Australian Financial Markets Association

& Securities & Derivatives Industry Association

Joint Submission on Financial Services Reform Bill & Commentary

12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

Page 2 of 55 © Australian Financial Markets Association 2000. All rights reserved. © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

Confidential: The information, files and contents of this document are Confidential to AFMA and SDIA and the intended recipients. Forwarding, copying, reading or downloading of this document is otherwise prohibited.

For further information or to discuss the submission please call John Rappell at AFMA on (02) 9776 7997 ([email protected]) or Jody Taylor at SDIA on (02) 9776 7941 ([email protected]).

This version last edited on: 23 May 2000

© Australian Financial Markets Association 2000. All rights reserved. Page 3 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

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TABLE OF CONTENTS

INTRODUCTION...... 7

1. POLICY ISSUES...... 9

1.1 Meaning of wholesale client and retail client – s.761G...... 9 1.1.1 ‘Opting up’ to wholesale ...... 11 1.2 Declared professional bodies – s.882...... 12 1.2.1 Self-regulation ...... 14 1.3 Licensing of Financial Markets – OTC transaction exclusions – s.791B ...... 15 1.4 Licensing of Financial Markets - “markets” which are currently excluded ...... 16 1.5 Licensing of Financial Markets - Money Brokers – s.766C & s.791B ...... 17 1.6 Licensing of Financial Markets - other proposed exclusions – s.881...... 18 1.6.1 Issue 6.11 ...... 18 1.6.2 Issue 6.12 ...... 19 1.7 Other disclosure requirements – General advice warnings – s.918A ...... 19 1.8 Misconduct - market manipulation – Issue 11...... 20 1.9 Dealing with clients’ money – s.941 & Issue 7.1 ...... 20 1.10 Dealing with other property of clients – s.944B ...... 22 1.11 Liability of financial services licensees for representatives – s.888 ...... 22 1.12 Obligations of financial services licensees – s.883A(g) ...... 23 1.13 Issue 8.57 ...... 24 2. DRAFTING ISSUES ...... 25

2.1 Meaning of Derivative – s.761D ...... 25 2.1.1 Clarification of the meaning or use of the term “ultimately” ...... 25 2.1.2 Issue 1.15 ...... 26 2.2 Meaning of retail client and wholesale client - ‘Product value test’ - s.761G...... 27 2.3 When a person makes a financial investment – s.763B(1)(a)(i) ...... 29 2.4 Meaning of financial product advice – s.766B ...... 30 2.4.1 Definition...... 30 2.4.2 Categories of advice...... 31 2.4.3 Use of the term “personal advice”...... 34 2.5 Dealings involving employees of financial service licensees – s.951F ...... 35

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2.6 Titles of disclosure documents – s.912A, s.916A, s.983B, s.984B & Issue 6.3...... 36 2.7 Banning order provisions - s.889...... 37 2.8 Additional requirements for advice to replace one product with another – s.916D...... 38 2.9 Statements of advice – s.915B, s.916B & s.916C...... 39 2.10 The term “stockbroker” – Issue 5.10 ...... 40 2.11 Classification of Warrants - Issue 1.13...... 41 2.12 Public forum – Issue 6.2 ...... 41 2.13 Product Disclosure Statements (PDS) – s.983, Issue 8.19 & Issue 8.42 ...... 42 2.13.1 Issue 8.19 ...... 42 2.13.2 Issue 8.42 ...... 42 2.13.3 Exchange traded equity derivatives ...... 43 2.13.4 Ongoing disclosure...... 43 2.13.5 Ability to trade on market condition – s.986E ...... 44 2.14 Approved Codes of Conduct – s.1041A...... 44 3. APPENDICES...... 45

3.1 Appendix 1...... 45 3.2 Appendix 2...... 46 3.3 Appendix 3...... 47 3.4 Appendix 4...... 48 3.5 Members of AFMA Working Group ...... 51 3.6 Members of SDIA Working Group ...... 52 3.7 Full Members of AFMA ...... 53 3.8 Full Members SDIA ...... 55

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INTRODUCTION

The Australian Financial Markets Association (AFMA) and Securities and Derivatives Industry Association (SDIA) are pleased to have the opportunity to comment on the Financial Services Reform Bill Draft Provisions (“FSRB”). AFMA and SDIA retain a keen interest in, and lend ongoing support to, the process of law reform in the Australian financial markets. This submission is a joint response to FSRB. It is the result of several meetings of representatives of members of both AFMA and SDIA (Appendices 3.5 and 3.6 contain full lists of working group participants).

The Government’s commitment to put in place a comprehensive regulatory framework for the financial services industry that facilitates innovation and promotes business, while at the same time ensuring adequate levels of consumer protection and market integrity is commendable. In this context, the Financial Services Reform Bill Draft Provisions (“FSRB”) and Commentary on Draft Provisions (“Commentary”) represent a watershed, significantly progressing the existing regulatory position in several important ways. However, the FSRB refers broadly to the Regulations and the concomitant lack of precise detail makes it difficult to evaluate the full effect of the legislation. We eagerly await details of the way in which regulators, specifically ASIC, intend to implement this legislation.

Moreover, we believe that the Bill should be modified in a number of ways. This submission draws distinction between policy concerns (that is, conceptual issues) and drafting concerns (that is, issues relating to operationalisation of concepts). Refer to the table on page 8.

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Policy Issues Drafting Issues 1. Meaning of wholesale & retail client 1. Meaning of derivative 2. Declared professional bodies 2. Retail vs. Wholesale product value test 3. Licensed markets – OTC transactions 3. When a person makes a financial 4. Licensed markets – Exempt markets investment 5. Licensed markets – Money Brokers 4. Meaning of financial product advice 6. Licensed markets – Other exclusions 5. Dealings involving employees 7. General advice warnings 6. Titles of disclosure documents 8. Misconduct - Market manipulation 7. Banning Provisions 9. Dealing with Client money 8. Additional requirements when advice is 10. Dealing with other property of clients given to replace one product with 11. Liability for representatives another 12. Licensees obligations 9. Statements of Advice (SOA) 13. Issue 8.57 10. The term “stockbroker” 11. Classification of Warrants 12. Public forum 13. Product Disclosure Statements (PDS) 14. Approved Codes of Conduct

Inevitably, there is a measure of overlap between these two categories.

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1. POLICY ISSUES

We submit that some of the provisions of the FSRB do not fully meet the public policy objectives, or the public policy objectives are not fully enunciated, which impacts on the efficiency of the Bill. The following concerns are raised for your consideration.

1.1 Meaning of wholesale client and retail client – s.761G

Both AFMA and SDIA support a ‘bright line’ regulatory distinction between wholesale and retail participants for reasons of public policy, particularly consumer protection, as well as market imperatives of market efficiency and integrity.

The proposed definition of clients represents a departure from the wholesale/retail test that was foreshadowed in previous CLERP 6 working papers and current analogous statutory treatments. We believe that this distinction is flawed on several important grounds.

1. This test denies wholesale status to small business sophisticated operatives, such as licensed dealers and fund managers, which creates practical anomalies and is contrary to the policy ideals that underpin the s.761G. This also contrasts with other analogous statutory treatments of the wholesale/retail test which create uncertainty and confusion.

The recently enacted CLERP prospectus regime for securities contains various exemptions from the obligation to prepare and lodge a disclosure document1 which have close parallels to the retail/wholesale distinction in FSRB. Two key disclosure exemptions, CL s.708(8) and CL s.708(11), apply in relation to sophisticated and professional investors2.

Similarly, at the core of ASIC Policy Statement (PS) 70 is a definition of sophisticated participants that includes a holder of a futures brokers licence or unrestricted securities dealers licence. Regulation 7.3.02B(8)3 of the Corporations Law also currently adopts a more expansive definition of wholesale investor.

1 These provisions follow the pre-existing statutory position closely. 2 Refer Appendix 1 for quotation of CL s.708(8) and CL s.708(11). 3 Refer Appendix 2 for quotation of Regulation 7.3.02B(8).

© Australian Financial Markets Association 2000. All rights reserved. Page 9 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

At present, the FSRB definition resembles CL s.708(8) which provides three exemptions for sophisticated persons considered to be sophisticated by virtue of the size of the investment or their wealth. We believe that a professional investor test as described above and currently incorporated in other areas of the Corporations Law should be introduced into the FSRB wholesale/retail distinction. Denying wholesale status to a small licensed dealer, fund manager, or investment adviser undermines the significance of licensing and is antithetical to the policy imperatives that underpin the wholesale/retail distinction. Moreover, it is highly desirable that a comparable and consistent disclosure regime be developed.

2. Several of the expressions contained in the test are ambiguous and unclear. The expressions “involved in manufacturing” (which appears to unfairly discriminate between goods and services providers), “employees” (which could be operationalised at either full-time employees (FTE) or headcount), “business” (which could potentially include individual companies or corporate groups) are imprecise and require further explanation.

3. We are concerned with the treatment of the proposed $500,000 regulatory transaction size test. We submit that the test should be predicated on the size of the order or deal rather than individual transactions. For example, a $1 million purchase of securities could be achieved through three discrete transactions. This is consistent with the rationale of the exclusion to allow persons who are considered to have sufficient resources to obtain independent professional advice or who, because of the size of their potential investment, have sufficient leverage over the issuer to obtain the required information. Please also note the discussion of valuing derivatives that follows.

We also seek clarification that the Bill also extents the $500,000 exemption to allow investors to top up existing investments already over the prescribed amount of $500,000.

