Clifford Chance

Why have listed entity numbers been in decline? Will the next financial crisis originate in private markets? What issues facing directors must be further examined? How is the growing significance of superannuation influencing our markets? These are some of the questions raised by the Australian Securities and Investments Commission (ASIC) in its recent discussion paper.

The number of listed entities in Australia has fluctuated between 1,900 and 2,200 since 2007, based on the capital-raising cycle. As at December 2024, there were 1,989 listed entities. While ASIC considers that it is too soon to conclude that fewer net listings in Australia is a sustained trend, it is concerned about the future of Australia’s public equity markets.

Australia's financial markets are changing as investors seek higher returns and diversify beyond traditional shares into private markets. The move from public to private markets and the impact on the balance of risks means ASIC must focus on understanding and adjusting for new or amplified private side risks.

ASIC is seeking more data to understand and regulate the potential risks posed by private markets, as well as to harness the opportunities afforded by them. 'We note our international peer regulators have access to more reliable and recurrent data on private markets to enhance their transparency. This makes it easier to identify risks as well as opportunities. At present, ASIC’s data and information gathering powers are inefficient and incomplete. We simply can’t do our job properly if we are in the dark,’ ASIC Chair, Mr Longo said.

Accordingly, ASIC has launched a discussion paper seeking feedback on the opportunities and risks emerging from shifts in public and private capital markets, which Mr Longo says is one of the most significant initiatives of the year for the regulator.

The discussion paper follows ASIC’s report, "Equity market cleanliness snapshot report", released in July 2024. The report highlighted that Australia’s equity markets have continued to operate with a high level of integrity and remain consistently among the cleanest in the world.

The discussion paper explores the changing dynamics in capital markets, in Australia and abroad, including declining listings on public markets, the rapid growth in investment capital allocated to private markets and the influence of superannuation funds on markets.

Amongst other things, ASIC seeks comments on:

• the developments in public or private markets that require regulatory focus in Australia in the future;
• global market developments that have had key impacts on Australian capital markets, along with anticipated future impacts;
• how the public markets in Australia can be made more attractive to entities seeking to raise capital or access liquidity for investors, while maintaining appropriate investor protections;
• the potential negative impacts on the Australian economy from a sustained decline in the number, size or sectoral spread of listed entities, and measures to mitigate any adverse effects that may arise from such changes;
• the extent to which the greater expectations placed on public companies, compared to private companies, are due to Australian regulatory settings or are influenced by public scrutiny and community expectations of these companies;
• whether Australian regulatory settings and oversight are adequate to support efficient capital raising and confidence in private markets, and potential areas for improvement;
• identification of key risks for investors in private markets and the issues and risks that should be prioritised by ASIC;
• the role of incentives in risk management, and how these are managed in practice by private market participants;
• the size of current and likely future exposures of retail investors to private markets, as well as additional benefits and risks arise from retail investor participation in these markets;
• whether current financial services laws provide sufficient protections for retail investors investing in private assets (for example, general licensee obligations, design and distribution obligations, disclosure obligations, prohibitions against misleading or deceptive conduct, and superannuation trustee obligations);
• additional transparency measures relating to any aspect of public or private markets desirable to support market integrity and better inform investors and/or regulators; and
• alternative tools available to support market integrity and the fair treatment of investors in private markets in the absence of greater transparency.

Responses to the consultation are due by 28 April 2025.

According to ASIC, there will be more failures in private credit investments, and Australian investors will lose money. Thus, ASIC is increasing its focus on private credit, not to constrain participation but with a view to being well informed and to test whether investment offers comply with existing laws.

The discussion paper notes that ASIC is reviewing compliance with financial services laws and increasing its surveillance of private market activity, with a particular focus on, inter alia: governance, valuation practices, managements of conflicts of interests; and staff and insider trading.