Crikey is again running for the ASX board to try and end one of the greatest corporate rorts in Australia.
We remain bemused that few people in the media or the investment community – with the exception of occasional flurries from Steven Bartholomeusz and Merrill Lynch during the year – has ever taken on these gouging monopolists.
The corporate plod – ASIC chairman David Knott – seemed pretty disinterested as this exchange with Crikey at a Shareholders Association talk last Tuesday would suggest.
The Corporate Plod spoke for 45 minutes covering a broad range of topics but when it came to question time, Crikey decided to put a bit of extra pressure on those outrageous gouging monopolists at the ASX, who even charged the not-for-profit ASA $400 for the use of a room for 2 hours.
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The question was broadly framed as follows:
CRIKEY: “You’ve talked about the need for improved disclosure and a fully informed market, well what about doing something about that gouging monopoly known as the ASX? The original 606 member brokers each put in $25,000 and now hold shares worth $2.3 million – an unparalleled 90-fold return in three years that makes it the best performing stock trading on the ASX. They’ve just reported revenues of $33 million last year from the sale of market data and you have the ridiculous situation where you have to pay $7.50 for each company announcement that is more than 12 months old. This is akin to the politicians charging to access Hansard. And then you have the CEO of the ASX Dick Humphry, who has made about $5 million personally from this rort, sitting there as chairman of the Parliamentary Remuneration Tribunal determining the size of politicians’ pay rises. Can’t you do something about all of this?”
Despite answering most questions with some passion and detail, the corporate plod went sadly missing with this answer:
PLOD: “Stephen is as entertaining a person as he is on the web, for those who read it. My salary is set by the Remuneration Tribunal too. I don’t think it is appropriate to make a public comment about this. It is historically a part of every stock exchange’s function and role, to my knowledge.”
There is nothing that makes Crikey madder in corporate Australia than the ASX rip-off. This column I wrote for Ethical Investor magazine in June explains why:
Ethical Investor Column: why the ASX sucks
By Stephen Mayne
Information is power in the modern age but Australia remains a relatively secret democracy and this undoubtedly works against the interests of shareholders trying to encourage ethical behaviour and accountability.
Even in the most open societies, the media only reports about 5 per cent of what is going on. But Australia has the most restrictive defamation laws of any English-speaking country with the exception of Singapore and also quite restrictive censorship and free speech laws.
The 95 per cent of what happens that remains secret provides a lot of power to the lucky insiders who know it. Therefore, the challenge for financial regulators in Australia is to get as much information on the table as possible.
However, the Australian Stock Exchange has abrogated this responsibility since becoming a “for profit” monopoly three years ago. Rather than informing the market they are trying to profit from it by selling market data. Revenue from this source leapt 30 per cent to $30 million in 1999-2000 which was great for the ASX monopolists but comes at a cost to our market.
The Howard government was complicit in the ASX demutualisation. In fact John Howard subsequently appointed ASX chairman Maurice Newman to the ABC board and called in ASX CEO Dick Humphry to do a review of the flawed IT out-sourcing process.
The ASX is also increasingly granting waivers to company that reduce the rights of shareholders and reduce the flow of information. At the recent Santos AGM on May 4, the ASX secretly gave the company an exemption to the listing rules that allowed it to issue an $8 million share freebie to new CEO John Ellice-Flint without any reference to shareholders.
This sets a terrible precedent because it now means the ASX can exempt companies from listing rule 10.11 which states: “a listed entity must not issue equity securities to a director without the approval of the holders of ordinary securities.”
This was the biggest sign-on fee in Australian corporate history but there is no mention of it in the latest Santos annual report.
As the ASX becomes more profit-focused, you can see the surveillance role waning. In 1999-2000 we had the tech wreck yet the ASX only managed 17 referrals to ASIC – the lowest over the past 5 years.
With disasters such as HIH and One.Tel, combined with the range of tech-wrecked companies such as Eisa, Liberty One and Infosentials, you have got to ask yourself what the ASX was doing to protect and inform investors.