4. In general, the test is rigid in practice and complex in application. The test is a mixture of product-value based and client based tests. Monitoring continuing client status in respect of annual earnings is also problematic. Operationally, the wholesale/retail test may necessitate a division in trading rooms. The costs associated with the additional regulation of retail clients will substantially increase compliance costs.

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We note that there has been some criticism of the ‘static’ nature of the distinction4 and support the granting of a modification power to ASIC5 to raise someone to the wholesale level or vice versa.

Recommendation 1:

1. We submit that a professional investor test as described above should be incorporated into the FSRB wholesale/retail test. 2. We request that key elements of the definitions be clarified in order to avoid uncertainty and confusion.

1.1.1 ‘Opting up’ to wholesale The commentary at section 1.16 and 1.17 discusses the policy reasons for eliminating ‘opting up’ as a specific provision of the retail-wholesale client distinction.

It is fair to say that our members have been surprised and disorientated by the sudden, and apparently unjustified, and largely unconsulted change in policy direction represented by the proposed retail-wholesale definition. It is the case that wherever our clients deal with retail clients, they have established the current regulations in their systems and in the minds of their staff.

While we recognise the argument against ‘opting up’ set out at Commentary 1.17, we understand that there is no evidence of this mischief in the current or past regulatory frameworks. In any case, a better outcome may have been to proscribe such behaviour, to the extent that it is not already covered by other provisions, such as unconscionable conduct.

4 For example, Theresa Ientile has observed: The definition of “sophisticated end user” is static and does not cater for the possibility that entities which fall outside the definition have the capability to understand and make independent decisions regarding derivatives transactions and will not need the protection of the regime. It also excludes the possibility that a “sophisticated end user” may, notwithstanding that it has these capabilities, from time to time to enter into transactions of a particularly complex nature, in respect of which some of the protections of the regime would be appropriate. The Proctor & Gamble litigation in the United States could be considered an example of the latter situation. See Ientile T (1996) “Regulation of the Over-the-Counter Derivatives Market – The Industry Response”, 7 Journal of Banking and Finance Law and Practice March 68-73. 5 The Commentary states that regulations will permit the product-value prescribed amount test to be varied in particular circumstances, citing as an example a person in receipt of a superannuation payout. © Australian Financial Markets Association 2000. All rights reserved. Page 11 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

The proposed definition and the current definition, which set about establishing a retail- wholesale distinction, are arbitrary and artificial. As a result, they will, by their very nature, misclassify clientele either as retail when they are sophisticated, or wholesale when they are not. The opting up provisions, notwithstanding the unsubstantiated arguments against the concept, are a realistic attempt to deal with misclassification that is an everyday consequence of the current definitions. That misclassification will become more apparent in the proposed definition which is more arbitrary and more artificial than the current provisions. Accordingly, we submit that ASIC be directed to exercise their powers to ensure clients are not misclassified.

Recommendation 2:

The wholesale/retail test is an arbitrary and artificial definition. We strongly submit that FSRB requires a further section granting ASIC specific powers of modification and exemption to ensure that clients are not misclassified .

1.2 Declared professional bodies – s.882

Both SDIA and AFMA strongly support the retention of the proposed exemption for professional bodies.

The proposed provisions add considerable substance to the current incidental advice rule, and we commend the Government on the increased competitive neutrality, and regulatory transparency offered by the provision.

The proposed provision also supports two important recommendations of the FSI: that licensing of professionals providing incidental financial advice is not required; and, that ASIC should have powers to use a combination of regulatory approaches, by which the FSI mean a balance between statutory, co-regulatory, and self-regulatory approaches6. The declared professional body exemption is one of the few concessions in the FSRB to the efficacy of self-regulation within our current system of regulation.

6 FSI Final Report p.258

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We are aware of criticisms of the proposed provisions. Our Associations support the policy underpinning the proposed provisions unequivocally (and seek to strengthen them through our recommendations) and look to effective consultation with ASIC in the formulation of sub-legislative rules, policy or guidance.

One criticism follows the logic that the professional body would, necessarily, have to replicate the entirety of FSRB relating to advice in its constitution and rules – to do otherwise would be to promote a “non-level playing field”. The argument extrapolates that this would create “a parallel self-regulatory scheme” which would need to be “lock-step” with the statutory framework. Accordingly, the rhetorical question is asked; “Why have the exemption – why not simply apply for a financial service provider’s license?” This argument ignores the fundamental differences between the manner in which the law is framed versus the way in which professionals frame their requirements. The argument also ignores the vast differences in the efficiency of the enforcement regimes, and the reliance of the current overall fabric of regulation on professional self-regulation (such as doctors, lawyers, accountants, soldiers, clergy, etc).

In summary, we support the notion that self-regulating professions, and professionals, reinforce “ethical” and best practice codes and rules which act quite differently but generally not less effectively from the public policy perspective. It is axiomatic of, and implicit in, FSI recommendation 7, that self-regulation provides a different framework which provides for greater efficiency and effectiveness for the statutory regulator and for the community. Accordingly, any requirement to create parallel provisions within professions may well mitigate any efficiency gains attributable to the self-regulatory alternative.

The proposed exemption currently deals with advice only. Our members can only see merit in expanding that definition to include all other forms of financial services activity, so long as the constitution and rules of the professional body were appropriately framed. The argument for excluding forms of activity other than advice is not made, and, in consideration of the matter, our members have not been able to construct any material a priori argument for limiting the exemption to advice alone.

The proposed provisions reflect the current law exclusively regarding incidental advice. While the current laws pertain to advice alone, the proposed provisions significantly improve on the structure of the current law and could potentially allow for other forms of

© Australian Financial Markets Association 2000. All rights reserved. Page 13 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission activity to be declared exempt by ASIC. For example, if a professional body is seeking exemption for non-advice activities, ASIC should have the powers to examine the professional body in that light.

Recommendation 3:

The declared professional body status should not be limited to advice activity in the legislation.

1.2.1 Self-regulation

The Commentary to FSRB states that the Government supports the role played by the industry in promoting best practice and considers that industry associations should work closely with the regulator and that aspects of the licensing system could be delegated to industry associations. However the Bill and Commentary do not directly support the role of self-regulatory mechanisms or give powers to the statutory regulator to delegate some responsibilities, on an industry basis, to industry based self-regulators. In the context of the current support for self-regulation at the highest levels, such as IOSCO and FSI, and recognition of its role in world best practice, this would appear to be a less than fully acceptable outcome of the proposed regulatory framework.

Both AFMA and SDIA support the recommendation made by the FSI that regulators be required to maximise the use of industry based self-regulatory resources. In many respects, market participants have a stronger incentive than statutory regulators to balance the potentially competing interests such as fairness, efficiency and profitability of market participants in a way that serves the interests of consumers and the broader economy.

For example, AFMA’s self-regulatory role is integral to the operations of the environment for OTC financial transactions. AFMA has day-to-day oversight of market microstructure, efficiency, and equity through market committees and conventions. The AFMA promoted documentation master agreements are essential to market integrity, reduced systemic risk, and subsequently consumer protection. As the only industry based self-regulator referred to in the FSI Final Report, AFMA is central to transparency of the off-exchange financial

Page 14 of 55 © Australian Financial Markets Association 2000. All rights reserved. © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission transactions. SDIA foresee themselves fulfilling a very similar role in relation to exchange traded financial transactions.

1.3 Licensing of Financial Markets – OTC transaction exclusions – s.791B

Our associations strongly support the intention of the financial markets licensing provisions, particularly where the Commentary states;

“It is expected that OTC transactions and market making activities will not of themselves constitute a financial products markets.” - Commentary, p26.

OTC financial transactions, that are negotiated privately and bilaterally between sophisticated participants represent, by some measures, the largest sector of the financial services sector. As an example, the current turnover in Australia, in the OTC debt securities market is more than 3 times greater than the turnover in the entire exchange traded equity securities market. This metric has been the case since data was collected, and probably before that time. The participants in the OTC financial markets have been bedevilled by the inappropriate drafting of the Securities Industry Act and Futures Industry Act since the mid- 1980’s. As a consequence of this parlous and unrectified drafting, and its enforcement, it is of great importance to our members that the statement above finds its way into the Explanatory Memoranda.

The main provision of FSRB which serves to exclude OTC financial markets, s.767A(4)(a), disallows private bilateral transactions which occur “….through a facility,…” We are unable to identify any public policy motive for this exclusion, while the effect of the disallowance will be to prevent OTC participants from availing themselves of e-commerce. The important reflexes of OTC trading are present in the section; the transactions are bilateral, privately negotiated, and each party takes the counterparty credit risk.

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Recommendation 4:

We submit that the facility disallowance is an anti- e-commerce provision and should be removed from s.767A(4)(a).

Furthermore, it is possible to interpret any physical place (eg an office), or other communications mechanism (eg telephone) as a ‘facility’. We can see the merit in such a broad interpretation to define a ‘financial product market’, but it is clearly not the intent of the provision to exclude all OTC transactions, which is one interpretation of the facility disallowance wording.

Recommendation 5:

We submit that s.767A(4)(a) replace “…. counterparty risk ….” with “….counterparty credit risk ….” While we can concede that counterparty risks are wider than credit risk, it is credit risk which determines whether a transaction is undertaken, in addition to the economic facets of a transaction loosely covered by the words “ … direct negotiation ….”

