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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA AUSTRALIAN SECURITIES MARKETS AND THEIR REGULATION PART I Report from the Senate Select Committee on Securities and Exchange Volume 1 Report AUSTRALIAN GOVERNMENT PUBLISHING SERVICE CANBERRA 1974 MEMBERS OF THE COMMITTEE Senator P.E. RAE, B.A.,LL.B.(Hons), (Tasmania), Chairman Senator P.D. DURACK, LL.B(Hons), B.C.L., (Western Australia), (Appointed 17 August 1971) Senator G. GEORGES, (Queensland) Senator A.G.E. LAWRIE, (Queensland) Senator J.A. LITTLE, (Victoria) Senator J.P. SIM, (Western Australia) Senator J.M. WHEELDON, B A(Hons), (Western Australia) Senator the Hon K.S. WRIEDT, (Tasmania) FORMER MEMBER Senator the Hon Sir Magnus CORMACK, K.B.E., (Victoria) (Chairman from 21 April 1970 to his election as President of the Senate on 17 August 1971) iii TERMS OF REFERENCE On 19 March 1970 the Senate resolved: (1) That a Select Committee be appointed to inquire into and report upon the desirability and feasibility of establishing a securities and exchange commission by the Commonwealth either alone or in co-operation with the States and the powers and functions necessary for such a commission to enable it to act speedily and efficiently against manipulation of prices, insider trading and such other improper or injurious practices as the Committee finds have occurred or may occur in relation to shares and other securities of public companies, and to recommend generally in regard to the foregoing such legislative and administrative measures by the Commonwealth as will, having regard to the constitutional division of legislative power in Australia, enable the utmost protection of members of the public and the national interest. (2) That the Committee consist of Senators to be appointed by a subsequent resolution. (3) That the Committee have power to send for persons, papers and records, to move from place to place and to meet and transact business notwithstanding any prorogation of the Parliament. (4) That the Committee have leave to report from time to time its proceedings and the evidence taken and such recommendations as it may deem fit. (5) That the Senate authorise the publication of all documents which may be laid before the Select Committee and of all evidence which may be given before it except such particular documents or evidence as the Committee determines should not be published. (6) That the Committee report to the Senate as soon as possible. (7) That the foregoing provisions of this resolution, so far as they are inconsistent with the Standing Orders, have effect notwithstanding anything contained in the Standing Orders. v The motion was supported by all parties and on 9 April 1970 the Senate agreed to a motion that the Select Committee on Securities and Exchange consist of eight Senators, four to be appointed by the Leader of the Government in the Senate, three to be appointed by the Leader of the Opposition in the Senate and one to be appointed by the Leader of the Australian Democratic Labor Party. On 16 April 1970, the Senate was informed that Senators Sir Magnus Cormack, G. Georges, A.G.E. Lawrie, J.A. Little, P.E. Rae, J.P. Sim, J.M. Wheeldon and K.S. Wriedt had been appointed to serve as members of the Committee. With his election as President of the Senate on 17 August 1971, Senator the Hon Sir Magnus Cormack resigned and Senator P.D. Durack was appointed in his stead. The present Chairman and the other Senators have served throughout the life of the Committee. As Committees are appointed only for the life of a Parliament it was necessary that the Committee be reconstituted following dissolution of the 27th Parliament and the meeting of the new Parliament on 27 February 1973. On 10 April 1973 the Senate resolved to re-constitute the Committee with identical terms of reference. With the prorogation of the Parliament on 14 February 1974 it was again necessary for the Committee to be re-constituted. This was done on 14 March 1974, again with the same terms of reference. vi PREFACE Meetings of the Committee Since its first meeting on 21 April 1970 the Committee has met on 167 occasions. Evidence amounting to more than 12,000 pages of typed transcript, of which approximately 25~ was heard in camera, was taken at 86 meetings held primarily in Canberra, but also in Perth, Sydney and Melbourne. The 142 witnesses, drawn from all sections of financial and commercial life in Australia, included representatives of various regulatory bodies and government institutions related to the industry, University lecturers, stock exchange members and executives, stockbrokers, Companies Act registrars, managers of mutual funds and other institutional investors, company directors, financial journalists, accountants, company secretaries, geologists, engineers, representatives of life offices, and shareholders. (There is an alphabetical list of witnesses at the