I move amendment No. 29:
In page 25, subsection (1), line 29, to delete "to be an authorised" and substitute "to have been a".
SECTION 21.
Why is there a change in tense from "to be" to "to have been"? Is it only for grammatical reasons?
It is straightforward. The purpose of the subsection is to identify the firms which were members of the Irish Stock Exchange before the Bill comes into operation. The word "authorised" is inappropriate in this context because the authorisation process will not have started. There is a time lag between the Bill coming into effect and the companies going through the process of being vetted and authorised.
Amendment agreed to.
I move amendment No. 30:
In page 25, subsection (2) (a), line 48, to delete "prudent" and substitute "proper".
This amendment has already been discussed with amendment No. 17.
Amendment agreed to.
Amendment No. 31 is consequential upon amendment No. 80 and both may be discussed together. Is that agreed? Agreed.
I move amendment No. 31:
In page 26, between lines 10 and 11, to insert the following subsections:
"(5) Notwithstanding section 17 of this Act, a person who falls within subsection (6) of this section may be a member firm of an approved stock exchange until either the 31st day of December, 1995 or it has been authorised by a competent authority in its home Member State, whichever is the earlier.
(6) Subsection (5) of this section applies to persons or branches of persons which——
(a) have their head office and registered office in another Member State,
(b) are subject to prudential regulation in that Member State which is considered by the Bank to be equivalent to the regulation applying to authorised member firms under this Act, and
(c) are recognised as primary dealers by the National Treasury Management Agency.
(7) A member firm falling within subsection (6) of this section shall be subject to such conditions or requirements or both as may be imposed on it by the Bank in the interests of either or both of the following, namely, the proper and orderly regulation and supervision of stock exchanges and their member firms and the protection of investors or clients, and such conditions or requirements or both may be imposed on it by the bank in respect of associated undertakings or related undertakings.
(8) Section 18 (13) of this Act shall not apply to firms falling within subsection (6) of this section.".
As Deputies may be aware the National Treasury Management Agency is considering the introduction of market-making in the Irish gilt market and has held discussions with potential market-making firms. The NTMA intends to have market-making in place before the end of the year. Market-making firms will be members of the Irish Stock Exchange and the agency expects some of them will come from other EU member states.
Under the terms of the Stock Exchange Bill member firms of the Irish Stock Exchange must be authorised either by the Central Bank of Ireland or by a competent authority in anothr EU member state. The non-resident market-making firms will be authorised by their home competent authorities from 1 January next when the Investment Services Directive will be finally implemented in all member states.
However before that date there is no certainty that such firms will have been authorised by their home competent authority because while the authorisation procedures must be enshrined in law in II member states by 1 July this year they do not have to come into effect until 1 January 1996. In the intervening period, if a non-resident market-making firm has not been authorised by its home member state, its only option will get to seek authorisation from the Central Bank of Ireland. According to the Bill, to get that, it would have to have its head and registered offices here.
It would obviously be unrealistic to expect foreign market-making firms to set up a head and a registered office in Ireland to cover the time lag of those few months. I therefore propose this amendment to allow market-making firms based in another EU jurisdiction and already adequately regulated by the home member state to be members of the Irish Stock Exchange until they are authorised by the competent authority in their home member state. The amendment will have effect only until 31 December and it provides that the Central Bank will be able to impose conditions and requirements on such market-making firms.
The new subsection (8) is a technical provision to ensure market-making firms which come under the new subsection (6) cannot claim to be authorised by the Central Bank of Ireland as a competent authority for the purposes of the Investment Services Directive — so this subsection deals with the long term consequences. This ensures they will not be able to claim they can do investment business in another member state on the basis of such authorisation.
Amendment No. 80, which is related to this amendment, allows the Central Bank to use the section 65 committee mechanism to deal with any breaches, conditions or requirements imposed by the bank on non-resident market-making firms.