1.4 Licensing of Financial Markets - “markets” which are currently excluded

Most of the members of AFMA, who are currently undertaking transactions in the OTC financial markets are misclassified by the current regulations as stock or futures markets and are either excluded transactions (such as swaps where an Australian bank is a counterparty) or require an appropriate exempt market, or facility provider, status. In the majority of cases, under the FSRB, these organisations may not require a license as a ‘financial products market’, but will have to apply for a ‘financial service providers’ license. The FSRB and Commentary have allowed a two year transition period for markets applying to be licensed as ‘financial products markets’ and dealers and advisers applying to be licensed as ‘financial service providers’, and makes transition provisions for exempt market licensees transitioning to financial services providers licenses. The FSRB has not made

Page 16 of 55 © Australian Financial Markets Association 2000. All rights reserved. © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

provision for a transition period for dealers transacting excluded products, notwithstanding that the current provisions are an exclusion from the licensing requirements only. It is arguable that the remaining provisions of Chapter 7 and 8 of the Corporations Law apply, and to that extent have been followed by these participants.

Recommendation 6: We submit that organisations who are currently transacting in products excluded from the licensing provisions of the current Corporations Law, but under the FSRB required to be licensed as a ‘financial service provider’, should be granted the two year transition period to establish their new license.

1.5 Licensing of Financial Markets - Money Brokers – s.766C & s.791B

The Commentary at section 2.33, page 25, identifies that Money Brokers may inadvertently and inappropriately fall with the definition of ‘financial product market’. The Commentary directs Money Brokers to seek an exemption under FSRB s.791B, and further directs that Money Brokers would still be required to hold a financial services providers license. While we interpret s.766C(2) as broadly describing the activities of Money Brokers, it is clearly not precise enough to shape an exemption.

The suggestion that the small number of Money Brokers must first apply for and be granted exemption by the Minister, and re-applying for another license is an unreasonable and unfair outcome in this regulatory framework. All Money Brokers currently hold exempt futures or stock market licenses are regulated by, and familiar to, ASIC.

AFMA has previously submitted that Money Brokers should be exempted from a requirement to be licensed as a ‘financial product market’. There are three straightforward ways this can be achieved in FSRB:

1. The following phrase could be added to s.767A(4)(a); “ …, or acting as a Money Broker in these circumstances.”, or, 2. Adding a new sub-section to s.767A(4) that exempts Money Brokers directly. In the unlikely case that a ‘loop hole’ may open, ASIC who are entirely familiar with the

© Australian Financial Markets Association 2000. All rights reserved. Page 17 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

operations of Money Brokers, could be empowered to determine what constitutes a Money Broker at a policy statement or Guidance Note level, and, 3. All Money Brokers who currently hold exempt futures or stock market licences (usually granted by Ministerial Order) should be “grandfathered” by exempting them from the further onerous provision to re-apply to be exempted from the new ‘financial product market’ provisions.

1.6 Licensing of Financial Markets - other proposed exclusions – s.881

FSRB s.881A(2) and s.881B(C) act to exempt from licensing as a financial service provider any person who is regulated by APRA and provides services exclusively to wholesale clients. We commend the Government in formulating these sections in a manner which gives effect to the mutual or cross recognition of statutory regulators’ responsibility and oversight, however, there is no parallel exclusion for ‘financial product markets’.

We are unable to identify a public policy reason for licensing markets that restrict access exclusively to wholesale clientele. It is foreseeable that the imbalance between the provisions for markets and participants will create a regulatory arbitrage where wholesale participants may prefer, for regulatory but not economic reasons, to trade in one environment at the exclusion of the other.

Recommendation 7: We submit that s.767A(4) be amended to include an exclusion for markets which limit access to wholesale only clients who are also regulated by APRA.

1.6.1 Issue 6.11 Is this type of disclosure necessary or desirable? Are there any other disclosures of this type that should be imposed? The proposed disclosure requirements in the Commentary (page 119) would not apply to wholesale transactions, but there should be no further disclosure requirements on persons exempt from licensing conditions by virtue of their regulation by APRA and wholesale only dealing.

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1.6.2 Issue 6.12 Should any mandatory disclosures apply where the client is wholesale? If so, what type of disclosure should be made?

As a general principle, no further disclosures should apply to wholesale clients. AFMA has previously recommended to its Members, a “non-reliance” clause drafted by the International Swaps & Derivatives Association (ISDA) for wholesale clients. The nature of this clause may be useful particularly where the client is wholesale by virtue of exceeding the prescribed amount. An example of the short-form non-reliance clause developed by ISDA is:

“Relationship Between Parties. Absent a written agreement to the contrary:

1. It is not relying on any advice (whether written or oral) of the other party regarding any Transaction, other than the representations expressly made by the other party in this Agreement and in the Confirmation in respect of that Transaction. 2. In respect of each Transaction under this Agreement: · It has the capacity to evaluate (internally or through independent professional advice) that Transaction and has made its own decision to enter into that Transaction; and, · It understands the terms, conditions, and risks of that Transaction and is willing to accept those terms and conditions and to assume (financially or otherwise) those risks.”

1.7 Other disclosure requirements – General advice warnings – s.918A

Section 918A requires warnings to be given when a client is receiving general advice.

While we acknowledge the need for these warnings, we also recognise that there are clients whose entire relationship with their financial service provider is understood by both parties to consist of General Advice only. In these circumstances, it would not be necessary to keep repeating this warning to the client each day and could even cause sufficient frustration as to sully the relationship.

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Recommendation 8:

We are suggesting that Licensees be permitted to include warnings in their FSG and their account opening agreements for the initial warning and thereafter obliged to remind the client of this warning each time he does a transaction. A means of delivering this reminder could be to include a statement that the advice provided was of a general nature and therefore not necessarily suitable for their particular needs on the transaction confirmation. Naturally in this context, the client would need to agree to his business being conducted in this manner.

1.8 Misconduct - market manipulation – Issue 11

Chapter 11 of the Commentary refers to the proposed changes in the area of Misconduct. At points 11.8 to 11.10 it is indicated that the new provisions relating to Market Manipulation will include a civil penalty provision, which will not require an element of “intent”.

We are certain that the reasoning behind Treasury’s belief that both civil and criminal penalties are required for this section will be clarified in the drafting of the new regulations. We would, however, like to express our concern regarding the potential ramifications of the possible removal of the element of “intent”, whether for civil or criminal proceedings.

Whilst it is impossible for us to pinpoint the effect that the changes will have without viewing the actual proposed regulations, based on the description of the changes in the Commentary, we are concerned that what is being proposed is a material change.

We look forward to seeing the proposed new regulations prior to their becoming effective.

1.9 Dealing with clients’ money – s.941 & Issue 7.1

Proposed section 941C(1)(b) refers to a minimum balance to be maintained in the account. Practically, if a minimum balance is to be maintained, this would, from time to time, require

Page 20 of 55 © Australian Financial Markets Association 2000. All rights reserved. © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission the licensee to deposit its own funds into the account as a top up, since client funds could not be held except at the request of the client. This requirement would be contrary to the purpose of the account; i.e. to separate client funds from the licensee’s funds.

Recommendation 9:

We submit that proposed s.941C(1)(b) be deleted.

Proposed section 941D includes the use of the collective client funds (relating to derivatives) to cover “margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by the licensee (including dealings on behalf of people other than the client)” (emphasis added). We believe this would allow one client’s money to be used to cover another client’s risk. This inclusion appears to contradict the overall policy of non co-mingling of clients’ moneys.

Recommendation 10:

We submit that “… (including dealings on behalf of people other than the client)” be deleted, or extended to say “…(including dealings on behalf of people other than the client, as authorised by the client)”.

Proposed section 941E(2) appears to preclude the possibility of offsetting transactions in a client’s account. For example, if a client conducts two or more transactions on their account simultaneously, it appears that in order to offset the transactions and settle the net balance, instead of requiring multiple funds transfers, a specific authority would be required. We are unable to see any consumer protection benefit in this, rather we see a potential disadvantage for clients as they are likely to incur higher transaction fees and taxes due to the additional movements of funds.

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In response to Issue 7.1 of the Commentary, we would like to express our support for the current Sections 866 to 871 of the Corporations Law.

1.10 Dealing with other property of clients – s.944B

Proposed FSRB s.944B includes the use of clients’ property to meet obligations incurred by the licensee in connection with “margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by the licensee (including dealings on behalf of people other than the client)” (emphasis added). We believe this would allow one client’s property to be used to cover a totally separate client’s risk. This inclusion appears to contradict the overall policy of consumer protection.

Recommendation 11:

We submit that “… (including dealings on behalf of people other than the client)” be deleted, or extended to say “…(including dealings on behalf of people other than the client, as authorised by the client)”.

1.11 Liability of financial services licensees for representatives – s.888

Proposed section 888C(5) does not appear to restrict the liability of the licensee to conduct that relates to a class of service for which the licensee is authorised. This is particularly important since there does not appear to be a requirement for a transaction to have been completed, which would necessitate the involvement of the licensee’s resources at least. Without limiting this section in this way, it appears that licensees are expected to take a “big brother” approach to their employees and representatives.

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Recommendation 12:

We submit that the licensee’s liability should be limited to the kinds of financial services that the licensee is authorised to provide and which is disclosed to clients as per s.912B(2)(b).

Proposed section 888D seems to provide for licensees covering any and all client losses. The broad statement that the loss or damage must be suffered “as a result of the representative’s conduct” appears to cover virtually any eventuality. We feel certain that this clause is meant to contain a limitation on liability in regards to “conduct”.

