengths in attaining this. A strong education system, great diversity of languages being spoken and our time zone are among them, but it is important that our regulatory settings are appropriate to attaining that goal. In recent years, the United States has been rocked by revelations of high-frequency trading. Michael Lewis's book Flash Boys has highlighted vividly the harm that can be done to investors of front running, in which buyers of shares do not get a fair price in the market because they are outbid by milliseconds by a computer program. Australia, thankfully, has not seen the sorts of high frequency trading problems that have beset the United States market, and that is another strength for our region and for the aspiration for Australia to be a regional financial centre.

The Johnson review, of course, had a range of other recommendations which are going to take time to implement. I believe the removal of state insurance taxes is a goal which is supported by both sides of this house. It was a high priority of the Henry review which noted that insurance taxes penalise the sort of behaviour that governments should be encouraging. People hedging against their own risk should not be penalised for so doing. The recommendations of the Johnson review are an important underpinning of Australia as a financial centre.

It is also important that we ensure we have a strong public service and the right policy settings to underpin the growth of the financial sector in Australia. I am concerned by recent developments of this government; for example, the decision to axe 3,000 staff from the Australian Taxation Office which, according to evidence given by ATO officials at a Senate hearing, will cost, for every dollar of staff wages saved, between $1 and $6 of lost revenue to the budget. This is, as my colleague the member for Griffith said in an interview, penny-wise but pound-foolish.

We have seen today revelations from Australian Taxation Office insiders that they believe the revenue collection ability of the Australian Taxation Office will be gutted as a result of the government's staff cuts to the Australian Taxation Office. A good, strong taxation system is fundamental to Australia as a financial centre because when some firms are able to dodge tax with impunity others feel a lack of confidence about the institutional structures.

The same issue affects the government's approach to multinational profit shifting. Australian domestic firms—a mum and dad cafe, a small business set up to produce products for the domestic market—do not have the opportunity of engaging in profit shifting, using instruments such as differentially pricing assets or pricing debt. But to the extent that the government has chosen to leave open $1.1 billion worth of loopholes, it is unfairly advantaging firms which are able to use clever structures to avoid paying their fair share of tax.

We on this side of the house are deeply troubled by the way the government is talking the talk of the G20 about cracking down on multinational profit shifting, but it is failing to walk the walk. We have seen recently revelations of the low amount of tax paid by Glencore, formerly Xstrata. The Treasurer is apparently concerned about these reports. I would say to the Treasurer that he could well put his concerns into action. He could act to crack down on multinational profit shifting by implementing the full gamut of Labor's reform put together by Wayne Swan and David Bradbury, David Bradbury now having taken over a senior job in taxation in the OECD.

That was a $4 billion package which has now been taken down to a $3 billion package by this government, which is then seeking to re-present it to the Australian people as though it is getting tough with multinational profit shifting. It is as though the Treasurer has received a box of chocolates for one Christmas, taken out a quarter of the chocolates, eaten them, and is now trying to re-wrap the package and present it to the Australian people as a terrific Christmas gift for next time around. The fact is that the government is not serious about tackling multinational profit shifting and, again, that raises concerns about the fairness of corporate income tax. Those Australian firms which pay the 30 per cent rate will look askance at multinational companies that are able to avoid their fair duty to contribute to building a better society—which is what taxes do—by multinational profit shifting.

I am also concerned about the message that is sent by the government's hasty deal with the Palmer United Party over the Future of Financial Advice laws. This is a deal done very, very quickly but lacking the backing of peak interest groups such as National Seniors and Choice.

Steven Ciobo (Moncrieff, Liberal Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

Mr Deputy Speaker, I raise a point of order on relevance. This has absolutely nothing to do with the bill.

Don Randall (Canning, Liberal Party) Share this | Link to this | Hansard source

Yes, I would encourage the member for Fraser to speak to the bill.

Andrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

Thank you, Deputy Speaker, I appreciate your guidance. I was simply referring to the importance of seeing this bill in the broader context of what the government is doing across the financial sector. This bill enjoys bipartisan support, but it is important to recognise that the bill, which contains a number of measures brought forward by the former Labor government, is but one part of what we are doing. When we are debating legislation in this place it is important to give bills their proper context.

I commend the government for its commitment to expanding the corporate bond market. At the same time I am concerned about cuts to the tax office, deals on financial advice and measures which ultimately do not shore up the integrity of the financial system, as we need to do. A strong financial sector is vital for Australia not just because it creates jobs but because finance is the lifeblood of the economy. We have seen recently in places such as Greece that when the financial sector gums up, the entire real economy suffers. A strong financial sector is important for all Australians.

I am concerned about suggestions from the government that, for example, they might step back from the four-pillars policy, a policy which both sides of the House have been committed to which prevents mergers among the big four banks. The notion that Australia needs more consolidation at the top of the financial sector is a strange one indeed. I hope the government will clearly state—perhaps the parliamentary secretary might do so today—its commitment to the four-pillars policy as a way of ensuring that the Australian financial sector retains a strong sense of integrity and health within it. I commend the government for their support for the corporate bond sector. I encourage them to pursue with the same vigour across the spectrum of financial reforms this commitment to openness, transparency and the integrity of the financial sector.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Foreign Affairs) Share this | Link to this | Hansard source

I am pleased to support this bill, the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2004. I believe this legislative reform being debated here today provides a wonderful opportunity for the Australian economy to tap into the wonderful growth that is occurring in the provision of financial services particularly in the Asian region, as much of the South-East Asian economy in particular begins to develop and more and more members of that economy move from situations of poverty into urban environments, into higher paying jobs and incomes and, of course, into financial services.

