The Australian Treasury has released a consultation paper outlining a proposed market supervision fee model to recover funding for the Australian Securities and Investments Commission (ASIC) to conduct market supervisory functions related to ASX-listed securities.

Under the proposed model, the government will collect AU$62.6 million in fees from market participants and operators from January 1, 2012, to June 30, 2015. Individual market operators and participants will pay in proportion based on the number of trades and messages reported from them to the ASIC IT surveillance system. Market participants will also be charged a quarterly market supervision fee. The government considers other fee models in the paper, including basing it on the number of trades only and paying a fixed fee per transaction.

In the consultation paper, the government breaks down the AU$62.6 million into AU$28.2 million for competition and approximately $34.4 million for the transfer of supervision. For the period January 1, 2012, to June 30, 2013, the cost of supervision will be AU$26.6 million, allocated as 16.3% to market operators and 83.7% to market participants.

“The proposed fee model applies the Government’s Cost Recovery Guidelines and principles, aligns the regulatory cost drivers in determining an efficient allocation of costs across the market and has had regard to the cost recovery approaches conducted in other regulatory jurisdictions,” the paper notes. “The principles of fairness, transparency and industry competitiveness were used to assess the proposed and alternative fee models.”

Under the proposal, the government will raise AU$10.9 million in the second half of financial year 2012 and AU$18.9 million for financial year 2013. In comparison, the total operating costs for the current half-year to December 31, 2011, are $4.5 million. At present the cost of market supervision is dealt with through interim arrangements that were extended to December 31, 2011. The Australian Financial Markets Association (AFMA) notes that the government currently recovers AU$2.25 million from market operators and AU$2.25 million from the National Guarantee Fund and the Australian Securities Exchange Fidelity Fund.

At the moment, the ASX is the only exchange in operation – newly licensed exchange operator Chi-X Australia will commence operations in October. ASIC took over market supervisory functions in full as of this month. Previously, the ASX was the market supervisor as well as being the sole exchange. The supervisory powers were transferred to ASIC by legislation in anticipation of green-lighting Chi-X’s operations.

AFMA said they “welcome” the government’s key principles – fairness, transparency, subject to ongoing review and robust corporate governance, market neutrality, industry competiveness, international competitiveness and certainty.

“AFMA members accept that cost recovery is a government policy and are willing to pay their fair share of the costs of ASIC market supervision commensurate with the need to maintain a fair and efficient market,” the industry body said in a statement. “AFMA will give careful consideration to the impact of the higher costs and allocation models that are proposed in the consultation paper on market efficiency. We believe that the government process for establishing and reviewing recoverable costs should be subject to effective governance and accountability arrangements to ensure that such costs are reasonable and constrained over the long term.”

(RA)