Recommendation 13:

1. We submit that changing the word “conduct” to “misconduct”, or another defined limit to liability, would rectify this oversight. 2. We submit that losses should be limited to pecuniary losses.

1.12 Obligations of financial services licensees – s.883A(g)

Proposed section 883A(g) requires financial service licensees to have internal and external complaints resolution procedures that are approved by ASIC in accordance with the regulations.

Our members would support the proposal contained in point 5.50 of the Commentary that Australian Standard AS 4269-95 continue to be applied to internal complaint resolution procedures.

While our members understand and support the concept of external complaint resolution, they are troubled by the apparent policy that a single complaint resolution scheme is not

© Australian Financial Markets Association 2000. All rights reserved. Page 23 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission only acceptable, but desirable. We submit that this is an undesirable situation as it creates an effective monopoly situation, which is contrary to the principals of fair trading.

Recommendation 14:

We submit that the current ombudsman services, relating to the proposed definition of financial services (eg banking, superannuation, etc), be widened to cover all financial products, and fast-tracked or grandfathered by the approving bodies. In this manner the financial services sector will have a number of qualified and experienced external complaints schemes to choose from.

1.13 Issue 8.57

Is there anyone other than a financial service licensee who should be required to confirm the disposal of particular financial products?

Yes! Clearly the client should advise the issuer if they have disposed of a product, if the issuer is not directly involved in that disposal. Moreover, the client must be responsible for advising the PDS issuer of changes of details (eg address) which could prevent the issuer from meeting their PDS ‘update’ and PDS ‘ongoing disclosure’ requirements. Without such a provision, the issuer of the PDS may be required to maintain a tracking system which has the potential to breach privacy regulations.

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2. DRAFTING ISSUES

The drafting in some areas of the Bill appears to detract from the intent of the policy it is seeking to implement. Again, the following concerns are presented for your consideration.

2.1 Meaning of Derivative – s.761D

The proposed provision for the definition of a derivative, as a subgroup of financial services products, may be improved in the following manner:

2.1.1 Clarification of the meaning or use of the term “ultimately” The definition refers to the consideration being ultimately determined by reference to something else. Unfortunately, there are two probable interpretations of the term ‘ultimately’ being: firstly, ‘finally’, and secondly, ‘at some future time’ - in the same manner as 761D(1)a. We believe that both interpretations are possible and the Commentary does not clarify which meaning is the better interpretation.

If the drafting intention was ‘finally’, then the definition of derivative will incorporate transactions where the consideration is set by reference to something else at the time of transacting. It is the case that most financial markets transactions will then be defined as derivatives. We are unable to identify any transactions where the consideration of the transaction is not set immediately by reference to something else. Accordingly, s.761D(3) which prescribes exemptions, will have to include all products inadvertently captured by the definition, such as spot and forward (transactional) foreign exchange. Clearly, the better view is one where the amount or value of the consideration is not merely paid in the future, but also determined ‘at some future time’.

© Australian Financial Markets Association 2000. All rights reserved. Page 25 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

Recommendation 15:

We submit that s.761D(1)(b) be redrafted as follows:

(b) the amount or value of that consideration is determined, derived from and varies by reference to (wholly or in part) the value or amount of something else, at some time future time, …… or, alternatively,

(b) the amount or value of that consideration is determined at some future time, is derived from and varies by reference to ……

Notwithstanding these suggested changes, our members are concerned that the proposed definition of derivatives can be interpreted to include transactional foreign exchange. We submit that transactional foreign exchange (including spot FX, forward FX, and combinations of spot FX and forward FX transactions) be exempted from the definition of derivatives.

Recommendation 16:

FSRB s.761D(3) should include a specific exemption for transactional foreign exchange (including spot FX, forward FX, and any combination of spot and forward FX) to meet the policy objectives established in the Commentary s.1.40-1.43. This clarification will also exclude any incidental non-exclusion of these financial products under s.765A(1)(l).

2.1.2 Issue 1.15 Does the removal of the exclusion for fixed initial or periodic consideration bring within the definition of derivative products that should not appropriately be regulated as derivatives?

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We could contend that the definition will capture many products which are not perceived as derivatives, through two mechanisms:

1. The definition includes any initial or periodic consideration which is fixed at the time of the transaction. From the consideration of financial engineering and regular usage, such instruments are not considered to be derivatives; and, 2. We are lead to interpret the Commentary in respect of FSRB s.761D(1)(b) is meant to include the opportunity cost (or unrealised or unrealisable revaluation) of transactions (particularly where there are fixed payments) using the following words :

“…the price of the property under the contract is not the only consideration. The property itself is also consideration and its value varies by reference to the market price …” p.16 (our emphasis).

We are unclear at this stage on how many non-derivatives will be captured by considering the opportunity cost represented by changes in the value of the asset. Certainly negotiable and transferable financial instruments that are not securities, such as bills of exchange, may be misclassified as derivatives. It is conceivable that cheques may also be captured.

Recommendation 17: The term “ … or value …” be removed from FSRB s.761D(1)(b).

2.2 Meaning of retail client and wholesale client - ‘Product value test’ - s.761G

The FSRB and Commentary have proposed that retail clients be regarded as wholesale clients, where, the ‘price’ of the product, or the value of service is greater than an amount established in the regulations.

The definition at s.761G(6)(a)(i) is problematic in that many derivatives do not have a ‘price’ at the time of transaction (examples include interest rate swaps and futures). There are

© Australian Financial Markets Association 2000. All rights reserved. Page 27 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission many other derivatives where ‘price’ is not reflective of the underlying risk management metric of the transaction (one example is an option).

Our members are also concerned where the definition and the Commentary does not clearly define the term ‘provision of the financial product’. This is of particular concern for transactions on licensed product markets, where an order may be greater than the prescribed amount, yet each individual trade in achieving that order may be of an amount less than the prescribed amount. If each sub-trade of an order were viewed separately, there is the spectre that a client may be considered as wholesale and retail simultaneously. Ideally, the determination of whether a client is wholesale or retail, under this test, should be a ‘before the event’ test, and not an ‘after the fact’ test. To do otherwise will make the provision administratively unworkable.

Finally, it is arguable that the prescribed amount proposed in the Commentary is far too high for an exchange traded securities market. The following data of the ASX reveals that less than 1% of all trades on the ASX are above $500,000 face value. Clearly, this is not reflective of the bona fide retail-wholesale split of trades on this market. On this data alone, it is arguable that the $500,000 test will capture less than 1% of securities trades, and accordingly only the largest of the wholesale participants. It is also possible to conclude that over the course of an average year, each broker “member” of the ASX does approximately 650 trades per day.

ASX Turnover: Numbers of Trades: 1/4/1999 – 31/3/2000

Average trades per Number of Trades Number of Trades Percentage day in: >$500,000

Securities 51,864 287 0.6%

Derivatives 1,434 14 1.0%

Total 53,298 301 0.6% Source: SIRCA, 2000

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Recommendation 18:

For the purposes of the prescribed amount or product value test, we submit that the ‘price’ of a derivative transaction be the notional or nominal (or reference) face value of the transaction, and that the provision of the financial product relates to order size, not to each sub-trade in that order.

2.3 When a person makes a financial investment – s.763B(1)(a)(i)

Our members are concerned that this section may be misinterpreted to read as follows:

“ …. the other person uses the contribution to generate a financial return, or other benefit for the investor …”

Clearly this interpretation would have the unintended consequence of including commercial transactions that have no risk management or financial product orientation.

While it is clear that a lack of punctuation can assist with interpretation, our members can see the benefit in adding parenthetical commas to this sub-section, or redrafting the section to achieve the following meaning.

© Australian Financial Markets Association 2000. All rights reserved. Page 29 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

Recommendation 19:

Replace: (i) the other person uses the contribution to generate a financial return or other benefit for the investor with,

(i) the other person uses the contribution to generate a financial return, or other benefit, for the investor

2.4 Meaning of financial product advice – s.766B

2.4.1 Definition Our members have expressed concern that an “interpretation of information” is automatically considered to be provision of advice in all circumstances. We are also of the opinion that proposed section 766B(1)(b) could be interpreted to include a third party element that brings with it little value.

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Recommendation 20: Our suggestion is to amend 766B(1) as follows:

For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that is intended to influence a person or persons, or where a person had a reasonable belief that it was intended to influence them, in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products.

2.4.2 Categories of advice Of great concern to our SDIA members is the removal of Execution-related telephone advice (ERTA) from the definition of advice in section 766B of the FSRB, limiting the types of advice to General advice and Personal advice.

While the new definitions and those under Good Advice definitions7 are drafted around the same basic policy ideal, the Good Advice definitions are somehow clearer.

SDIA’s members believe that this third category of advice is essential to accurately describe the majority of the advice that they provide. While they seldom provide advice that could properly be described as “personal advice” (as it is defined in the FSRB, and with the exception of the incorrect use of the term “personal”), they believe that the service that they do provide is more than simply “general advice”. The advice is often based largely on market specific or product specific advice, relating only to a small portion of a client’s objectives, financial situation and needs. The service provided generally matches the expectations of the investors who seek this type of service. The case supporting this position has been raised previously and resulted in the inclusion of “execution-related telephone advice” in the Corporations Regulations (Amendment) 1998. There is also

7 Refer Appendix 3 for quotation of Good Advice and FSRB definitions. © Australian Financial Markets Association 2000. All rights reserved. Page 31 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission comprehensive coverage of ERTA and its application in Policy Statement 122.132 to 122.1468 which quite clearly explains the need for this category of advice.

