Michael Forshaw (NSW, Australian Labor Party) Share this | Link to this | Hansard source

My question is—

Honourable Senators:

Honourable senators interjecting—

John Hogg (President) Share this | Link to this | Hansard source

Senator Forshaw, resume your seat. We will not proceed until there is silence.

Honourable Senators:

Honourable senators interjecting—

John Hogg (President) Share this | Link to this | Hansard source

Senators Faulkner, Carr and Bernardi, there is an appropriate time to debate this across the chamber at the end of question time.

Michael Forshaw (NSW, Australian Labor Party) Share this | Link to this | Hansard source

My question is to Senator Sherry, the Minister for Superannuation and Corporate Law. Can the minister update the Senate on how Australia’s regulators are responding to events in global financial markets? How is the government supporting them in their role?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

Those in the Senate chamber and, I am sure, those in the public would be well aware that in the last two weeks we have seen extremely difficult conditions for global financial markets, characterised by extremely volatile—

Honourable Senators:

Honourable senators interjecting—

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

I hear members of the opposition saying, ‘So what?’ These are very important issues that the Liberal opposition appears to believe are insignificant. They are very important issues. We are confronting the most challenging global financial circumstances in a quarter of a century; some have said that this is a once in a century event. Share market volatility globally has been very significant in recent weeks, sparking possible US government intervention to the tune of some US$700 billion and possibly over US$1 trillion.

Overnight, the US congress worked through the details of the proposals with the secretary of Treasury, Hank Paulson, to basically buy up all of the subprime assets which have infected their financial system. In a reversal of 70 years of regulation, the last two remaining independent investment banks, Goldman Sachs and Morgan Stanley, have been given approval by the Federal Reserve to formally become banks—that is, deposit-taking institutions. In further market developments, reports indicate that Japanese bank Mitsubishi UFJ looks likely to be about to purchase up to a quarter of Morgan Stanley.

The point that I would make and that the Liberal opposition appear to not want to even consider is that this is a very fast moving situation. Every day—indeed, every hour—brings a major new development in the global financial markets. The Prime Minister, the Treasurer and other senior economic ministers are in regular communication with Australia’s regulators. The Treasurer and I met with the full Council of Australian Regulators at length last Friday.

As I informed the Senate yesterday, last week we saw the independent regulators ASIC and, in this case, the ASX take steps on short selling. ASIC took decisive action on Friday and with the ASX banned naked short selling here in Australia and put some additional clarity around what exactly a covered short sale is. These are both important steps in ensuring ongoing market confidence. After that decision, the US SEC moved again with an additional emergency order, completely banning all short sales, naked or covered, on their financial services companies.

After the Australian declaration by ASIC and ASX, Ireland, Germany, France and Ontario, all major financial jurisdictions, took additional action over the weekend. As a result, to ensure that the Australian market was not hit by a wall of short selling funds on Monday morning, ASIC took further action and temporarily halted most forms of short selling of Australian stocks on Sunday evening. In uncertain times like this, we cannot afford to have offshore funds, particularly hedge funds, attacking our market.

I would like to take this opportunity to highlight some comments made by John O’Shaughnessy, Deputy CEO of the Investment and Financial Services Association, who said, ‘If there is a moratorium in the US and UK, it makes sense that Australia follows suit.’ He went on to say, ‘The moves on Friday night were understandable and we’re not surprised they’ve extended them today.’ (Time expired)

Michael Forshaw (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. Can the minister point to alternative approaches to dealing with our very well respected regulators?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

Unfortunately, in these uncertain times the Liberal opposition have lost complete control of their response to these financial conditions. Yesterday we saw the appalling situation and display of the Leader of the Opposition and the shadow Treasurer attacking the independent market regulator, ASIC. The Liberal opposition, when in government, created the independent regulator; they gave it its powers of independence; they created and appointed the three independent commissioners. Here we have the Liberal opposition attacking a creation of their own and attacking commissioners that they appointed. ASIC is an independent regulator that has responded appropriately in the current situation.

