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Select Committee on Finance and General Affairs debate -
Wednesday, 3 May 1995

Stock Exchange Bill, 1994: Committee Stage.

I welcome the Minister of State, Deputy Jim Higgins, who is appearing for the first time before the Select Committee. I will commence by asking him to introduce the Bill, briefly, in an opening statement.

I congratulate him on his well earned promotion. We expect great things from him as Minister of State, including a few interpretative centres in each of our constituencies.

And drainage schemes.

Thank you Chairman for your good wishes. This is my first time to appear before this committee. I welcome the opportunity to take the Stock Exchange Bill, 1994 before the committee, and I trust we will have a fruitful discussion on it. As it is some time since the Stock Exchange Bill was taken on Second Stage in the Dáil, it would be a good idea to begin by saying a few words about the purpose and scope of the Bill.

The Stock Exchange Bill is the first major legislation relating to the Stock Exchange in almost 200 years. It establishes the Central Bank as the regulatory authority for the Stock Exchange and for any future stock exchanges that may be established here, and also for the member firms of exchanges regulated under this Bill. The Bill also meets our obligations under the EU Investment Services and Capital Adequacy Directives in respect of stock exchange member firms.

At present the only legislation relating to the regualtion of stock exchanges and of member firms is the Stock Exchange (Dublin) Act, 1799, which is being repealed by this Bill. The Irish Stock Exchange has been a part of the International Stock Exchange of the United Kingdom and the Republic of Ireland Limited since 1973. It is supervised under the rules of that exchange and also under the rules which apply to the Irish unit only. Changes in these Irish rules are agreed by the Minister for Finance but he has no power to require changes in them. As Deputies will be aware, the Irish Stock Exchange will be separating from the London exchange shortly, and the intention is to synchronise the implementation of the Bill with the separation from London. I expect these events to happen on 1 July next. While the existing legislation relating to stock exchanges is rudimentary, there is a significant body of national law relating to the regulation of financial institutions, including banks, building societies, the financial entities in the International Financial Services Centre and, of course, futures and options exchanges. The Stock Exchange Bill builds on this legislation and on the experience of the Central Bank in implementing it.

The Bill, therefore, makes the Central Bank the regulator of the Irish Stock Exchange and of any exchanges established here in the future, and also of their member firms. Stock exchanges and member firms will have to obtain Central Bank approval to operate and will then have to operate subject to Central Bank supervision.

The Central Bank will have extensive powers of regulation, inspection, and enforcement in respect of stock exchanges and their member firms. Furthermore, in view of the public importance of this area the Bill provides a significant role both for the Minister for Finance, given his responsibility for the financial services sector, and for the Minister for Enterprise and Employment who has responsibility for company law issues and has, of course, a particular interest in the access of Irish firms to capital. I will propose a number of amendments to ensure openness and transparency in the exercise of the Ministers of their functions.

I should make it clear, however, that the Bill does not deal with what I might call the company side of stock exchanges, in other words, with company law, the listing of companies or with such areas as insider dealing or the Takeover Panel. These matters are the responsibility of the Minister for Enterprise and Employment. Neither does the Bill deal with futures or options exchanges such as IFOX and FINEX: these are alrady regulated by the Central Bank under the Central Bank Act, 1989.

The Bill deals with the authorisation and the ongoing regulation of stock exchanges and their member firms, not with companies quoted on the Stock Exchange. It meets out obligations in respect of two EU directives — the Investment Services Directive and the Capital Adequacy Directive. These are Single Market directives which will allow investment firms to trade throughout the EU on the basis of a uniform system of regulation and supervision applied mainly by the competent authorities in member states.

The Investment Services Directive which must be provided for in national legislation by 1 July 1995 and will apply fully from 1 January 1996 requires member states to ensure a common standard of regulation for investment firms and to take steps in relation to supervision of regulated markets, a term which includes stock exchanges.

Under the directive investment firms authorised in one member state will by virtue of that authorisation be able to operate as investment firms in another member state. The directive incorporates measures similar to those in the first and second banking directives, namely conditions for granting authorisation to investment firms, vetting of main shareholders and provision for close collaboration among the supervisory authorities in the member states.

The related Capital Adequacy Directive sets out the levels of capital which investment firms must have in relation to their own investment business. Legislation to implement these directives in respect of other investment intermediaries, in other words, those which are not stock exchange members, is being prepared and I understand it will be introduced in the House shortly. In the meantime, this Bill will meet our obligations in respect of the Stock Exchange member firms arising under these two directives.

While on the subject of European matters I should draw the committee's attention to the fact that the Bill was the subject of consultation with the European Monetary Institute, which, as members of the committee will know, was set up under the Treaty on European Union as the forerunner of the European Central Bank. The institute has no difficulties with the terms of the Bill and copies of its opinion are available.

The legislation aims at providing the necessary measures without being excessive. It is designed to ensure that the Irish Stock Exchange will be regulated to the highest standards, but like stock exchanges around the world it must also be able to function with maximum efficiency in an increasingly complex environment. Accordingly, the Bill does not supersede the highly developed supervision systems which the exchange already operates to ensure market surveillance. However, it gives the Central Bank all the necessary powers to monitor and supervise the exchange's surveillance of its operations and the operations of its member firms and to lay down conditions and requirements which the exchange and its member firms must meet.