Recommendation 21:

We submit that the inclusion of ERTA be retained, and moved from its relative obscurity in proposed section 915B of the FSRB to the equivalent of its previous place, i.e. in proposed section 766B.

Recommendation 22:

We submit that any changes to either s.766B(3) or s.914A must be reflected in the other in order to avoid possible drafting inconsistencies.

8 Refer Appendix 4 for quotation of PS 122.132 to PS 122.146.

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Recommendation 23:

We submit the following definitions that, while maintaining the style of the new FSRB, better describe the intended meaning of the definitions and eliminate any confusion:

Personal advice is financial product advice that is given or directed to a person (including by electronic means), advising that certain transactions are appropriate to the person, in circumstances where: (a) the provider of the advice has considered the investment objectives, financial situation and particular needs of that person; or (b) the person might reasonably believe that the provider has considered those matters.

Execution-related telephone advice is financial product advice that is given or directed to a person in circumstances where the advice:

(a) is given verbally; and (b) relates to financial products that are traded on a licensed market, or in another time critical situation; and (c) (i) is given by a providing entity as an integral part of the execution of a transfer of, or order for, those financial products; or (ii) is given by a providing entity who reasonably believes that the advice will result in an execution of a transfer of, or order for, those financial products; and (d) is advice for which no fee is charged in addition to the commission for the execution of the transfer or order; and (e) does not also contain any other kind of financial product advice.

General advice is financial product advice that is given to a person without recommending that a particular transaction is appropriate to the particular investment needs, objectives and financial circumstances of that person.

© Australian Financial Markets Association 2000. All rights reserved. Page 33 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

The reasoning behind the changes we have proposed in the above description of ERTA are explained below:

We believe that the requirement in section 915B(1)(a) limiting ERTA to advice given over a telephone is unnecessarily restrictive and inflexible. Whilst we understand and appreciate that written advice could not fall into this category, there are other means of delivering advice that could be included. We are referring particularly to a client who is in the providing entity’s office when he receives the advice and where the advice being given meets all the other requirements to be categorised as ERTA.

We believe that the following amendment to this clause will resolve this possibility without damaging the integrity of the clause:

915B(1) (a) the advice is given verbally;

We would like to request that consideration be given as to whether the requirement under section 915B(1)(b)(i) that the advice relate to financial products that are able to be traded on a licensed market could in some circumstances be prejudicial.

Our basis for this concern relates to the expansion of the coverage of the regulations to include Over The Counter markets. By way of an example, we suggest that a client obtaining advice relating to fixed income instruments, discount securities or derivatives of those products, at approximately the time that the Australian Bureau of Statistics releases any of its critical economic data, would be at a disadvantage if his advisor were not permitted to rely on section 915B(2).

2.4.3 Use of the term “personal advice” Our member consultation has revealed that the choice of words used to categorise advice (i.e. “general” or “personal”) is creating a great deal of confusion, does not accurately convey the intended differentiation, and could be easily changed to accurately reflect the purpose of the Chapter. We are particularly concerned that the term “personal” can be quite easily misconstrued. In most circumstances, “personal” is used to describe a situation in which an act is performed in person. The mere fact that an investor receives information about a financial product from a financial service provider, in person, often leads to the investor believing that he has received “personal advice”.

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Whilst we concede that the provision of the warnings as required by the regulations that the advice/information being given is of a general nature should prevent this confusion, this is not the case in practice. Many clients take the view that because they are not receiving the information through the mail or off a website, but rather via a one-on-one situation where they are speaking to someone directly, their relationship with the financial service provider is of a “personal” nature. It follows that they assume that if information they receive can be categorised as either “general” or “personal”, the information they are receiving MUST be “personal”.

We have researched possible alternatives to the word “personal” and are ready to suggest any number of alternatives which would clarify the issue and give effect to the true intention of the regulations. These alternatives include “comprehensive”, “specific”, “tailored”, “directed” and “customised”. The alternative that we believe best describes the kind of advice that is currently incorporated under “personal advice” is a combination of two: “specifically tailored advice”.

Recommendation 24:

We strongly submit replacing “personal advice” with “specifically tailored advice”, or other term that has English usage closer to the policy objective, and would eliminate the current and future level of confusion.

2.5 Dealings involving employees of financial service licensees – s.951F

With regard to section 951F(2), we submit that a financial service provider that operates a margin lending facility should be permitted to offer that facility to its employees.

Whilst we support the principal behind proposed section 951F, we have some concern as to the practical application of 951F(3).

In most instances this practical application is fairly straightforward, however, there are circumstances in which 951F(3) could automatically exclude a person from the market,

© Australian Financial Markets Association 2000. All rights reserved. Page 35 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission simply by virtue of the fact that a market participant employed them. The example would be an employee of a participant in a licensed market where the participant excludes itself from a sector of the licensed market. The employee is automatically excluded from participation in that sector. As a more specific example, many participants in the Australian Stock Exchange do not participate in their Options market, so the only way for their employees to buy or sell an Exchange Traded Option would be to arrange execution through another participant.

Recommendation 25: We submit that this can be corrected most simply by limiting the restriction to products that the licensee is able to offer.

2.6 Titles of disclosure documents – s.912A, s.916A, s.983B, s.984B & Issue 6.3

Proposed sections 912A, 916A, 983B & 984B require two titles to be used for each of the disclosure documents – Financial Services Guide, Statement of Advice, Product Disclosure Statement and Supplementary Product disclosure Statement.

In the Commentary Issue 6.3 asks if the proposed sequential numbering of disclosure documents will assist consumers in determining if they have received all the relevant disclosure documents. We have been unable to determine any benefit in this additional numbering system. We believe that if all Financial Service Providers use the same title for each of the documents, any additional name or number would only serve to create confusion.

Recommendation 26: We submit that the proposed sequential numbering of disclosure documents be deleted.

Page 36 of 55 © Australian Financial Markets Association 2000. All rights reserved. © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

2.7 Banning order provisions9 - s.889

Division 7 of the Bill covers banning or disqualification of persons from providing financial services. Division 7A provides no right for a person to be heard prior to the making of a banning order by the Commission. Instead, the banned person has a right to seek a variation or cancellation of the banning order upon lodgement of an application with the prescribed fee: s.889D(2)(b). The banning order takes effect when given to the person: s.889E(i). There is no provision, which gives the Commission the power to stay the effect of the banning order pending the hearing for the application for variation or cancellation.

If, after considering the written application for variation or cancellation, the Commission propose not to vary or cancel the banning order only then must it give the person the right to appear and make submissions before it: s.889D(3)6. The original order remains effective throughout this process. In this way, the proposed Division 7A gives the Commission the right to ‘shoot first and ask questions later’.

The Commentary states that Division 7; sub-divisions A (banning or disqualification of persons) and B (disqualification by the Court) are “modelled” on Corporations Law sections 828 - 836 and 838 and the equivalent provisions under chapter 8 (Futures). It further states that the new provisions have been “substantially re-written to take account of the scope of the new provisions”10. The sections of the current law that have been excluded from the ‘model’ – section 837 (securities) and section 1200 (futures) – are the sections which gave a person the right to be heard and make submissions prior to a banning order being made. There is no explanation given in the Commentary as to why this right has apparently been abolished in the FSRB.

If one were looking for a policy reason behind the change, it is noted that the Commission has relied in the past on case law which held that its power to ban individuals was a power exercised to protect the public rather than to penalise the individual concerned: Farley v. Australian Securities Commission (1998) 16 ACLC 1,502 and cases cited therein. This may provide some background to the decision to remove the right to be heard prior to the making of a banning order in the new provisions, but this is pure conjecture. However, no

9 AFMA and SDIA acknowledges the contribution of Doug Clark, Head of Legal & Compliance, HSBC Securities (Australia) Limited in compiling this submission. 10 Financial Services Reform Bill – Commentary on the FSRB Corporate Law Economic Reform Program, Financial Markets Division, The Treasury February 2000 (‘Commentary’), paragraph 5.100.

© Australian Financial Markets Association 2000. All rights reserved. Page 37 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission public pronouncement of the Commission has indicated that it required, or was seeking, further powers in this area.

In Ainsworth and anor v Criminal Justice Commission (1992) 175 CLR 564, the High Court, following its decision in Annetts v McCann (1990) 170 CLR 596, held that in a proceeding which may significantly affect a person’s rights, procedural fairness must be afforded to the person affected11.

A decision to ban a person from the financial services industry must surely be serious enough to meet the Ainsworth test. It is difficult to conclude that natural justice is served and procedural fairness properly afforded to the individual by giving the Commission the power to ban people with immediate effect, thus depriving them of their livelihood without a hearing.

In relation to financial services licences, under the FSRB, before ASIC can suspend or cancel a licence on misconduct grounds, the Commission must give the licensee an opportunity to be heard to make submissions to ASIC on the matter: s886C. It is difficult to reconcile the licensee’s right to a hearing in this situation with the apparent abolition of such a right for individuals.

Recommendation 27:

We submit that the Banning Order Provisions should encompass the principals of Natural Justice.

2.8 Additional requirements for advice to replace one product with another – s.916D

We support the concept of reducing opportunities for churning, but are not convinced that Proposed section 916D, in its current form, is the most suitable means of achieving this. Some of the requirements appear to be unnecessary, when most of the additional information should be covered in a standard SOA, under 916B(2)(b) and (d).