Financial services is Australia's largest income provider in terms of industries. It is one of our largest employers and it is a growing area of our economy. It represents a wonderful opportunity for Australia to be involved in exporting some of that expertise and further integrated with the Asian economy when it comes to the provision of financial services. That is why Labor supports the establishment of a retail corporate bond market in Australia. The establishment of a deep and liquid retail corporate bond market in this country was a key priority of the former Labor government. That is why we are pleased to support this reform.

It is actually a reform that was initiated by the previous, Labor government through the then minister, David Bradbury, and the Treasurer, Wayne Swan. Unfortunately, the provision was introduced into the parliament, but the last parliament ran out and the bill lapsed. I am pleased to see that this government is now proceeding with this reform and has Labor's full support.

In December 2010, as part of its competitive and sustainable banking system initiative, the former Labor government signalled that it would be introducing changes to facilitate the development of a deeper and more liquid corporate bond market in Australia. These changes included launching the trading of Commonwealth government securities on financial markets accessible to retail investors and reducing the regulatory burden associated with issuing corporate bonds to retail investors, including streamlining disclosure requirements and prospectus liability regulations.

Labor had introduced the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013, but, as I mentioned earlier, that bill lapsed. Schedule 1 of that bill is virtually identical to the bill that we are debating today. The key difference is that Labor's bill introduced a term of a bind that could be no more than 10 years. This bill changes that period to no more than 15 years. A well-performing and efficient retail corporate bond market will provide alternate sources of funding for Australian companies and increase competitive pressures on lending rates to Australian businesses. This bond market is a significant source of funds for many Australian financial and non-financial corporations. Correspondingly, this financing activity provides investment opportunities for Australians and non-residents.

The Johnson report, entitled Australia as a financial centre: building on our strengths, examined the lack of liquidity and diversity in Australia's corporate bond market. It discussed why the lack of liquidity was a significant weakness in the overall assessment of Australia's financial system. At the retail level it was considered that one action the government could take to overcome this weakness was to introduce regulatory changes that could assist with the development of the market. The bill before the House does that. It seeks to reduce the regulatory burden on issuers of corporate bonds while, at the same time, ensuring that appropriate standards of consumer protection are maintained.

The bill follows the passage of the former Labor government's legislation to facilitate retail trading of Commonwealth government securities in 2012. Having an active retail CGS is an important step in establishing a wider retail corporate bonds market by providing a visible pricing benchmark for retail investors in corporate bonds. This bill delivers on Labor's former commitment to reduce regulatory burdens and barriers for offerers of corporate bonds to retail investors. The bill contains three major elements which do that. Currently, the issuance of a corporate bond to retail investors requires the provision of a full prospectus. Under the changes in this bill, the issuance of certain corporate bonds to retail investors will require the provision of a two-part, simple corporate bond prospectus. Secondly, currently simple retail corporate bonds, like other bonds, can be traded directly, but they are not able to be traded as depository interests. Under this bill, simple corporate bonds will be able to be traded as simple corporate retail bonds depository interests. And, finally, currently directors and proposed directors of a body making an offer have a liability for any misstatement in or omission from the disclosure document, whether or not that director was involved in a contravention of subsection 728(1) of the act. This bill changes that so that directors and proposed directors of a body making an offer have liability for any mismanagement in or omission of the disclosure document only where they are involved in that contravention. That is making it much more specific and is relaxing some of the controls that were in place before, to ensure that there is much more encouragement for corporations to be involved in the issuance of bonds and hopefully improve the liquidity of the market.

The measures in this bill are another major initiative of the previous Labor government. It is evidence that we were delivering on our long-term commitment to encourage the development of a deep and liquid corporate bond market in Australia. The measures provide companies with another source of fundraising and a signal that it is their time to contribute to the development of Australia's corporate bond market. It provides a wonderful opportunity for Australia to be involved in growth in financial services in the Asia-Pacific region and for Australia to be a key player, a key financial hub, in the provision of our services that will ultimately grow jobs and our economy in Australia. And with that, Labor and I commend this bill.

Steven Ciobo (Moncrieff, Liberal Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

I would like to thank those members who have contributed to this debate. The reforms in this bill will aid the development of a deep and liquid retail corporate bond market in Australia to provide benefits to business and investors. The strong retail corporate bond market gives businesses greater flexibility in where they source their funding and creates greater opportunities for investors to diversify their risk and access a new source of fixed income. Because of the reforms in this bill, bond issuers will be able to issue bonds with less red tape. The bill is another step along the path on the government's commitment to reduce regulatory burdens on business and reduce unnecessary costs.

The measures in this bill require companies to offer simple corporate bonds through an offer specific prospectus provided they have lodged a base prospectus with ASIC for the purpose of making an offer under the new two-part simple corporate bond prospectus regime. The new disclosure regime will reduce costs for bond issuers as it will enable the bond issuer to incorporate or refer to information already disclosed by the bond issuer as part of the disclosure material. Another part of the significant reduction in disclosure burden is the prospectus documents will also be able to be used for subsequent tranches of bond issues where the information remains current.

The bill also removes the deemed civil liability that applies to company directors when offering corporate bonds and provides clarification around the reasonable steps required to satisfy the due diligence requirements in respect of directors' criminal liability. This is being done whilst still maintaining appropriate standards of consumer protection are maintained. The bill also contains amendments that will put in place a framework in the Corporations Act to enable parallel trading of simple corporate bonds in the wholesale and retail markets, and I commend the bill to the House.

Question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.