In the cast of HIH and One.Tel, the market has been clearly misinformed yet anyone wanting to go back and search company announcements more than 12 months old to see what happened has to pay the ASX for the privilege.
The same goes with things such as director dealings. In the UK directors must disclose any share sales within 48 hours yet in Australia they have two weeks, by which time a lot more shares have been traded without the disclosure that a director like Rodney Adler has been dumping One.Tel and HIH stock.
The BHP-Billiton merger is just another example of poor information. Firstly, BHP were allowed to not have an independent expert’s report. Then BHP got access to the shareholder lists and proxy counts leading into the meeting and stepped up their lobbying. Anyone wishing to oppose the merger and solicit proxies was denied access to this information.
BHP chairman Don Argus refused to disclose the proxy votes to the meeting and then BHP did not disclose them on their website as promised. The company then came out and claimed an overwhelming mandate by every measure yet to this day they still refuse to reveal the figures on how many shareholders actually voted.
My guess is that a majority of those that voted opposed the deal, but the big institutions that were strong-armed by BHP got the deal over the line. If the ASX compelled companies to reveal this sort of detail then the market would be more informed and those of us trying to wage a public debate would be better placed in trying to enforce accountability and transparency and to test the accuracy of their public statements.
Sadly, this sort of detail too often part of the 95 per cent that the public will never know and BHP can get away with their misleading statements.
Now, this is the letter I sent to the ASX company secretary nominating for the board this year:
Please accept this letter as my consent to nominate for the board of ASX Ltd at the upcoming AGM. The company advised via email last year that the only requirement to nominate was a consent to nominate form which needs to be lodged no less than 30 business days before the AGM. However, a shareholder is also nominating me separately if this is a requirement.
Please include the following CV and platform for the notice of meeting:
“Stephen Mayne, age 32. BCom (Melb). Stephen is the publisher of www.crikey.com.au and has been a business journalist for 12 years with a range of Australian newspapers and websites. He won the prestigious Walkley Award for business journalism in 1999 for a 16-part series in The Daily Telegraph from the perspective of an active shareholder. As an advocate for shareholder rights and an active investor for 10 years in more than 100 stocks, Stephen has a unique perspective from having asked questions at about 150 AGMs. He also believes the ASX should provide 10 years of company announcements for free on its website to allow for a more fully informed market.”
I trust that the position on the notice paper will be determined by ballot and would also request that you consult with me before editing the proposed CV and platform summary to be distributed to shareholders.
I would also request that all of the directors up for re-election speak to the motion and that I be given up to five minutes to address the meeting. In my view the notice of meeting should require a specific box to be ticked if shareholders wish to give undirected proxies to the chairman rather than this being the default mechanism when shareholders simply sign the form and send it back unmarked.
I trust that my nomination will be successful if I receive 50.1 per cent of the valid votes cast and that the board will not decree that there is no vacancy for an additional candidate given that the size of the current board is well below the maximum prescribed in the company’s constitution. Shareholders should be allowed to decided if they want an extra director on the board.
Finally, could you please provide me with details of the ASX’s top 100 shareholders if such information is available to the investor relations department. I think it is important that all candidates for the board be entitled to similar information and be given equal opportunity to canvass with the major shareholders who will decide this vote.
Could you please confirm your receipt and acceptance of this nomination by email to [email protected]
And if you think that Crikey is a lone voice on the ASX rort, check out this column by The Age’s Steven Bartholomeusz last year.
Bartho is probably Australia’s most conservative business commentator when it comes to taking a stand and really tearing strips off someone. Therefore, coming from Bartho, this is very powerful and in our view absolutely correct.
ASX USES MARKET POWER TO MAKE LOTS OF MONEY
By Steven Bartholomeusz
Business Commentator for The Age
“The full copy of this announcement is available for purchase from ASX Customer Service … Charges apply.”
