Liquidity implications flow from market changes
The Association of Superannuation Funds of Australia (ASFA) has questioned whether the Government would be acting wisely by seeking to inject more competition into the Australian clearing and settlements market.
In a discussion paper dealing with the development of Australian capital markets, ASFA says it welcomes the Government's announcement that Treasury will conduct a review of Australia's financial market licensing regime "as this will provide an opportunity for a transparent and open discussion on the benefits or risks of any change".
However the discussion paper said ASFA had "yet to be convinced that there are any advantages of introducing competition in an economy and market the relative size of Australia'".
"In particular we are concerned that the leakage of settlement to competitors may fragment the market and impact liquidity, which may have a negative impact on management of the super pool," the discussion paper said.
"Our greater concern is around the issue of market liquidity," it said. "While the top end of the market consists of companies that are heavily traded, among the bottom end of the market there are significant issues around liquidity."
It said ASFA had been in dialogue with the Australian Securities Exchange (ASX) around changes to capital raisings rules and broker research that aimed to address liquidity at the bottom end of the market.
The discussion paper said ASFA's interest in liquidity related to the retirement system's specific regulatory structure and the fact that, under choice of fund legislation, superannuation provider members had the right to move their superannuation account balance to another fund within 30 days.
"The implication of choice of fund legislation is that superannuation providers must actively monitor and manage the liquidity of investments," it said.
"The implication of parts of the market becoming illiquid, or less liquid, may be that superannuation providers would need to reduce the amount of investment that is allocated to these areas of the market," the submission said.
It said the reduction of superannuation capital could have a significant impact on the ability of parts of the ASX market to grow over time.
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