11 The later decision in Farley did not change the law on this point, since it was not in issue. In Farley the prior right to a hearing still existed.

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However, our most serious concerns relate to the broadness of some of the additional requirements. In 916D(2) the inclusion of information that “could reasonably be found out by the providing entity” seems excessive. As does the phrase “reasonably foreseeable” in 916D(2)(d).

We request that these requirements be more clearly defined as they are particularly onerous as they are written, with the potential to include all sorts of possibilities, with only minimal potential benefit to consumers.

2.9 Statements of advice – s.915B, s.916B & s.916C

In the event that the definition of ERTA is moved to section 766B, it will not be necessary to restate the definition in section 915B.

We recognise that because ERTA is often based on limited personal information it would be captured under this section and we would like to suggest the following:

Section 915B(2)(c) requires record keeping in accordance with the regulations, a requirement under the regulations to keep a record of the advice that is equivalent to a SOA would nullify any benefit gained by section 915B(2).

Recommendation 28:

We submit that record keeping requirements remain a matter to be defined through Policy Statements, as has been the case in the past. (Refer PS 122.144 to 122.146 quoted in appendix 4.)

Section 916B(2)(d) and 916C(2)(e) both require an element of reasonable knowledge, without which they result in an impossible and impractical burden of disclosure. There are instances where many of the people within a licensee’s organisation, including directors, are not permitted access to information that could be included in these sections. In such instances “Chinese Walls” are erected, which may not be breached. The sections mentioned do not allow for this type of situation, in their current form.

© Australian Financial Markets Association 2000. All rights reserved. Page 39 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

2.10 The term “stockbroker” – Issue 5.10

In the Commentary on the FSRB, Issue 5.10 raises the question of whether there are other titles, which should be restricted, and what criteria ASIC should use in applying those restrictions.

Section 892B does not make reference to the use of the term “Stockbroker”, previously covered under section 1115(1) of the Corporations Law12

While we recognise that linking the use of this term to a “member of a stock exchange” is no longer the most suitable limitation, we are concerned at the possibility of there being no restriction on the use of this term. Because the use of the term “stockbroker” is steeped in tradition and history, we believe that its retention would provide a certain comfort and stability in what has become a very dynamic market place. The Macquarie Dictionary (3rd Edition) defines the term “Stockbroker” as “a broker who buys and sells stocks and shares for clients for a commission”.

12 CORPORATIONS LAW - SECT 1115 Restrictions on use of titles "stockbroker", "sharebroker" and "stock exchange" (1) A person who is not a member of a stock exchange shall not take or use, or by inference adopt, the name or title of stockbroker or sharebroker or take or use or have attached to or exhibited at any place a name, title or description implying or tending to create the belief that the person is a stockbroker or a sharebroker.

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Recommendation 29: We submit that the title “stockbroker” should be preserved in Regulations for persons who meet the requirements established in the Regulations and overseen by ASIC.

The person would have to be an Authorised Representative or employee of a Financial Service Provider, or a person licensed as a Financial Service Provider, and a member of an ASIC approved professional body, whose objects included participation in the securities or derivatives markets, and whose activities complied with ASIC requirements.

Finally, any collective of stockbrokers, so authorised, may be called a stockbroker.

2.11 Classification of Warrants - Issue 1.13

Whilst we agree that a warrant is a derivative, we are concerned that having two completely different sets of requirements for instruments traded on the same market (often in conjunction with one another) would prove confusing for consumers. This is particularly relevant in relation to the statement in the Commentary on the FSRB at point 1.55 that a “hybrid security and derivative product will be regarded as a security”.

We would like to express our support for the continuation of the disclosure requirements for Exchange traded Options and Warrants that are currently in practice.

2.12 Public forum – Issue 6.2

Should the term public forum be defined? If so, what should it include?

We submit that the term public forum should be defined, or perhaps better, described by non-exclusive examples. For example, we submit that Internet delivery should be considered a public forum.

© Australian Financial Markets Association 2000. All rights reserved. Page 41 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

2.13 Product Disclosure Statements (PDS) – s.983, Issue 8.19 & Issue 8.42

Quotable Quote:

“ …. Too much disclosure does not add to the efficiency of the system ….” - Professor Ian Harper, CEDA Briefing, Does CLERP 6 Deliver?- May 2000,

2.13.1 Issue 8.19 Does the concept of “product issuer” need to be defined to give effect to the situations outlined? It is essential that the concept of “product issuer” be more clearly defined.

2.13.2 Issue 8.42 Should information that would otherwise be required to be included in the PDS be able to be incorporated into the PDS by reference?

At a roundtable discussion group, on 14 April 2000, representatives of Treasury explained that the main concern with permitting incorporation by reference was that reference would be made to third party documents that had not been provided to the client. It is unreasonable to require all information to be included in a single document, without the ability to refer to any other document. Permitting incorporation by reference will facilitate brevity of the documents. Perhaps a more practical approach would be to allow incorporation by reference, provided all documents have been provided to the client.

For example ASX traded warrants currently have a standardised booklet produced by ASX, required to be distributed by the brokers, under the ASX business rules. Members of SDIA would support an analogue of this well established procedure in the PDS provisions. Replicating the current information requirements in the PDS provisions may be the most effective way to provide clients with ongoing information to make informed decisions. These transactions are highly standardised and we do not concede that providing a PDS each time a client trades will provide a greater degree of product disclosure than what is already in place.

In fact we believe that attempting to do this is likely to dilute the benefit currently being achieved. We believe that PDS’ should be uniform for each product and that requiring each seller to produce a separate PDS for the same product is unlikely to achieve this.

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Proposed section 983C(1)(h) is particularly onerous because it is virtually impossible to correctly disclose taxation implications without knowledge of the specific taxation situation of the individual.

2.13.3 Exchange traded equity derivatives

Our consultation with members has revealed that there are special considerations for equity derivatives, where the underlying is an exchange traded security, not provided for in FSRB.

The central issue is that such derivatives have adequate product disclosure largely through prospectus and continuous disclosure regimes. Replicating this information for the purposes of a derivative PDS is simply onerous, and should be specifically excluded as information that is publicly available.

Warrants have an issuer who remains the issuer and they should have the PDS requirements.

We submit that the closest relation to an issuer for Exchange traded Options would be the Exchange that is responsible for setting the standardised parameters of the contracts and as such this Exchange would be most suitably positioned to prepare the PDS’. Our basis for this is that the Financial Service Provider acts as agent rather than issuer in transactions of this nature. This would also ensure that clients cannot receive quite different PDS’ relating to the identical financial product.

2.13.4 Ongoing disclosure It is important to note that the point of sale is not always the most effective place for ongoing disclosure to occur. The issuers of exchange traded products control when and how any changes to the products will occur. They are also in the best position to know which clients are current holders of their products. As such, we suggest that they are the logical choice for responsible entity in relation to ongoing disclosure for these products. This will also ensure uniformity of information being distributed and the timing of that distribution, resulting in a greater benefit to consumers.

© Australian Financial Markets Association 2000. All rights reserved. Page 43 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

2.13.5 Ability to trade on market condition – s.986E We have been unable to make sense of this section, as it seems to have the potential to cover any financial product. It also seems to prevent sales via an initial issue document.

2.14 Approved Codes of Conduct – s.1041A

FSRB s.1041A(3) currently reads (in part):

(3) ASIC must not approve a code of conduct, …..unless it …. is consistent with this Law

Recommendation 30:

We submit that a more efficient drafting would be: (3) ASIC must not approve a code of conduct, …..unless it …. is not inconsistent with this Law

While we are usually against this kind of double-negative drafting (who knows it may be against the OPC drafting rules), it imports a different meaning which allows more flexibility in allowance or approval that the proposed wording.

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3. APPENDICES

3.1 Appendix 1

CL s.708(8) Sophisticated investors. An offer of a body's securities does not need disclosure to investors under this Part if: (a) the minimum amount payable for the securities on acceptance of the offer by the person to whom the offer is made is at least $500,000; or (b) the amount payable for the securities on acceptance by the person to whom the offer is made and the amounts previously paid by the person for the body's securities of the same class that are held by the person add up to at least $500,000; or (c) it appears from a certificate given by a qualified accountant no more than 6 months before the offer is made that the person to whom the offer is made: (i) has net assets of at least $2.5 million; or (ii) has a gross income for each of the last 2 financial years of at least $250,000 a year.

CL s.708(11) Professional investors. An offer of securities does not need disclosure to investors under this Part if it is made to: (a) a person who is a licensed or exempt dealer and is acting as principal; or (b) a person who is a licensed or exempt investment adviser and is acting as principal; or (c) a body registered under the Life Insurance Act 1995; or (d) a body registered under the Financial Corporations Act 1974; or (e) a regulated superannuation fund, an approved deposit fund, a pooled superannuation trust, or a public sector superannuation scheme within the meaning of the Superannuation Industry (Supervision) Act 1993 if the fund, trust or scheme has net assets of at least $10 million; or (f) a terminating building society within the meaning of the Financial Corporations Act 1974; or (g) a friendly society within the meaning of the Life Insurance Act 1995; or (h) a person who controls at least $10 million (including any amount held by an associate or under a trust that the person manages) for the purpose of investment in securities.

