 In Washington on 25 August 2008, the US Securities and Exchange Commission (SEC), the Australian Government and the Australian Securities and Investments Commission (ASIC), entered into a mutual recognition arrangement.
The mutual recognition arrangement provides a framework for the SEC, the Australian Government and ASIC to consider regulatory exemptions that permit U.S. and eligible Australian stock exchanges and broker-dealers to operate in both jurisdictions without the need for these entities (in certain aspects) to be separately regulated in both countries.
Once implemented, these exemptions could permit U.S. stock exchanges and broker-dealers regulated by the SEC to offer their services to Australian wholesale investors and financial firms without being subject to most ASIC regulation. Subject to conditions imposed by the Australian authorities eligible Australian stock exchanges and broker-dealers regulated by ASIC, could offer their services to certain types of U.S. investors and firms without being subject to most SEC regulation, subject to conditions imposed by the SEC
The agreement is the first of its kind reached by US regulators and is part of one of ASIC's key priorities, to do what it can to work with fellow regulators to facilitate the flow of capital in and out of Australia commensurate always within the bounds of proper investment protection.
The benefits of the mutual recognition should translate into:
lower transaction costs when dealing on each other's markets; and
improved liquidity.
At present, there is already a healthy flow of funds between the two countries. US Treasury data shows:
US $18 billion per month in US transactions in Australian Equities ($216b per year); and
US $6 billion per month in Australian transactions in US Equities ($72b per year).
The reduction in transaction costs (eg needing only one broker) and in allowing brokers to trade on each others markets without unnecessary duplication, should also see some increase in demand which in turn, should translate into lower costs of capital.
The agreement should result in a lower cost of capital so important for the real economy of the two countries.
The two regulators will work together to frame the necessary exemptions to deliver these benefits and at the same time, make sure we protect our respective investors – both wholesale and retail. This is similar to the way ASIC worked with China, New Zealand and Hong Kong authorities recently resulting in agreements, which have provided greater access to each other's markets.
An integral component of the mutual recognition arrangement is the signing of 2 memoranda of understanding (MoUs) by the SEC and ASIC. They are:
an Enhanced Enforcement MOU which will, in an era where corporate crime knows no geographic boundaries, compliment ASIC's moves to significantly expand its resources in fighting international corporate crime and fraud; and
a new Supervisory MOU that will allow for considerably greater regulatory and enforcement cooperation and coordination between the SEC and ASIC.
These MOUs will apply broadly to all U.S. and Australian market activity and not just those related to the mutual recognition arrangement. Under the arrangement, both the SEC and ASIC will retain jurisdiction to pursue violations of their respective anti-fraud laws and regulations.
Tony D'Aloisio
|