That little paragraph is occurring routinely at the bottom of company announcements broadcast by the ASX through its company-announcements platform.
It sits oddly with a description of ASX’s role within the ASX website.
“ASX regards timely disclosure of relevant information as being of prime importance in the operation of an efficient market. The release of this information enables investors to make well-informed decisions about the past and prospective financial performance of listed entities, changes of management, major acquisitions or disposal of assets and other matters which are likely to influence the price or value of their investment,” the ASX says on that site.
It also sits oddly with the ASX practice of delaying the posting of market prices and company announcements on its website for 20 minutes. The information is available earlier – but only if investors are prepared to pay for it.
ASX currently charges $5 for file access and 40 cents per page for full announcements. For facsimile delivery, the per-page charge rises to 80 cents after 21 pages.
The ASX’s practice of editing company announcements and then asking investors to pay for the full texts of the original announcement highlights the tensions between its role as a regulator and a for-profit listed entity.
It also betrays some confusion about the role and responsibilities of the ASX within a regulatory system that places such emphasis on timely and fulsome disclosure to the ASX by companies but places no responsibility on the ASX to actually on-pass that information immediately, and completely, to all investors.
The law requires companies – it imposes an obligation on them, backed by penalties – to make disclosures of all information that could have a material impact on their share price and/or investors’ understanding of their prospects.
That obligation is to disclose the information to the ASX and often involves disclosure in a format decreed by regulation.
The law doesn’t, however, require the ASX to broadcast that information or provide free access to that information.
That mismatch, and its listed, for-profit structure, creates a difficult position for the ASX. It is inundated with information from companies, much of it quite voluminous in nature. On-passing that information in full to the market-at-large without charge would be very expensive.
Last week ASX said that the decision to make announcements and market prices free of royalties after 20 minutes on its website would cost it several millions of dollars of revenue a year, although this was expected to be offset by increased trading activity.
The basic problem, however, is that, even after improving access to corporate information, by editing company announcements and by charging those who want immediate access to the full unedited version of those announcements the ASX creates two classes of investor – those who can afford to pay for instant and complete information and those who can’t.
That conflicts with the basic philosophy of regulation of our market – that all investors should have equal and timely access to relevant and material information that might affect the value of their investments. Some are now more equal than others.
The ASX says that it edits company announcements with a view to ensuring that all material and relevant information, in terms of its impact on price discovery, is released to the market immediately and that the charges simply reflect recovery of the costs of providing hard-copy versions of announcements to investors.
The ASX’s good intentions should be taken at face value. There is no suggestion that it edits the information with an eye to maximising revenue.
Nevertheless, there is at least the potential for a more commercial approach to the editing of information to occur in future as the ASX’s relatively new commercial focus intensifies.
The ASX also points to the potential for investors to access information from company websites. That isn’t, however, a perfect solution. Companies are not required to have websites, they aren’t required to post announcements simultaneously with the ASX’s release of those announcements and they aren’t required – and often don’t provide – ASX announcements in their statutory formats.
It is, obviously, preferable that all market participants have equal access to all information provided to the ASX by listed companies and it is also preferable that access should be free – particularly when that information is required by law.
The obvious understanding of the legislators in requiring statutory disclosures, and giving the disclosure rules the backing of the law, was that the information would be made available to the market-at-large on the same terms and timing.
If it isn’t possible for the ASX to reconcile its commercial imperatives with its role as regulator, perhaps the Australian Securities and Investments Commission might have to expand its role.
ASX on-passes all company announcements to ASIC. Perhaps ASIC ought to ensure that all that information is immediately posted on its website. While that might reduce ASX’s profit-making potential, it would ensure a level and complete playing field for access to information.
In the US, the Securities and Exchange Commission is the central repository for all corporate filings and makes that information freely available. Indeed, it even e-mails announcements to registered interested parties free of charge.
