Efficient clearing system and structure essential to enhance property fund market
GUEST OBSERVATION
Asymmetry in financial markets means that one party has better information than another. Generally this is for the advantage of the product promoter not the investor. It is prevalent in the property investment markets which suffer from limitations in disclosure and advice.
Bold and incisive recommendations which will enhance disclosure and provision of advice have been made by the Financial System Inquiry (FSI) panel:
- Mr David Murray AO (Chair)
- Professor Kevin Davis
- Mr Craig Dunn
- Ms Carolyn Hewson AO
- Dr Brian McNamee AO
A persistent theme in submissions was limitations of financial advisers.
The panel advocates a single regulator for conduct and disclosure in financial services. The proposed Corporation and Financial Services Commission will have the task of ensuring consistent and comprehensive disclosure by all participants including managers and advisers in the property investment markets.
Facilitation, not discouragement, of new exchange markets for property equity investments will be part of the brief of the CFSC. A single exchange regime is recommended with the CSFC having authority to approve a new financial market which is fair and efficient. An exchange focused on property investment vehicles becomes feasible.
Among the comprehensive proposed responsibilities of the CFSC is regulatory market conduct which will promote orderly and efficient price discovery, trading and settlement. In an environment of new information technology the regulations must keep up with the emergence of new means of delivery such as crowd funding for investment products including property funds.
Opaque markets will be eliminated by a regime requiring high standards of disclosure. A retreat from intensive prudential regulation to market conduct and disclosure is proposed.
An essential component of enhanced property fund markets is an efficient clearing system and structure. Authorisation and oversight of clearing houses for clearing and settlement of transactions would be a responsibility of the CFSC. An integral component of enhanced liquidity of private markets in property would result if a centralised clearing system for all property funds emerges from this recommendation.
Greater transparency in property investment markets through reduction in asymmetry would result from implementation of the recommendations of the Financial System Inquiry panel regarding conduct and disclosure by property investment managers and advisers.
Ken Atchison is managing director of Atchison Consultants.