Securities Industry Gears Up For Us Standards
The Age
Monday July 20, 1998
If you have any doubts about how globalisation is changing the way Australians do business, ask the three dozen or so former employees of County NatWest Securities who this week endured a tough formal examination about securities laws on the other side of the world.
The Series 7 securities exam is the brainchild of the National Association of Securities Dealers, the mob that controls America's fastest growing exchange, Nasdaq.
Theoretically, Nasdaq has no jurisdiction whatsover over here. In reality, the three dozen dealers, analysts and investment bankers who took the NASD exam know it is a prerequisite for a career with the Australian arm of Salomon Smith Barney, the United States firm that has acquired County Australia.
The Series 7 exam is a six-hour test containing 250 four-option multiple choice questions that qualifies those who pass as a "registered representative" of the firm they work for. It is becoming the de facto passport for entry into the securities industry in America.
The exam is technical, and not easy to pass, particularly if you have, like the County employees, developed your skills in a different legal environment. Some of those who sat for it this week are far from confident they have passed. Salomon Smith Barney's boss in Australia, Trevor Rowe, says anyone who doesn't make the grade will receive remedial education.
Despite the hand-wringing the exam has caused inside the expanded Australian operation, Salomon Smith Barney did not pay $130 million for County's Australian broking operation last February to run it as a quarantined local business.
If Australian brokers and investment bankers do not meet the US standard created by the Series 7 test, they are effectively shut out of the world's biggest market.
Research, for example, is unacceptable in the US unless it is prepared by somebody who has the Section 7 stamp of approval.
It means, of course, that as far as securities industry rules are concerned, globalisation is, in effect, fast becoming Americanisation. But as the barriers between markets continue to come down, it is inevitable that the rest of the industry here will fall in line, and the US standards will become the norm.
*Corporate law amendments flawed
Peter Costello won't be applauded by small shareholders for asking a parliamentary committee to review amendments to the Corporations Law pushed through the Senate last month by the Democrats and Labor. But he is right: the package is full of holes, and needs revision.
The changes impose a range of extra obligations on companies covering disclosure and corporate governance. But several are flawed, and are opposed outright by the Government. They include amendments forcing listed companies to disclose specific details of compliance with environmental rules and regulations, and disclosures made to other exchanges. Both would subordinate the national companies disclosure code to other regimes - state and local environmental laws and non-Australian exchanges.
The overseas exchange disclosure obligation is redundant, because Australian companies are obliged to report market-sensitive matters under the Australian Stock Exchange's continuous disclosure regime.
Other amendments are not specifically opposed, but Costello has referred them to the committee for review. They include the one that grabbed the headlines when the amendments went through the Senate - a requirement that listed companies give specific details of how much its directors and top executives are paid.
It would be the first time names were aligned with dollar numbers in annual reports in Australia, and the amendments also seek to make companies explain how pay is linked to performance.
The aim of all these amendments - greater disclosure - is admirable. But is the public dissemination of pay details worth the breach of privacy and obvious risk to person and property it creates?
Pay is already disclosed in bands at the back of annual reports, and the details of specific packages are known to the boards of the companies that do the hiring. The boards must police performance, and judge whether pay is appropriate.
Specific pay packages are disclosed in the United States, and executive remuneration there is stratospheric. Concern about pay in the US this decade has been inversely proportional to the health of the market - peaking at the beginning of the decade and falling since then as the markets have risen, and shareholder wealth has increased.
One school of thought is that publication of specific numbers is actually pushing pay rates higher in the US, because it creates relativity benchmarks for lower-paid executives in similar companies.
A board might come under greater pressure from shareholders if the figures are broadcast more precisely and more loudly, as demanded by the amendments. But only if there is much more shareholder activisim at annual meetings in this country.
The principle of greater disclosure is fine. But after taking soundings from the various interested parties - including small shareholders, directors and executives and their representative bodies - the parliamentary joint committee should be able to come up with a better package than the one the Senate rammed through last month.
e-mail: mmaiden@theage.fairfax.com.au
© 1998 The Age