© Australian Financial Markets Association 2000. All rights reserved. Page 45 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

3.2 Appendix 2

7.3.02B(8) [Persons who are not a retail investor] Subject to subregulation (9), a person is not a retail investor if: (a) the person is the holder of a dealers licence; or (b) the person is the holder of an investment advisers licence; or (c) the person is an exempt dealer; or (d) the person is an exempt investment adviser; or (e) the person is a body corporate registered under the Life Insurance Act 1995; or (f) the person is an authorised deposit-taking institution as defined in section 5 of the Banking Act 1959; or (g) the person is a bank constituted by or under a law of a State or Territory; or (h) the person is the trustee of a superannuation fund, an approved deposit fund or a pooled superannuation trust within the meaning of the Superannuation Industry (Supervision) Act 1993 that has more than 100 members; or (i) the person is the responsible entity or other operator of a managed investment scheme and: (i) the person has aggregate funds under its management that is not less than $50,000,000; and (ii) in relation to each scheme under its management: (A) the total amount of the funds under management is not less than $10,000,000; and (B) the total number of members is not less than 50; or (j) the person is the responsible entity or other operator of a managed investment scheme that has: (i) net assets of not less than $10,000,000; and (ii) more than 100 members; or (k) (Omitted by SR 1999 No 143, reg 7 (effective 1 July 1999).) (l) (Omitted by SR 1999 No 143, reg 7 (effective 1 July 1999).) (m) the person is an exempt public authority; or (n) the person is an investment company as defined in subregulation 7.3.12(3); or (o) the person is a listed company; or (p) the person is a company (other than a company mentioned in paragraph (n) or (o)) that is a large proprietary company: (i) at the deadline for lodgment of the reports mentioned in subsection 319(1) of the Corporations Law in relation to the last financial year; or (ii) if that subsection does not apply to the company in relation to the last financial year, at the date when the company receives the advice from the licensee; or (q) the person is a related body corporate of a listed company; or (qa) the person is an unlisted public company that satisfies at least 2 of the following subparagraphs: (i) the consolidated gross operating revenue for the financial year of the company and the entities it controls (if any) is $10 million or more; (ii) the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is $5 million or more; (iii) the company and the entities it controls (if any) have 50 or more employees at the end of the financial year; or (r) the person is a foreign entity that, if established or incorporated in Australia, would be a person described in paragraph (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m), (n), (o), (p), (q) or (qa).

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3.3 Appendix 3

GOOD ADVICE Personal securities recommendation means a recommendation given to a person (whether expressly or impliedly and whether directly or indirectly) that certain securities transactions are appropriate to the person, having regard to the investment objectives, financial situation and particular needs of that person.

Execution-related telephone advice means investment advice relating to quoted securities: (a) that is given by a stockbroker or other dealer as an integral part of the execution of a transfer of, or order for, those securities; and (b) for which no fee is charged in addition to the commission for the execution of the transfer or order.

General Securities Advice means advice or report on securities given to an investor or prospective investor without recommending (whether expressly or impliedly and whether directly or indirectly) that a particular transaction in those securities is appropriate to the particular investment needs, objectives and financial circumstances of the investor or prospective investor.

FSRB Personal advice is financial product advice that is given or directed to a person (including by electronic means) in circumstances where:

(a) the provider of the advice has considered the objectives, financial situation and needs of the person; or

(b) the person might reasonably expect the provider to have considered those matters.

General advice is financial product advice that is not personal advice.

© Australian Financial Markets Association 2000. All rights reserved. Page 47 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

3.4 Appendix 4

Part VI: Execution related telephone advice by dealers

[PS 122.132] Telephone advice which stockbrokers and other dealers give as an integral part of their execution services on quoted securities generally contain personal securities recommendations. Therefore, stockbrokers and other dealers who provide execution related telephone advice must comply with the Conduct of Business Rules.

[PS 122.133] However, the making of these recommendations differs from the other types of personal securities recommendations. Therefore a modified approach to applying the Conduct of Business Rules is needed because:

(a) the recommendation, investment decisions and trade execution generally occur within a very short period, making them an integrated transaction; and

(b) the type of investors who seek this kind of service generally have expectations that match the type of service being offered.

[PS 122.134] The general statutory and fiduciary obligations of advisers to act diligently, prudently and in the best interests of the client when providing advice and the prohibitions against misleading and deceptive conduct also apply to dealers who provide execution related telephone advice on quoted securities. Any other advisory service offered by dealers other than execution related telephone advice (eg providing portfolio management services and issuing circulars and investment newsletters) are regulated in the same manner as any other investment advisory services.

[PS 122.135] ASIC’s guidelines on how the Conduct of Business Rules apply to execution related telephone advice are set out under the following headings:

Scope of execution related telephone advice Applying the s849 obligation Applying the s851 obligation Applying the retail investor protection requirements Applying record keeping requirements and standards.

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Scope of execution related telephone advice [PS 122.136] ASIC considers that as a matter of policy it is appropriate that the Conduct of Business Rules apply in a modified manner to execution related telephone advice by a stockbroker or other dealer only if:

(a) the advice is provided as an integral part of the execution services offered by that dealer;

(b) the advice relates to securities quoted on an ASIC regulated stock market or an ASIC authorised foreign exchange within the terms of ASIC foreign securities relief (Policy Statement 65 and Policy Statement 72); and

(c) no discrete fee for the related telephone advice is charged (ie no fee is charged in excess of the commission for the execution service).

[PS 122.137] The above restrictions ensure that such services are confined to securities on which information is available in the market and where the advice relates to time critical execution services provided to clients who have expectations that match the type of service provided.

Applying the s849 obligation [PS 122.138] The obligation to disclose material benefits, advantages and interests under s849 also applies to execution related telephone advice by dealers. However, this disclosure does not have to be made every time execution related telephone advice is given to a client if the relevant disclosure has already been made and that disclosure remains accurate and up to date (see [PS 122.80 122.89]).

[PS 122.139] The dealer must also satisfy the product knowledge aspect of the s851 requirement when making recommendations on quoted securities. The dealer must have an adequate product specific knowledge about those securities, as well as a reasonable level of knowledge about other comparable securities. For example, in the case of a stockbroker providing execution related advisory services on quoted securities, this may mean knowledge of securities in the same or a similar industry sector. In all cases, the guiding principle is that an adviser should have the knowledge of relevant securities necessary to conduct business of the kind they offer in a fair and efficient manner.

Applying the s851 obligation [PS 122.140] Section 851 also applies to execution related telephone advice. However, the nature and scope of an analysis of a client’s needs would reflect the type of service offered and the client’s expectation. Generally, the dealer should have a sufficient client profile for assessing whether that client’s expectations match the execution related advisory service being offered. This excludes the possibility of such advice being made available to a first time client before obtaining relevant information about them. When such services are provided on an on-going basis, the dealers should update the client profile at reasonable intervals.

Applying the retail investor protection requirements [PS 122.141] The following ASIC retail investor protection requirements apply when execution related telephone advice is provided to a retail client (see the definition of a retail client in Policy Statement 21 [PS 121.17]). When such advice is provided to institutional clients of the kind excluded from the definition of retail investor (eg banks and life companies), the following requirements do not apply.

Advisory Services Guide [PS 122.142] A dealer must give their client an Advisory Services Guide within three days after the trading following the advice.

Warnings where a retail client refuses to provide full personal information [PS 122.143] The adviser must obtain adequate information about the client’s investment objectives, financial circumstances and particular needs to ensure that execution related telephone advice on quoted securities is appropriate to a particular retail client. If the client refuses to give this © Australian Financial Markets Association 2000. All rights reserved. Page 49 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission information, the adviser should warn the client (see Policy Statement 121 [PS 121.95]) before giving any telephone advice. It is also appropriate to maintain a record of the warnings provided either in the form of a file note or tapes of the telephone conversation.

Applying record keeping requirements and standards

Record keeping best practice standards, s849 obligation [PS 122.144] ASIC considers that as a matter of best practice, a record of telephone recommendations in the form of either tapes of the telephone conversations or a short summary of the recommendation and any disclosure (for example a note on the client order forms of the type that some stockbrokers currently use) should be kept.

[PS 122.145] The nature of the specific records and the length of period for keeping these records is best determined by the dealers providing such services. This should be decided by taking into account considerations such as:

(a) the nature of the client involved. If the client is likely to later dispute any recommendations or associated representations made by a dealer, it is prudent to keep comprehensive records at least for a reasonable length of time;

(b) membership standards of the ASX, if applicable; and

(c) the individual needs and nature of the dealer’s business.

Record keeping requirements, s851 obligation [PS 122.146] When execution related telephone advice is given to a client, a dealer should keep comprehensive and adequate records of the client profiles. Without such records, it will be difficult for a securities adviser to prove that they have complied with their s851 obligation. Although records of product research on recommended securities (including comparable investments) need not be kept in individual client files, a securities adviser should be able to demonstrate adequate product knowledge through other means (eg their training).

Page 50 of 55 © Australian Financial Markets Association 2000. All rights reserved. © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

3.5 Members of AFMA Working Group

We gratefully acknowledge the contribution, effort and support of the members of the AFMA Working Group.

Cathie Armour – Morgan Guarantee Trust Company of New York Chris Bishop – Telstra Corporation Limited Ian Cambourn – Commonwealth Bank of Australia Michael Cleland – ANZ Banking Group Limited Justin Moses – Westpac Banking Corporation Kate Galvin – JB Were Capital Markets Limited Peter Green – Commonwealth Bank of Australia James Kruger – Macquarie Bank Limited Elizabeth Molyneux – AGL Electricity Sean Rahilly – SG Australia Limited Victoria Weekes – Salomon Smith Barney Australia Pty Limited

Clinton Free – University of NSW John Rappell – Australian Financial Markets Association Jody Taylor – Securities & Derivatives Industry Association

© Australian Financial Markets Association 2000. All rights reserved. Page 51 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

3.6 Members of SDIA Working Group

We gratefully acknowledge the contribution, effort and support of the members of the SDIA Working Group.