I do not purport to be an expert on market-making; I understand it is a complicated, technical and highly skilled area. However, in a general sense it seems the Minister is being reasonably generous in this proposal.
What happens if something goes wrong in the intervening six months period to which the Minister is referring? What would be the liability of the Irish Stock Exchange if something went seriously awry with a company which uses the mechanism the Minister has now outlined in this amendment and accesses that procedure without approval from his home country? Are we open to that?
No. The general feeling is that there is no danger of exploitation or irregularities. It has been thoroughly checked. The business of market making is a highly complex area. Basically, market makers buy and sell gilts which is a straightforward business transaction. There is no possibility for manoeuvrability in what they can and cannot do as they seem to be fairly hidebound by rules and regulations. There would seem to be very little room for exploitation. This interim period is to enable the market to stay alive and allow business to be transacted.
I would not necessarily hold the view that because it is complicated and intricate it is less open to abuse. The fact that it is complicated does not mean a way cannot be found around the rules and regulations. I want to be assured that anybody wronged in this matter would not have recourse to us.
I am assured they will not. Their business is to buy and sell gilts, they will still be subject to the requirements and the conditions of the Central Bank and their operations will be policed. While here, they will be operating under the aegis, monitoring and supervision of the Central Bank.
If somebody moves heavily into gilts under that system on the Irish market and fails to complete the deal and back it up with financial resources, where does the liability fall? Is there any liability on the Irish Stock Exchange for having allowed them to operate in the market before they were approved in their own member state?
As I explained, they will be monitored and supervised by the Central Bank and are limited to dealing in gilts. I am told that no liability will accrue to the stock exchange as a result of any possible indiscretion or misdemeanour. It is generally perceived that a liability will not be incurred by the stock exchange in the event of such an unlikely occurrence.
I accept what the Minister said but I do not think he answered my question. While there might not be any direct liability on the stock exchange, if something went seriously wrong, the damage done to its image would be quite serious.
Yes, but the position is that they will be regulated by their own member country. Anybody operating here in the business of buying or selling gilts will have come here courtesy of the assurance and reassurance of the regulatory authority in their own member country. It is most unlikely that somebody would involve themselves in anything that might lead to the situation the Deputy is sketching. They will have been referred, monitored and supervised and will come here with the imprimature of the competent authority in their member country.
I thought that will not be until 1 January.
The authorisation process is not until 1 January. They do not actually receive the final imprimatur. This is an interim arrangement to allow them to trade and do business here until such time as they receive final authorisation. I explained previously that they will have home country regulation. They will be supervised by their own country and come here with its imprimatur. It is an interim arrangement to allow them to trade here until the authorisation comes through.
By way of reassurance, I draw the Deputy's attention to section 21 (b). They are subject to prudent regulation in that member state which is considered by the Central Bank to be equivalent to the regulations applying to authorised member firms under this Act. In other words they would be regulated to the same standard.
That is the same standard as applies to our own Central Bank?
Yes. What is missing is the technical authorisation which comes in due course.
In January.
Yes.
As long as those who understand it better than I are happy that there is no possibility of things going awry——
Is the Deputy happy?
I appreciate what the Minister is saying but there is always one person — not in this country but in a country with different standards — who will seize the opportunity for abuse where, in an independent sense, there is a new stock exchange. I want to ensure that does not occur.
The Deputy is right. Section 21 (c) says that they are recognised as primary dealers by the National Treasury Management Agency, there will be a certain amount of regulation there as the NTMA would have to be satisfied.
The NTMA would have to agree with the Central Bank. Is the
Central Bank obliged on that basis to notify the National Treasury Management Agency?
There would certainly be dialogue between the Central Bank and the NTMA in relation to all companies operating and all transactions in the stock exchange.
In this scenario, is there an obligation to notify where the legislation provides that they have to be recognised? Who notifies the National Treasury Management Agency?
The National Treasury Management Agency will require that the Central Bank will be satisfied and vice versa.
Amendment agreed to.
Section 21, as amended, agreed to.