ASX defends role after ASIC attack

A RECENT attack on the Australian Stock Exchange by the Australian Securities and Investment Commission appears to have struck a nerve with the listing body.

ASIC chairman David Knott called into question ASX’s role in maintaining the integrity of listed companies in Australia in the wake of the recent corporate scandals.

ASX CEO and managing director Richard Humphry sent off a fiery response saying that the exchange had an appropriate supervisory regime in place that could stand up against any exchange around the world.

Only two days after Mr Knott’s public criticism, made in an address at Monash University, the ASX issued an enhanced disclosure state-ment aiming to reform the con-tinuous disclosure requirements within the listing rules.

Then, last week, it announced the formation of a corporate governance council.

However, an ASX spokesman told WA Business News the release of the proposed changes to the listing rules was not made in response to Mr Knott’s comments but instead was the result of several months’ work.

“This was not a knee-jerk reaction. This was something we have been working on for some time,” the spokesman said.

In his speech Mr Knott said efforts were being made in exchanges around the world to address the problems surfacing over corporate transparency.

“In the light of these developments there have been increasing calls of late for the ASX to adopt a more assertive role in this area,” Mr Knott said.

“Unlike many other exchanges, the ASX has specifically disavowed any intention to endorse best corporate governance practices. It argues that the diversity of entities it lists, the existence of alternative solutions to address particular governance problems, and the development of corporate governance ideas over time mean that it is inappropriate for it to require particular practices to be adopted.”

He said the problem went back to the private ownership structure of the ASX, unlike most other exchanges around the work, such as the New York Stock Exchange.

Because of this “the regulatory responsibilities often sit uncomfortably alongside the profit motive,” Mr Knott said.

“The Corporations Act imposes a responsibility on ASX to ensure that its market is fair, orderly and transparent; it must supervise its market, including compliance with its listing and business rules; and it must have listing rules that comply with the relevant regulations.

“However, any additional regulatory role is a matter of choice for ASX – that is, it is up to ASX to decide whether it wishes to combine such a role with its ‘for profit’ business model.

“Time will tell whether the current Australian arrangements are sustainable, or whether the ASX will accept extended responsibilities in this area.

“It is always possible, of course, that additional governance obligations will be legislated or that ASIC will be charged with increased responsibilities in the area.”

Mr Knott suggests that other governments have responded by transferring the listing responsibilities from the exchange to a government regulatory body following demutualisation.

Mr Humphry’s first response was to defend the ASX’s position.

“In the present climate the ASIC clearly feels under pressure to be seen to take the initiative in certain areas,” he said.

“ASX has lent its support to ASIC’s efforts to impose a system of fines for serious breaches of disclosure rules.

“ASX rejects any suggestion that its supervision of the market is influenced by the fact that it is a listed company.

“A recent Senate Committee conducted an extensive review of this matter last year and concluded that the existing co-regulatory structure was the most appropriate.

“The ASX operates an orderly market and in so doing relies on the regulator as part of the co-regulatory system to enforce the law.”

Two days after the comments from Mr Knott, however, the ASX released its enhanced disclosure rules, and then last week launched the corporate governance council to broaden disclosure.

The council will include the Business Council of Australia, the Australian Institute of Company Directors, Chartered Secretaries Australia and the Securities Institute of Australia.

Chaired by ASX Issuers and Market integrity executive general manager Karen Hamilton, the council hopes to build on and complement the work of the industry corporate governance round table – convened and chaired by ASIC’s Jillian Segal.

Mr Humphry indicated the council would develop standards that would carry strong endorsement by companies.

But he made it clear that the re-lease of the enhanced disclosure provisions and the corporate governance council was not an admission that the ASX had lapsed previously in its responsibilities.

National law firm Corrs Chambers Westgarth senior partner Andrew Lumsden said the initiative to form the council reflected a move away from a narrow focus of dos and don’ts toward a more pragmatic approach.

Mr Lumsden said the council was also consistent with the recommendations of the Ramsay Report and the program commissioned by the Federal Government in CLERP 9.

“The establishment of the council recognises the dynamic and flexible nature of good corporate governance and emphasises the Australian market’s focus on the substantive issues instead of the strict compliance in the current prescriptive model,” Mr Lumsden said.

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