About the new market supervision and competition cost recovery regime
1. What is the new market supervision and competition cost recovery regime?
The new market supervision and competition cost recovery regime provides a mechanism for the Government to recover the funding that it approved in 2009-10 and 2010-11 to cover ASIC's additional costs for:
- undertaking its new regulatory functions following the transfer of market supervision (on 1 August 2010) and the introduction of market competition; and
- the development of a framework to support market competition.
The new cost regime was developed by Treasury and ASIC in consultation with industry and complies with the Australian Government Cost Recovery Guidelines.
Consistent with the Cost Recovery Guidelines, ASIC has published a Cost Recovery Impact Statement (CRIS) for the period from 1 January 2012 to 30 June 2013.
Further information on market supervision and competition cost recovery and billing is located on ASIC's website at www.asic.gov.au/markets. Information available on the site includes:
2. What steps have Treasury and ASIC undertaken to consult with industry on the new cost recovery regime?
a) Cost recovery consultation paper
On 26 August 2011, Treasury released a cost recovery consultation paper to seek industry feedback on the proposed arrangements for the recovery of ASIC's market supervision costs for the period from 1 January 2012 to 30 June 2013. In addition, Treasury also released the exposure draft Corporations (Fees) Amendment Regulations 2011 for industry comment on 18 October 2011. The consultation paper, the exposure draft Fees Regulations, and copies of the public submissions, are available from Treasury's website:
b) Corporations (Fees) Amendment Bill 2011
On 31 August 2011, the House of Representatives Standing Committee on Economics (Economics Committee) was asked to inquire into and report on the Inquiry into the Corporations (Fees) Amendment Bill 2011 (Fees Bill). The Fees Bill contained amendments to the Corporations (Fees) Act 2001 (Fees Act) to enable the direct charging of both market operators and market participants for the performance by ASIC of its market supervision functions under Part 7.2A of the Corporations Act 2001. Industry was invited to provide their submissions to the Inquiry by 7 September 2011.
The Economics Committee also held a public hearing in Canberra on 12 September 2011. Attendees included: Treasury and ASIC (joint); Market operators: ASX and Chi-X; Market participants: SAA (with RBS Morgans and Commonwealth Securities) and AFMA; and Investor representative bodies: Australian Shareholders' Association (ASA) and the Australian Investors Association (AIA). The Corporations (Fees) Amendment Bill 2011, the transcript to the public hearing and the Economics Committee report, which was published on 12 October 2011, are available at:
3. What steps have ASIC taken to engage with industry regarding the new billing arrangements?
During the week beginning 5 December 2011, a small, cross-sectional sample of trading participants of ASX and Chi-X, along with both these market operators, AFMA and SAA were consulted on the new billing arrangements. They were also given confidential working draft documents for comment. Wherever possible, we have incorporated their feedback.
4. How much is the Government seeking to recover from industry?
For the period from 1 January 2012 to 30 June 2013, the Government is seeking to recover $29.77 million from industry. The amount to be recovered represents ASIC's total cost for undertaking its new regulatory functions, including a portion of the deferred costs (i.e. $4.56 million) associated with implementing market competition.
ASIC's total cost for implementing the Government's policy to introduce market competition is approximately $10.64 million. For the purposes of cost recovery, these deferred costs will be recovered progressively over 3.5 years (i.e. from 1 January 2012 to 30 June 2015)).
5. What do the costs relate to?
The costs relate to the additional expenditure that ASIC needs to incur to undertake its new regulatory functions and the costs associated with implementing market competition, in particular:
Transfer of market supervision
- Undertaking real-time market surveillance and post-trade analysis to detect market misconduct (i.e. breaches of the Market Integrity Rules (MIRs))
- Monitoring compliance with the MIRs by market operators and market participants
- Administering the disciplinary framework for breaches of the MIRs (which includes the Markets Disciplinary Panel (MDP), enforceable undertakings, and infringement notices)
- Implementing a real-time integrated market surveillance system (IMSS)
- Developing and implementing the MIRs across the different domestic licensed financial markets
- Developing a streamlined markets analysis methodology and relationship management model
- Building a Market and Participant Supervision team (including integration of ASX surveillance staff that transferred to ASIC)
- Establishing an independent MDP
Market competition
- Developing and settling a regulatory framework to apply on the commencement of competition in exchange markets
- Upgrading the capability of the IMSS to enable the real-time surveillance of an additional market, and to handle multi-market and whole-of-market surveillance and supervision
- Supervising multiple markets and managing the expected increase in market activity and complexity
- Identifying, investigating and taking enforcement actions against new forms of market misconduct arising from the introduction of market competition
- Undertaking ongoing review and analysis of the market micro and macro structure and the regulatory framework to respond to new issues and market developments
- Harmonizing and enhancing the MIRs across domestic licensed financial markets (including possible legislative amendments).