The Bill also aims at ensuring that stock exchanges are more open to the concerns of users and the public than has been the case up to now. The Bill, therefore, provides that the board of directors of an exchange will have to be broadly based and that the composition of the board will have to strike a balance between the interests of the member firms and users of the exchange and the public interest. Furthermore, the board will have to include enough independent members to promote the protection of investors and the maintenance of proper standards of conduct and practice. I am proposing a further amendment to the Bill in this area to require that the chairperson of the board of an exchange be independent and to ensure that independent board members are involved in dealing with any disciplinary matters and complaints which go to board level.

The Bill is divided into seven Parts. The first deals with general matters, while Parts II and III deal respectively with the approval of stock exchanges and the authorisation of member firms. These two Parts naturally contain many similar provisions. Part IV contains detailed regulatory provisions governing stock exchanges and member firms. Part V concerns the duties of auditors, while Part VI deals mainly with large transactions in holdings of stock exchanges and member firms, with codes of conduct and requirements relating to client moneys. Part VII covers enforcement, offences and penalties.

While there is a large number of amendments, the bulk of them are of a technical or drafting nature, to remove minor errors or to ensure internal consistency of wording within the Bill. I have already mentioned some of the more important amendments such as those relating to the chairperson of the board being independent and to the involvement of independent board members in hearing disciplinary or complaints procedures. Other important amendments relate to the unenforceability of contracts provisions in section 31 and to removing a possible barrier to non-resident investment firms becoming market-makers in Irish Government securities before the end of 1995. However, we will have an opportunity to discuss all these as Committee Stage proceeds.

This Bill amends an Act which was enacted in 1799, presumably when the House of Commons, as it then was, was in College Green. That is 196 years ago. I wonder if the Bill the Minister is now presenting will last 196 years. However, it got off to a bad start as the Department has 84 amendments to its own Bill which does not suggest great care and attention in drafting.

SECTION 1.

Question proposed: "That section 1 stand part of the Bill."

The 1799 Bill was also extensively amended on Committee Stage according to Deputy Eithne Fitzgerald's speech to the House.

Do the records still exist?

Did it provide for the building of what is now the City Hall as the Royal Exchange?

Section 1 gives the short title——

I have a general question which does not just relate to the Department of Finance and this Bill. The Chairman made a point about the number of amendments to the Bill. Many Bills are substantially amended on Committee Stage and there are many amendments from the Department. Has it ever been considered or could provision be made in our rules and regulations that a new draft of the Bill be published containing the proposed amendments? Frequently going through amendments can get very complicated. Do the rules allow for the production of a revised Bill after Second Stage——

An example of how the Bill would look if amended.

Exactly. This is not a criticism of the Department of Finance and the Stock Exchange Bill because it has applied to Bills since time immemorial. It would be a good idea if our rules allowed us to start afresh.

I support what Deputy McCreevy is saying. If a draft of the Bill as proposed to be amended, with the amendment shown in bold, was published, it would be possible to understand what is happening. At present, one would need to be a crossword genius to work out what is going on.

One would almost need to be a senior counsel.

We were very conscious of the number of amendments. It has already been acknowledged that all the amendments are Government amendments. We are grateful for the general feeling that the Bill should have a speedy passage. The Opposition parties agree with the general thrust of the Bill, apart from section 9, and have not come up with any amendments.

The amendments are generally of a drafting or a technical nature inserting a comma here and there, differentiating between "proper" and "prudent" and so on. I take the point about the possibility of redrafting a Bill in toto and presenting it afresh rather than patching in bits and pieces here and there. The problem is that drafting a Bill initially is a highly complex business. Some of the terminology here comes from companies legislation including, for example, offences which are not specifically relevant to this legislation.

We are trying to meet specific deadlines set down by European directives and this time constraint has presented problems. Most of the amendments relate to commas, full stops and punctuation and so on but we will look at the original suggestion about starting afresh.

It may be a matter for the legislation committee. Deputy McDowell mentioned publishing the Bill as it was with the changes in italics underneath. I am quite certain, having been in Government, that many Bills are so drafted to make sure——

That you do not understand.

——that Members do not understand them. I was always of that view and was strengthened in that belief in my time in Government. They are definitely designed in a way that cannot be understood by Members or ordinary people.

I suggest we write to the Committee on Procedures and Privileges and convey the suggestion that consideration be given on Committee Stage to publishing a draft Bill incorporating the proposed amendments. It could be done on different colour paper so it is clear that it is a draft, with the amendments in heavy print or italics.

We could also publish the section as it is and, immediately underneath in different typing, how the section as amended would look. It would make it far easier for people going through the Bill to identify the changes and help the officials in various Departments who would be able to see quite clearly what is being changed because it gets confusing.

There is no reason we should not at this stage have a copy of the Bill as it would look if all the Minister's amendments were accepted. Indeed the Minister himself talked about the urgency of passing this Bill. It would help considerably going through the various sections if we knew exactly how the Bill would read.

It is not as simple as it looks. This Bill would be simple because there are amendments only from the Minister. Can you imagine a Bill where there are conflicting amendments from different people? Let us put it to the Committee on Procedure and Privileges for consideration.

I mentioned that the Act being amended is 195 years old. Perhaps when we finish this Bill, we should put a copy in a time capsule with a lock of the Minister's hair — Deputy Quinn's hair — and see if it is still there in 195 years.

I do not think so; it is too rare.

Section 1 gives the short title of the Act which is the Stock Exchange Act, 1994.

Question put and agreed to.
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