Private markets in focus
In February 2025, the Australian Securities and Investments Commission released Australia’s evolving capital markets: a discussion paper on the dynamics between public and private markets and called for feedback and debate on its regulatory approach to the growing private equity and debt markets. The regulator gave delegates at the KangaNews Debt Capital Market Summit a deeper insight into the consultation and what it seeks to achieve.
What prompted ASIC [the Australian Securities and Investments Commission] to issue this paper?
Public markets are changing and private markets are growing. Ensuring we have healthy capital markets in public and private sectors, as well as in debt and equity, is crucial to the robustness of the Australian economy. It is also important to provide companies with opportunities to support business growth to take our economy into the future.
We believe now is the right time to review our approach and to consider the regulatory settings. We also wanted to invite the industry to share its ideas as well as to provide feedback on our suggestions about how we can improve market operations and best prepare for the future.
Our paper aims to facilitate discussion on the implications of changing market conditions. We hope to build a shared understanding so we can assess the issues that have been introduced in our paper, as well as any others the market might raise, and then have a discussion about whether regulatory intervention is needed.
There might have been an expectation in anticipation of the discussion paper that ASIC would come up with a consultation paper with a range of proposals relating to proposed changes to our regulatory settings. We haven’t taken this approach at all. Instead, the paper makes clear our preliminary views and gives an outline of how our work is already changing to adapt to the changes we are seeing in these markets.
A key question in our minds is whether existing regulatory settings are contributing to perceived issues and whether there is any need for intervention.
Finally, I would like the audience to understand that we are not looking only to tighten regulation. We are also looking at ways to simplify our regulatory processes and make them more efficient and user-friendly.
The paper contains data that show the extent to which the Australian public market, especially the equity market, is shrinking. Is this phenomenon unique to Australia?
No – we have seen similar changes in a number of developed markets. The research report that accompanies our discussion paper shows that these structural changes began in the US in the 1990s, and in the UK after the global financial crisis.
In Australia, we have observed a minor decline in recent times. But the number of listed companies has tended to move within a band and we might be seeing the market starting to pick up again.
Our preliminary view is that it is too early to assume there is a structural shift in the Australian public equity market. But we can’t be complacent, which is why we are reviewing our regulatory settings now. If we were to wait until we saw more of a structural decline in Australia, this could negatively affect our economy.
Debt markets are largely wholesale and OTC. For the purposes of the discussion paper, do you classify debt markets as public?
The dividing line is certainly clearer when we’re talking about equity markets. But some bond markets share some features of public markets. For example, we observe more standardisation and greater liquidity, as well as the increasing use of electronic trading platforms.
One feature we would normally expect to observe in public markets is transparency of data. However, Australian debt markets are less developed in this area compared with some of our peer jurisdictions.
Since we haven’t yet come forward with a range of concrete proposals where the definitions matter, I would advise not getting caught up in the definitions at this point. Instead, think about any ideas for how the functioning of the debt market could be improved.
Part of the reason our discussion paper doesn’t go into detail on debt markets is because, at the same time, the Council of Financial Regulators (CFR) produced a consultation paper considering the case for central clearing in bond and repo markets. This paper looks in depth at the bond and repo markets’ efficiencies and challenges.
What do you believe are the key issues for public and private debt markets?
It is not just ASIC looking into these issues; they are of interest internationally. Initially, the international focus was on whether there were systemic risks growing in the private markets, and particularly where there might be transmission risks to the global banking system.
The Reserve Bank of Australia (RBA) has put out a bulletin on the Australian private credit market which concluded that, while the market is growing, it is still relatively small and as such does not pose a systemic risk – yet. It may be an issue for the future, but this is the RBA’s view now.
The challenges raised in the ASIC paper are associated with trust and confidence in the Australian market, concerning efficiency, integrity, fairness, transparency and access. Not all these issues are driven by regulation: clearly, there are economic drivers and historical market features.
The conduct of market participants is another part of it. Supervision of participants is my focus in the market conduct team at ASIC.
Touching on some of the previous themes, I mentioned that the CFR paper focused on inefficiencies. These concern settlement chains and circles, and manual processes. There is a call for industry to lead in finding solutions on transparency.
We say in our discussion paper that data is essential to regulators but, as I have already touched on, this is also a challenge for our bond market. We need reliable data on private markets. For example, there is no registration for wholesale private capital funds, and very little data is commercially available.
In relation to integrity, this speaks to our supervision of markets generally. We have teams that supervise OTC market trading. We flagged in the paper some work we have been doing on cleanliness in equity markets, looking at anomalous trading ahead of market announcements, and we’re going to expand this work into the debt market. Rather than supervising individual transactions, this will be a review over time and is something we will do for the first time and then repeat at appropriate intervals.
