Bills Digest No. 115   1997-98 Corporations Law Amendment (ASX) Bill 1997


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WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History

Corporations Law Amendment (ASX) Bill 1997

Date Introduced: 18 November 1997
House: Senate
Portfolio: Treasury
Commencement: Royal Assent

Purpose

To facilitate the conversion of the Australian Stock Exchange (ASX) to a public company and to clarify the responsibilities of a demutualised ASX as a self regulatory organisation.

Background

At present, Australian Stock Exchange Limited is a company limited by guarantee, i.e. the liability of its members is limited to the respective amounts that the members undertake to contribute to the property of the company if it is wound up.The ASX is owned and controlled by its members and run on behalf of its members under its own constitution and operating rules.Its member are the brokers who use the Exchange to deal in the securities of businesses and governments. They are either corporations or firms that are licensed stockbroking organisations, or individuals who are senior employees or directors of stockbroking organisations.

This form of company is to be contrasted to a company limited by shares which is based on the liability of members being limited to any amount which is unpaid on their shares in the company.

Each member of the ASX has an equal interest in the company;hence the use of the description of the ASX as a 'mutual' organisation.

On 22 October 1996, the members of the ASX voted 540 to 22 to demutualise.This will involve the ASX converting from a company limited by guarantee to a company limited by shares.An equal number of shares will be issued to all members resulting in a windfall to those members of about $250,000 each.(1) The Corporations Law permits certain types of companies to change their status to another type of company, however, a change from a company limited by guarantee to one limited by shares is not provided for by the Corporations Law.Consequently, one of the purposes of this Bill is to permit the ASX to undertake that change in status.

As well as the role that the ASX plays in facilitating the trading of securities in listed companies, the ASX performs a regulatory role through the use of its listing rules and its ultimate power to delist a company which does not comply with those rules.Concerns have arisen as to the ASX's future as a regulator and it has been suggested that the Australian Securities Commission may eventually absorb most of the ASX's regulatory functions.(2) The two reasons given for this are firstly the expense associated with the regulatory activities and their non-financial return and secondly that it will be difficult for the Federal government to allow a privately owned, profit motivated company to retain such a powerful slice of corporate regulation.

Main Provisions

The amendments to the Corporations Law are effected by way of a Schedule of amendments.

Item 4 inserts new Part 7.1A into the Corporations Law.Proposed new section 766A is the operative provision which allows the ASX to change its status to a company limited by shares.

It is specifically provided that the change of status does not create a new entity and does not affect the ASX's existing rights or obligations (proposed new section 766D).

Proposed new sections 766E to 766I have the effect of prohibiting any person from being entitled to more than 5% of the voting shares in the ASX.

This ownership limit is restrictive in comparison to limits placed on other types of organisations (e.g. banks where there is a general limit of 10% for an individual shareholder).The justification for the limit is that it would not be in the public interest for any one person to gain control of the ASX.

Proposed new sections 769A to 769D deal with the ASX's ongoing regulatory role.The ASX must do all things necessary to ensure that each stock market of the exchange is an orderly and fair market and that there are adequate arrangements for monitoring and enforcing compliance with its business rules and listing rules (proposed section 769A).If the Treasurer is of the opinion that an exchange is not complying with those requirements, he or she may publish a notice directing the exchange to do specified things to promote compliance with those requirements (proposed section 769B).

Each exchange must report annually on the extent to which it has complied with the requirements of section 769A (proposed section 769C).

Concluding Comments

It will be interesting to hear the views of market participants, over the next few years, as to the effectiveness of the ASX in performing its regulatory function.Provided the performance of that function is not adversely affected, it would appear that from the viewpoint of the general public, this Bill does not raise any controversial issues.

Endnotes

  1. The Age, 'More debate needed on ASX plan to demutualise', Stephen Bartholomeusz, 25 April 1997.
  2. ibid.

Contact Officer and Copyright Details

Lee Jones
28 November 1997
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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ISSN 1328-8091
© Commonwealth of Australia 1997

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1997.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 28 November 1997

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