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Reinforcing Confidence in Market Integrity

Belinda GibsonCommissioner

Women Lawyers AssociationCorporate Lunch Series

21 July 2009

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Market integrity

• Market Integrity refers to the ability of investors to transact in a fair and informed market.

• The key aspects of integrity:

– corporate transparency: equal access to information about entities

– transparency: equal access to information about prices and volumes

– fairness: traders cannot profit from greater information or greater power to manipulate the market.

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Market integrityBenefits of market integrity

• The benefits of enhanced market integrity are:– lower cost of capital– increased liquidity– investor confidence.

• At 2% of world market capitalisation the competitiveness of Australia’s equity markets is essential.

• Some 40% of investment in the Australian equity market comes from offshore.

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Global financial turmoil

What is the focus of financial regulators?• Rebuilding confidence in the financial system -

ensuring lending.• Credit ratings agencies.• The unregulated (OTC) markets – visibility.• The unregulated investors – hedge funds, private

equity (shadow bankers).• Fair value accounting.• Executive remuneration – reward related to risk.

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Market turmoil

• Short selling.

• “Rumourtrage”.

• Good timely disclosure to the market.

• Facilitating capital raising.

What most concerns ASIC in the capital markets space:

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What is (new) ASIC doing for integrity?

1. Increased direct surveillance (with ASX).

2. Greater focus on enforcement actions.

3. Greater participation in market dialogue.

4. Project MINT – dealing with rumourtrage.

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Increased surveillance (with ASX)

• ASX referrals of suspicious conduct pretty

constant – 23 a quarter. Over half go to

Investigation.

• ASIC and ASX work more closely together on

some suspicious conduct enquiries.

• ASIC initiates more surveillance activity itself.

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Greater focus on enforcement actions

• ASIC has increased its team and its focus on effective enforcement.

• Since January 2008 ASIC has achieved the following outcomes:- 4 criminal convictions (4 guilty pleas). 1 short

selling breach pending.- 10 bannings (5 on appeal).- 3 infringement notices for continuous disclosure

breaches.- 3 enforceable undertakings, and - 1 licence condition.

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Greater participation in market dialogue

• ASIC has decided to be more active in discussion about what the law requires and what it should be:– continuous disclosure updates and– CAMAC submissions.

• ASIC is more active in working with industry on appropriate/best practices:– capital raising– information retention and– broker information handling.

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Project MINT – dealing with Rumourtrage

• Market surveillance.• Investigations.• Successful enforcement action.• Email facility to receive information.• Guidance to corporates on responding to

rumours.• Dialogue with the brokers and investment industry

about responsible handling of information.• CAMAC submission.