The ASX’s disclosure regime isn’t without flaws, but it is generally regarded as a significant improvement on the regime that applied before continuous disclosure, with statutory backing and penalties, was introduced.
One of the major attractions of the ASX as regulator is its commerciality and flexibility and its ability to use what is, in effect, a “fuzzy law” framework to encourage better-than-minimum compliance.
It undermines the effectiveness of that regime, however, when company announcements are edited, no matter now sensitively, and inevitably creates a perception that those who can pay for it – institutions and rich private investors – will have privileged access to useful information while ordinary individual investors are disadvantaged.
Now, let’s take a look at our account of the 1999 ASX AGM where these fatcats faced some difficult questions from shareholders for the first time in their comfortable lives
CRIKEY STICKS IT TO ASX FATCATS
First published October 1999 on jeffed.com
By Stephen Mayne
Twice an ASX Shareholder
ONE of the world’s most lucrative men’s clubs, ASX Ltd, finally had to answer a few probing questions when I got down to their second AGM as a listed company at their swish new headquarters in Sydney in October last year.
This rapacious monopoly has turned a $25,000 investment by its 606 members into more than $1 million for those wise enough not to sell out in the first few weeks of trading last year.
As a devotee of the great Peter Troughton, the Pom who floated Telecom New Zealand and then masterminded Victoria’s $29 billion energy sell off, I can well remember a comment he made when debating power workers and managers in Victoria’s Latrobe Valley back in 1993.
”The only thing worse than a public monopoly is a private monopoly,” the straight talking Cockney told them that night.
And that is what we have with ASX Ltd. With only one other shareholder prepared to ask a general question at the meeting, the field was left open to me, having bought into ASX Ltd at $9.90 a share two weeks before the meeting.
SOME PERTINENT QUESTIONS
The board and other shareholders were patient as we stood up about 10 times and raised all manner of issues. We opened up with a selfish inquiry about Club ASX’s ridiculously strong balance sheet even after the additional $30 million in capital returns and special dividends were paid out last year. After all, Club ASX had interest revenue of almost $10 million last year and now that the proposed Sydney Futures Exchange takeover has slipped through its fingers, there is nothing major on the horizon for it to buy.
Now the ASX has been pretty blunt in its cost slashing, cost-recovery and user pays approach over the past few years. Think about that huge ASX building at 530 Collins St. There used to be an Investor Centre there but these have been closed across the country and now Club ASX only has about 30 of its 560 people in Melbourne. Investors are now charged a $5 entry fee for ASX Open Days across the country. Photocopies cost 70c each and as one small company chairman complained at the AGM, lodging a notice of meeting now costs $400. Even the ASX board is sensitive about showering its Fat Cat members-turned-shareholders with too much cash so we might just have to put with $30 million of special payments a year for the next few years as it finally leverages one of corporate Australia’s laziest balance sheets.
Chairman Maurice Newman stressed during his speech that ASX trading costs are close to the bottom of the lowest quartile of all exchanges in the world. How could anyone accuse it of abusing its monopoly when this was the case? Typically, this is only half the story. The accusations of customer gouging and abuse of market power mainly focus on listing costs and market data information.
When I asked about this at the meeting Maurice did not deal with it specifically. AMP’s big talking former chief executive George Trumbull went through the roof when the ASX demanded it pay $2 million to list last year. Afterall, AMP wasn’t raising any new capital so this looked like a major abuse of power. Telstra and the Federal Government were also pretty annoyed at having to pay $2 million in listing fees for T1 AND T2. The annual report reveals that listing fees and market data sales now generate about $55 million a year and is rising rapidly.
This would certainly suggest Club ASX has used its monopoly position to gouge a few of their bigger customers. This is maybe not too wise given that Computershare looks set to take over the Sydney Futures Exchange, AMP is Computershare’s largest institutional shareholder and Telstra has this year taken a strategic 15 per cent stake. If these three firms got together and ganged up on the ASX things could get very interesting and we could yet have some competition.