Helen Coonan (NSW, Liberal Party, Manager of Opposition Business in the Senate) Share this | Link to this | Hansard source

Senator Coonan interjecting—

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

You should know, Senator Coonan, as I am sure that you approved the appointment of those commissioners. They are independent. In these circumstances, they have behaved very appropriately in cracking down on short selling and stopping market manipulation. You should support them, not criticise them. While you are at it, pass the budget. (Time expired)

Guy Barnett (Tasmania, Liberal Party) Share this | Link to this | Hansard source

My question is to the Minister for Superannuation and Corporate Law, Senator Sherry. Why on 8 August this year, just six weeks ago, did the minister tell the investment and financial services annual conference, ‘We will not be banning short selling’?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

Thank you for the question. I did not say it just on that occasion; I have said on many occasions that the government would not legislate to ban short selling. I have said that on many occasions. Let me explain how short selling is regulated in this country, because the questioner clearly does not understand the regulatory framework that we have.

Honourable Senators:

Honourable senators interjecting—

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

It appears that the Liberal opposition have no fundamental understanding about who makes decisions with respect to the regulation of—

Opposition Senators:

Opposition senators interjecting—

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

It appears that the Liberal opposition have no understanding of the way in which short selling is regulated in this country. What happens in Australia is that the independent regulator, ASIC, regulates short selling. The independent supervisor, the ASX, regulates naked short selling. They are the two organisations that have the power to regulate short selling in this country. I am surprised that the Liberal opposition do not know this because they established that system. They established an independent regulator. As I have just said, they created the independent regulator, they gave it its independent powers and indeed they appointed the three current independent commissioners. Why they criticise an independent regulator I do not know. It is very inappropriate in these times. And the opposition, when in government, gave the power to the ASX as an independent supervisor to control naked short selling.

What I have said on many occasions is that the government would not legislate to control short selling. It is the responsibility of independent regulators to make that decision, based on market decisions. Clearly those opposite do not understand and have not been following those market conditions. Let us look at the last two weeks. Two weeks ago, the American government bailed out Fannie Mae and Freddie Mac. Last week the United States government announced a massive bailout of AIG, because the infection in the financial system in the United States was spreading to the insurance system. In that context, not just ASIC, the independent regulator, and not just ASX but almost every other regulator around the world decided to introduce limits on short selling and effectively ban it, with a number of variations depending on the jurisdiction.

They decided to ban it, and I agree with them because circumstances changed last week. Those opposite do not appear to have noticed that the infection in the financial system in the United States is not getting any better; it is getting worse. So the independent regulator and the independent supervisor, the ASX, took the decision to limit it and effectively put an interim prohibition on short selling. They made the call and I agree with them because market circumstances changed and became so serious that they had to minimise market manipulation. Those opposite should stop bagging the independent regulator and get on and provide some budget certainty and pass our budget.

Guy Barnett (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Mr President, notwithstanding the minister’s refusal to answer my first question, I do have a supplementary question. What steps is the government taking to ensure that people using online share-trading platforms such as CommSec are not short selling?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

Unfortunately, the supplementary question still reveals a failure to understand who makes the decisions about financial regulation and supervision when it comes to the prohibition of short selling in this country. We have an independent regulator, Senator—ASIC. They determine the details of the operation of and the transition provisions for the ban on short selling in this country. If you go to their website I am sure they will have laid out the transitional provisions and the details of the transitions for this very important measure that has been taken at a time of market instability. I stress, we have major market instability that has been ongoing and has got worse. The independent regulator, ASIC—which you created; you appointed the commissioners, which you continue to criticise—has made a decisive decision and put an interim ban on short selling which is necessary with the current share market volatility. It is very important that you support that, support our budget measures and provide the vital cushion we need to ensure financial stability. (Time expired)