end of this Report.) In addition the Committee received many hundreds of letters and oral and written submissions from private individuals and professional bodies throughout Australia. The Committee is grateful for the assistance given to it and for the widespread public interest in its work. Reports to the Senate On 15 May 1971, the then Chairman, Senator the Hon Sir Magnus Cormack, K.B.E., made a statement to the Senate on the Committee's progress to that date. Subsequent statements were made by the Chairman of the Committee, Senator P.E. Rae, on 9 December 1971 and on 13 December 1973. vii From time to time the Committee considered whether it should table an interim report but, as outlined in each statement to the Senate, the Committee's opinion was that the inter- relationship of the various aspects of the inquiry was too great for part-presentation at that stage. The Committee decided to publish this report without awaiting the completion of a chapter on matters relating to certain announcements and geological assessments by Queensland Mines. We believe however that this chapter provides important insights into Stock Exchange and Company practices as well as providing lessons related to the supervision of the securities industry. It will be published as soon as possible. This publication is also without the final chapter relating to further, but less important, recommendations of the Committee. That chapter will also be tabled in the Senate as soon as possible. In both instances the early drafts have been completed. However the Committee desired to give further consideration to them and to have them extended. In taking its decision to table the Report in its present form the Committee recognised the keen interest of the Senate and was aware of the importance of taking the earliest opportunity to provide the major parts of the report to those concerned with the introduction of new laws governing the securities industry and to the public. The Committee believed that the integrity of the Report would not be destroyed by its publication without those chapters, though we emphasise that the final printed report must contain them. viii This report refers extensively to documents received by the Committee. To ensure that readers have the fullest under- standing of such references, the documents are being published in full in a companion volume. The transcript of public evidence given by witnesses is also being published. It is contained in three volumes. The transcript of evidence does not contain the evidence taken in camera. A variety of circumstances led the Committee to take evidence in camera from time to time. In many instances witnesses were clearly advised that, even though the evidence was taken in camera, the Committee reserved the right to use some of this evidence in the report itself. The report includes a number of quotations from such evidence. In other instances the witnesses have subsequently given their approval to the use of parts of their in camera evidence. Overseas Information To keep informed on current thinking and developments within the securities industry, the Committee sought and obtained extensive information from overseas countries, in particular, the United Kingdom, South Africa, the United States of America, Canada and Japan. Various reports of governmental and other inquiries overseas have been of considerable assistance to the Committee. In addition the Chairman, Senator P.E. Rae, the Legal Adviser, Professor D.E. Harding and the then Secretary, Mr D.W. Whirbread, have been overseas during the course of the Committee's inquiry and have had valuable discussions with experts in the securities industry in the United Kingdom, the United States, South Africa and Canada. In particular, they have had an opportunity of seeing the U.S. Securities and Exchange Commission and bodies such as the London, New York, Johannesburg and other Stock Exchanges in operation and have brought the benefit of this first-hand experience to the Committee's deliberations. The Committee wishes to express its gratitude for the ready co-operation given by various overseas individuals and bodies, especially to officers of the United States Securities and Exchange Commission, to Professor Louis Loss, Professor of Law at Harvard University and to Mr James J. Needham, Chairman of the Board of the New York Stock Exchange. Officers of the Committee At the first meeting of the Committee on 21 April 1970, Senator the Hon Sir Magnus Cormack, K.B.E., was unanimously elected as Chairman and continued in this position until 17 August 1971 when he was elected to the position of President of the Senate, whereupon he tendered his resignation. On 18 August 1971 Senator P.E. Rae was elected unopposed as Chairman. Mr D.W. Whitbread, Clerk of Committees, was appointed Secretary of the Committee at its inception on 19 March 1970 and served in this capacity until 30 January 1974.