Finally, I mentioned fairness. There have been some unconscionable conduct cases in Australia. Also, the misclassification of retail as wholesale clients is a theme we are looking at. Having trusted gatekeepers for retail investment is crucial.
Thinking about regulatory settings for public markets – and acknowledging that you noted from the outset that ASIC is not coming with a pre-prepared regulatory toolkit – what do you see as the biggest impediments at the moment?
Part of the reason we combined a number of issues together in the one paper, rather than looking at private credit and equity markets separately, is that all capital markets are interconnected, and not just in Australia but also globally. A number of regulators are looking at this and there are a number of global factors – and so it is not just for ASIC alone to solve.
We will continue to work with the CFR on some of these matters, as well as the ideas that market participants bring, related to those touchstones of market efficiency, integrity, fairness, transparency and access.
We are also mindful of the differences between markets. It is not always the case that what works in one market can be easily imported to solve a problem in another. For example, the CFR paper mentions TRACE [trade reporting and compliance engine] as the vehicle that facilitates mandatory reporting of OTC transactions in the US. Is this appropriate for the Australian market and is now the right moment to introduce this style of reporting? What might the cost-benefit analysis be?
While there are clearly some efficiencies to be gained, there are also genuine questions about what is right for our market now and in the future.
“Australia is in the top 10 bond markets globally by issuance, but among this peer group we are the only jurisdiction that doesn’t report transactions by price and volume. This then relies on dealers to provide liquidity and price discovery, which can also act as a disincentive to international participants.”
To pick up on the point about fairness, as we sit here today what is your perspective on how Australian markets compare with their global counterparts?
We understand that participants find our bond and repo markets to be broadly efficient and resilient, and this is a good starting point. However, one of the key issues is transparency. Australia is in the top 10 bond markets globally by issuance, but among this peer group we are the only jurisdiction that doesn’t report transactions by price and volume. The market relies on dealers to provide liquidity and price discovery, which can also act as a disincentive to international participants.
I have touched on fairness, and that we are going to take another look at cleanliness and expand this work into the bond market. When people think of insider trading, they tend to think of equity markets – and this is where a number of the cases are. But these are genuine risks and concerns, and have the potential to harm trust and confidence in Australia’s economy.
In promoting Australia as an attractive place in which to invest and do business, protection of confidential information is very important.
The discussion paper focuses on retail exposure to private assets via institutional and self-managed super funds, but one would think the risk to retail investors would be lower if intermediaries are properly governed and the investments are diversified. There is considerable focus in the paper on retail investors – and retail is participating increasingly in private credit markets. How concerned are you about this investor base?
There are two issues here. The first, and this is what we’re initially drawing out in the discussion paper, is whether the regulatory settings that are in place now are adequate for retail investors and the way they invest, which is usually through a fund or superannuation.
Our starting position is that there are already a number of product-agnostic controls and protections in place. There are design and distribution obligations, trustee obligations and prohibitions against misleading conduct – some that also apply in the wholesale space. As well as asking industry if these protections are adequate, we also want to know if there is anything missing or a gap to fill. But it is important to note that our starting position is not that we think there is.
The second aspect is supervisory. We need to test if there is good governance, which we do through our surveillance work and supervision of markets. This includes the role of trustees or private capital funds.
We have traditionally had more of a focus on retail activities. However, as private capital funds are growing in Australia, we are now increasing our focus on surveillance of the managers of private capital funds that offer to wholesale clients.
Part of this is testing to find out if managers have the arrangements they should in place. We can have the correct regulatory settings but driving our increased focus is if there is misconduct. This could be in relation to retail investors, who might be more vulnerable but have the protection of intermediation, or wholesale investors, where there is less concern about consumer protection but more of a focus on integrity and maintaining the attractiveness of the Australian market as a place to invest and do business.
The discussion paper is genuinely asking probing questions of industry participants. How can those in this room best help ASIC in the consideration of all these issues?
First, join the discussion by providing feedback directly to us in a submission or in a meeting. We have also set up a number of meetings with industry associations, to provide the opportunity to feed individuals’ views into the submissions of industry associations.
We are particularly interested in actionable ideas to improve the operation of markets. The paper was welcomed by the market, and we are appreciative of this. Some feedback has been more focused on what we shouldn’t do, for example on not overregulating markets and bringing about an uncompetitive landscape.
As mentioned, this is not our intention. Regulation is not the answer to all the issues the market faces. If there are industry-led solutions, we are very happy to hear about them, too.