Suzanne Aked – Macquarie Equities Limited Cilla Boreham – Were Stockbroking Limited Donna Brennand – Hartley Poynton Limited Doug Clark – HSBC Securities (Australia) Limited Scott Clayton – Colonial Stockbroking Limited – D&D Tolhurst Limited – Kirke Securities Limited Orla Cowan – Charles Schwab Australia Pty Limited John Hutchinson – Commonwealth Securities Limited Jane Lamming – ABN AMRO Equities Australia Limited Trevor Lands – Peake Lands Kirwin Pty Limited Prue Murray – Merrill Lynch (Australia) Pty Limited Lisa Norton – Ord Minnett Securities Limited Shauna O’Sullivan – Deutsche Securities Australia Limited Christian Schega – BNP Equities Group (Australia) Limited Jodie Shiel – Salomon Smith Barney Australia Securities Pty Limited Carol Simpson – Johnson Taylor Limited Patricia Stewart – SHAW Stockbroking Limited

Clinton Free – University of NSW John Rappell – Australian Financial Markets Association Jody Taylor – Securities & Derivatives Industry Association

Page 52 of 55 © Australian Financial Markets Association 2000. All rights reserved. © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

3.7 Full Members of AFMA

ABN Amro Australia Limited Macquarie Bank Limited Adelaide Bank Limited Macquarie Generation Advance Energy Merrill Lynch (Australia) Pty Ltd AGL Electricity Morgan Guaranty Trust Co. of NY AMP Asset Management N M Rothschild & Sons (Australia) Limited AMP Bank Limited National Australia Bank Limited ANZ Banking Group Limited National Power Australia Pty Ltd Arab Bank Australia Limited NatWest Markets Australia Limited Australian Capital Territory Treasury Nomura Australia Limited AWB Limited Northern Territory Treasury Corporation AXA Australia NorthPower BA Australia Limited NSW Treasury Corporation Bank of China OCBC Bank Bank of Queensland Overseas Union Bank (Sydney Branch) Bank of Tokyo-Mitsubishi Australia Ltd Optima Energy Pty Ltd Bank of Western Australia Limited Origin Energy Bank One, NA Pacific Power Banque Nationale de Paris Powercor Australia Ltd Barclays Bank PLC Primary Industry Bank of Aust. Ltd BBL Australia Limited Queensland Investment Corporation Bendigo Bank Limited Queensland Power Trading Corporation BOS International (Australia) Limited Queensland Treasury Corporation Citibank Limited RMB Australia Limited CitiPower Pty Royal Bank of Canada Colonial State Bank Sakura Finance Australia Limited Colonial Trust Bank Salomon Smith Barney Australia Futures Commodity Corporation Limited Clearing Pty Limited Commonwealth Bank of Australia Sanwa Australia Limited Credit Agricole Indosuez Australian Ltd SG Australia Limited Credit Suisse First Boston Limited Shell Coal Pty Ltd Credit Union Financial Services Snowy Hydro Trading Pty Ltd (Australia) Limited South Australian Government Financing CS Energy Ltd Authority Delta Electricity Southern Hydro Partnership Deutsche Bank AG St. George Bank Limited Dresdner Bank AG, Australian Branch Standard Chartered Bank Australia Limited Eastern Energy Limited Stanwell Corporation Limited Energex Retail Pty Ltd State Street Bank and Trust Company Ergon Energy Pty Ltd Sumitomo Int’l Finance (Aust) Ltd Energy Australia SUNCORP-METWAY Ltd Enron Australia Finance Pty Ltd Synergen Pty Ltd ETSA Corporation Tarong Energy Corporation Limited Flinders Power Pty Ltd Tasmanian Public Finance Corporation Fuji Int’l Finance (Aust) Limited Telstra Corporation Limited Garban-Intercapital Plc t/asTelecom Australia Limited General Motors Acceptance Corporation The Asahi Bank Ltd GIO Investment Services Limited The Chase Manhattan Bank Great Southern Energy The Dai-Ichi Kangyo Bank Limited HSBC Bank Australia Limited Tokai Australia Finance Corporation Limited IBJ Australia Bank Limited Toronto Dominion Australia Limited ING Bank (Australia) Limited Treasury Corporation of Victoria Integral Energy Australia Corporation Tullet & Tokyo Liberty Pty Ltd J B Were Capital Markets UBS Warburg Australia Limited Loy Yang Power Management Pty Ltd United Energy Limited M W Marshall & Company Pty Ltd United Overseas Bank Limited

© Australian Financial Markets Association 2000. All rights reserved. Page 53 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000 Financial Services Reform Bill - Joint AFMA and SDIA Submission

Western Australian Treasury Corp. Jackson McDonald WestLB KPMG Westpac Banking Corporation Lewis Securities Ltd Yallourn Energy Pty Ltd Mallesons Stephen Jaques (NSW) Market Source Australia Pty Ltd ASSOCIATE MEMBERS Markham Appointments Chimaera Consulting Pty Ltd Midas-Kapiti International Coles Myer Finance Limited Middletons Moore & Bevins Hazelwood Power Milestone Group Pty Ltd Rio Tinto Limited Minter Ellison (NSW) TIO Finance New Zealand Futures & Options Exchange Oakvale Capital Limited (WA) CONSULTATIVE MEMBERS Optus Communications AA&H Technical Services Pty Limited Phillips Fox (NSW) Abrar Discounts Berhad PriceWaterhouseCoopers Services (NSW) Allen Allen & Hemsley QBL Funds Management Arthur Andersen Reuters Australia Pty Limited Arthur Robinson & Hedderwicks SAP Australia Pty Ltd ASX Derivatives Standard & Poor’s MMS Austraclear Limited Star Systems Pty Ltd (Qld) Australian Investment Research Services SunGard Capital Markets Baker & McKenzie (NSW) Sybase Australia Pty Limited BDO Nelson Parkhill Sydney Futures Exchange Limited Blake Dawson Waldron Syntegra (Australia) Pty Ltd Bloomberg LP Thomson Financial Services Pty Ltd BOC Gases Australia Limited TIBCO BRIDGE Information Systems Trade Centre Products CCK Treasury Systems (WA) Pty Ltd Trading Technology Australia Pty Ltd Corrs Chambers Westgarth (NSW) DST International AFFILIATE MEMBERS East and Partners Pty Ltd Ernst & Young (Vic) Australian Taxation Office (NSW) Ernst & Young Chartered Accountants Australian Securities & Investment Euroclear Operations Centre Commission (ASIC) Freehill, Hollingdale & Page (NSW) Commonwealth Treasury Filenet International Swaps & Derivatives Association Henry Davis York Solicitors (ISDA) Ian Merker and Company International Securities Market Association INFACT Consulting (ISMA) Investec Australia Ltd Reserve Bank of Australia Infinity Financial Technology Jacanda Investments Pty Ltd

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3.8 Full Members SDIA

ABN AMRO Equities Australia Limited Morgan Stanley Dean Witter Australia ACS Broker Services Limited Securities Limited Andrew West & Co. Limited Morgan Stockbroking Limited Austock Brokers Pty Ltd Ord Minnett Group Limited Australian Stockbroking Limited Paterson Ord Minnett Ltd Baker Young Stockbrokers Limited Peake Lands Kirwan Pty Ltd BBL Financial Services Limited Reynolds & Co Pty Limited Bell Securities Limited Salomon Smith Barney Australia Securities BNP Equities Group (Australia) Ltd Pty Limited Bridges Financial Services Pty Ltd Sanford Securities Limited Burdett Buckeridge Young Limited Shadforths Limited Burrell Stockbroking Pty Ltd SHAW Stockbroking Limited Cameron Stockbrokers Ltd Statton Sercurities Cazenove Australia Pty Ltd Taylor Collison Limited Chartpac Securities Limited T D Waterhouse Investor Services Limited CIBC World Markets Australia Limited TIR Securities (Australia) Limited CJ Weedon & Co Warburg Dillon Read Australia Equities Colonial Stockbroking Limited Limited Commonwealth Securities Limited Were Stockbroking Limited Credit Suisse First Boston Australia Westpac Securities Limited Credit Suisse First Boston Australia Equities William Noall Limited Private Limited Wilson HTM Ltd D&D-Tolhurst Ltd Deutsche Securities Australia Limited Dicksons Limited DJ Carmichael Pty Limited E.L. & C. Baillieu Stockbroking Ltd ETRADE Australia Securities Limited Falkiners Stockbroking Limited FW Holst & Co Pty Ltd Hartley Poynton Limited HSBC InvestDirect (Australia) Limited HSBC Securities (Australia) Limited Hudson Securities Pty Ltd Instinet Australia Limited Intersuisse Limited ITG Australia Limited Johnson Taylor Limited Kirke Securities Limited KJ Polkinghorne & Co Pty Limited Lodge and Partners Lonsdale Securities Limited Macquarie Equities Limited Merrill Lynch (Australia) Limited Montagu Pty Ltd

© Australian Financial Markets Association 2000. All rights reserved. Page 55 of 55 © Securities & Derivatives Industry Association 2000. All rights reserved. Submitted 12 May 2000