Please note: ASIC's costs for continuing to perform the market supervision functions that it undertook prior to the transfer of market supervision are not subject to cost recovery. ASIC's market supervision responsibilities prior to 1 August 2010 include:
- assessing and undertaking preliminary reviews of referrals from the ASX and other market operators;
- undertaking investigations and taking enforcement action on cases that were referred by the ASX and other market operators;
- investigating and taking enforcement action for breaches of the Corporations Act; and
- monitoring participant conduct against their obligations under the Corporations Act (including compliance with the AFSL (Australian Financial Services Licensee) requirements).
6. When did the new cost recovery regime commence?
The new cost recovery regime commenced on 1 January 2012, and will apply over the 18 months to 30 June 2013.
7. Who does it apply to?
| Market segment | Market | Who does it apply to? |
Market operator | Market participant |
| Cash equities market | ASX Limited (ASX) | √ | √ |
| Chi-X Australia Pty Ltd (Chi-X) | √ | √ |
| Futures market | Australian Securities Exchange Limited (ASX 24) | √ | X |
| Small financial market | National Stock Exchange of Australia Limited (NSX) | √ | X |
| SIM Venture Securities Exchange Limited (SIM) | √ | X |
| IMB Ltd (IMB) | √ | X |
| Asia Pacific Exchange Limited (APX) | √ | X |
8. How will the costs be allocated?
| Market segment | 1 Jan-12 to 30 Jun-13
($) |
Cash equities markets
i.e. ASX and Chi-X | $27.23 m
- Market operator specific costs ($0.70 m) – IMSS set-up and ongoing costs
- Market supervision costs ($26.53 m)
o Cost to are allocated based on categories of ASIC's market supervision functions:
- Participant Supervision, Markets Disciplinary Panel, and Investigations and Enforcement functions will be recovered from participants only.
- Ongoing costs for the Market Supervision, Regulatory Framework, and Market Structure and Analysis functions will be allocated in a 10.8%:89.2% split (based on a proxy that reflects each group's share of overall industry revenue).
- Deferred IT and regulatory framework implementation costs will be allocated in a 50%:50% split between operators and participants
o The result of the functional cost allocation approach is a split of approximately 14% for operators and 86% for participants
ASIC's IT and non-IT costs will be proportionally allocated to each operator and participant as follows:
- Non-IT costs proportionally allocated based on number of transactions
- IT costs proportionally allocated based on number of messages (for both orders and transactions)
|
Futures markets
i.e. ASX 24 | Market supervision costs: $2.31 m |
Small financial markets
i.e. NSX; SIM; IMB; and APX | Market supervision costs: $0.23 m |
| Total | 29.77 m |
9. How often will operators and participants be billed?
Operators and participants will be billed for ASIC Market Supervision quarterly in arrears. The relevant billing periods are each period of 3 months starting from: 1 January 2012; 1 April 2012; 1 July 2012; 1 October 2012, 1 January 2013, and 1 April 2013.
Late payment penalty fees are payable if quarterly fees remain unpaid 60 days after the quarterly fee liability is incurred. Any operators or participants incurring late fees will receive additional Invoice Statements approximately one week after each late fee charge date for which ASIC market supervision fees remain overdue and unpaid. Late fee charge dates are the 6th and 20th day of each calendar month. These additional Invoice Statements will show the amount of late fees that have been charged to their account at the relevant charge date. See question 28 below for further information about late payment penalty fees.
Operators and participants are encouraged to ensure ASIC receives payment before the due date to avoid paying late payment fees.
10. What happens to the cost recovery regime after 30 June 2013?
New fee arrangements, which will be developed by the Government with input from the Market Supervision Cost Recovery Stakeholder Panel, will take effect from 1 July 2013. As part of the post-competition cost recovery framework for ASIC’s market supervision costs, the Government announced that it will establish a Market Supervision Cost Recovery Stakeholder Panel to provide stakeholder perspectives to the Government on future ASIC financial market supervision proposals and approaches for cost recovery.
More frequently asked questions about the new cost recovery regime
