This article on ‘Capital Market Laws in Australia‘ was written by an intern at Legal Upanishad.
This article is about the laws which are regulating the capital market but it is restricted to Australia. This includes information about the Corporation Act, Australian Securities and Investment Commission Act (ASIC), and the Australian Stock Exchange. Generally, the capital market includes all types of financial securities, bonds, derivatives, and shares.
Australia is considered the third-largest stock market because of the free-floating of stocks by the capitalization of the market. There are three levels of government in the Australian federation i.e., commonwealth (federation), state and territory, and local (municipal) levels. In Australia, the commonwealth made the laws and regulations relating to the financial and capital markets. The Australian Constitution provided the Commonwealth to make laws and regulations related to capital markets. The Corporation Act, 2001 is one of the most prominent legislation related to the capital market in Australia.
CORPORATION ACT, 2001 (Cth):
The Corporation Act, 2001, is an interstate and federal level law that regulates companies and business entities. This Act is one of the major acts in Australia which regulates not only companies but also the securities markets, financial markets, and capital markets in Australia. This Act provided many rules and regulations to be followed by the companies.
The capital market consists of two types i.e., primary market and secondary market. Shares, bonds, and securities will come under the primary market, this Act explained the registration and issuance of the share and bonds in the capital market. This Act made some regulations on the affairs of the companies in the capital market under various heads.
BASIC FEATURES OF COMPANIES:
This Act provided certain powers to the companies and made some rules on how the company should exercise those powers. It also provided methods for registering the company name and procedures for changing the company name. To protect the rights of the members of a company, this act made it mandatory to register the members of the company. This act also explained the duties that the directors, officers, and employees have to discharge.
RIGHTS OF MEMBERS:
This Act provided some rights to the members of the companies. Chapter 2F of the Act tells about the company member’s rights and remedies. Part 2F.1A of the Act says that any member of the company has the right to make proceedings on behalf of the company. Part 2F.2 of the Act provided class rights to the members of the company, varying and cancelation of class rights, sec 246D explains the variation, cancelation, or modification without unanimous support of the class. Part 2F.3 of the Act provides members the right to inspect the books of the company at any time.
Section 124 of this provides power to the company on issuing shares and converting of shares, this includes shares, bonds, preference shares, and partly-paid shares, and section 254B provided the terms of issue of shares. The companies should follow certain procedures prescribed in section 254S for the capitalization of the profits. As per sections 254X and 254Y of Part 2H.6, the company has to give notice to ASIC for the issuing of shares and cancelation of shares. Upon the request of any member of the company, the court can validate the terms of the issue of shares. Chapter 6D of the Act explains the fundraising rules, and also about the disclosure documents.
AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION ACT, 2001:
Under this Act, the Australian Securities and Investment Commission (ASIC) has been established, as a regulatory body to look into the matters of corporate, markets, and financial services and it is also responsible for market misconduct and investors protection. ASIC is a regulatory body whose main function is to promote, monitor, and protect the integrity of the Australian financial system. Its main aim and function are to protect the consumer who invests in the financial markets.
FUNCTIONS OF THE ASIC:
- Improving the financial system by promoting the interest of the consumers;
- Reform laws about the corporation legislations;
- It also monitors the market unity and protects consumers in matters related to payments by promoting the codes of practices and by adopting the approved industry standards;
- Promoting sound customer-bankers relationship through monitoring the standards of the industry and code of practice; and
- Promoting community awareness of payment system issues.
Division 2 subdivision BA of this Act made regulations on the unfair terms of the contract and also provided the standard forms of contract. Subdivision G of Division 2 provided some enforcement remedies for consumer protection like pecuniary penalty orders, injunctions, civil, and criminal remedies against the offenders.
AUSTRALIAN STOCK EXCHANGE (ASX):
As we said before capital markets consist of secondary markets i.e., stock exchanges. Australian stock exchange (ASX) operates by two independent government agencies – the ASIC and the Reserve Bank of Australia (RBA). The ASX should act by certain administrative duties issued by the international authority to maintain authorization. The ASX was reinforced with the whole-market regulations which were brought by ASIC across all the trading venues, clearing, and settlement facilities, and stabilizes the financial market oversight by the RBA of ASX’s clearing and settlement facilities.
OBLIGATIONS OF ASX:
- ASX has a clear rule framework setting out the criteria and processors to become a participant in ASX’s market or to be admitted to ASX’s official list.
- ASX should frame clear rules on corrections and cancelation of trading errors.
- ASX must work transparently to provide timely information to the participants about the costs and quantity to enable them to make marketing decisions.
- ASX has in place a clear rule set out to make effective the rules and obligations to meet the needs of the participants.
- It should act secure and reliable in the risk management system that properly deals with the defaults and other risks, including systematic risk, market risk, liquidity risk, and operational risks.
- It should also make arrangements in place to ensure that these rules are applied consistently, without any bias.
The legal framework of rules and regulations on the capital market was consistently applied when the Corporation Act, 2001 came into force. The ASIC and the RBA have the regulatory authority on the ASX through Corporation Act. The Council of financial regulators has the role to contribute to the efficiency and effectiveness of the financial regulations and promote the financial stability of the Australian financial system.
Australia is in third place in achieving the desired stock market results. The Corporation Act, 2001 is the basis for all the financial market laws which came after this act, the ASIC was established after the enactment of the Corporation Act, 2001. Many changes have been undergone after this Corporation Act. The ASIC has become one of the major authorities to look after all the affairs companies which were authorized by the Corporation Act. Major changes occurred in the financial and capital markets due to this Corporation Act. New financial products were introduced in the capital market after this Act.
- Corporation Act, 2001 – Federal Register of Legislation Australia. https://www.legislation.gov.au/Details/C2019C00216/Html/Volume_3.
- Australian Securities and Investment Commission. https://www.legislation.gov.au/Details/C2021C00281.
- Ian Peterson King and Wood Mallesons (Nov 2021), “The International Capital Markets Review: Australia” https://thelawreviews.co.uk/title/the-international-capital-markets-review/australia.
- Australian Stock Exchange regulatory framework. https://www2.asx.com.au/about/regulation.