ASX shares have been ridiculously volatile since they listed at just above $4 a year ago and then rocketed to $16 in March before almost halving since its proposed merger with the SFE fell over. Part of the reason the stock halved is perhaps the threat of competition and part of the reason it quadrupled was the ASX’s dreadful disclosure performance on its own results.
Maurice stressed in his speech that maintaining market integrity was of utmost importance for the ASX yet the regulator itself appeared to have failed one of the basic integrity tests on keeping the market informed. It was an embarrassment of riches for one of the world’s most lucrative clubs, just like the cash pile sitting on its balance sheet is. Just a few short weeks after releasing its information memorandum to the market, Club ASX sheepishly admitted profits were likely to be double the forecast. Naturally, the stock took off but ASX was hardly going to query or suspend itself and the ASIC let them off very lightly.
ELDERLY MEN’S CLUB
The ageing men’s club mentality was evident when both Maurice Newman and managing director Richard Humphry came in for some specific questions from Jeffed.com about their positions. Jim Dominguez, who probably weighs in as a Club ASX member worth about $30 million, stood up and praised the lads as did Ord Minnett chairman Peter Mason, who even suggested Jeffed.com’s questions should not be allowed. It would appear some former members still think Club ASX is a gentleman’s club.
I merely asked if Maurice had a conflict being chairman of Deutsche Bank and Club ASX at the same time. After all, who could forget the botched AMP float when AMP’s adviser Deutsche Bank was in the market buying stock at ridiculous prices as high as $35. ASIC chairman Alan Cameron went on Business Sunday and said the whole episode had damaged the integrity of our market and Maurice was there wearing two hats defending both Deutsche and Club ASX. ASX Deputy chairman Michael Shepherd correctly pointed out that Maurice had surrendered his main Deutsche Bank gig. However, he remains non-executive chairman of Deutsche’s asset management arm.
It is a welcome development that now only one ASX director has equity in a broking firm. Even so, the conflict of interest between being a listed company and a regulator of other listed companies still remains. To this end, CEO Richard Humphry said he planned to establish a separate regulatory board to deal with market integrity issues. This should have been obvious to everyone at the time of the float.
A WELCOME PRECEDENT?
Mr Humphry has been more than adequately thanked by his board for managing the demutualisation process. It was amazing that he achieved it without a major revolt from the media and ASX customers. After all, this was basically a mutual that was set up to service its stockbroking clients and turned into one of the world’s biggest millionaire factories. All paid for by us ordinary shareholders, institutions, listed companies and third parties who buy information from this monopoly. Humphry, a former Victorian Auditor General and head of the NSW Premier’s Department, has signed up on a new three year conrtact worth about $5 million. If the board doesn’t renew this well paid gig, tricky Dicky will pocket about $1.5 million which Jeffed.com pointed out was a little on the high side. Part of this package includes a gift of about $1.5 million worth of ASX shares, with all performance hurdles already cleared because the big guy successfully got Club ASX trading on its own boards.
Club ASX was the first exchange in the world to list on itself and now it gloats that others exchanges such as London and New York are looking at following their pathfinding lead. Clearly, stock exchange members around the world are seeing dollar signs that will add a new yacht, harbourfront mansion or Bentley to the asset pile as has occurred in Australia. They are justifying this by citing Australia as a precedent. But is it a precedent of which we should be proud? We think not.
PRESSURE SHOULD BE KEPT UP
At the very least, the regulators and customers of Club ASX need to keep the pressure on to ensure they share in some of the benefits of this lucrative private monopoly. The Australian Shareholders Association should have been at the meeting on Monday representing all shareholders who use the exchange. The ASX should have attracted more flak for closing its investor centres and charging a $5 fee at open days. And disgruntled customers such as AMP should be expressing their concerns more publicly.
After the meeting, ASX directors Jim Kennedy, Clive Batrouney and even tricky Dicky himself were very friendly. They welcomed the questions and said it would have been a very brief meeting indeed without them.
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