About the cost recovery regime for ASIC market supervision (1 July 2013–30 June 2015)
1. What is the background of the cost recovery regime for ASIC market supervision?
The cost recovery regime for ASIC Market Supervision provides a mechanism for the Government to recover the funding that it approved in 2009–10, 2010–11 and 2011–12 to cover ASIC's additional costs for the following three market supervision-related measures:
These three measures (called 'cost-recoverable market supervision measures') were all approved by the Government subject to the Government's funding being fully cost recovered.
From 1 August 2010 to 31 December 2011, cost recovery applied to market operators only. On 1 January 2012 fees were imposed on ASX Limited (ASX) and Chi-X Australia Pty Ltd (Chi-X) cash equity market participants.
The current ASIC Market Supervision cost recovery regime 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 July 2013 to 30 June 2015 (PDF 2.77 MB).
Further information on the cost recovery regime for ASIC Market Supervision and related ASIC billing is located on ASIC's website at www.asic.gov.au/markets. Information available on the site includes:
- undertaking its market supervision functions
See Mid-year Economic and Fiscal Outlook 2009-10, Appendix A: Policy decisions taken since the 2009-10 Budget, Commonwealth of Australia, November 2009, p 216 (opens PDF 2.18 MB).
- as above, but including costs associated with developing and implementing a framework to support market competition and related market structure changes
See Budget Measures 2011-12, Budget Paper No. 2 – Part 2: Expense Measures, Commonwealth of Australia, May 2011, p 319 (opens PDF 1.19 MB).
- implementing the Enhanced Market Supervision (EMS) programme of works.
See Budget Measures 2012-13, Budget Paper No. 2 – Part 2: Expense Measures, Commonwealth of Australia, May 2012, p 277 (opens PDF 1.33 MB).
2. What steps have Treasury and ASIC undertaken to consult with industry on the cost recovery regime?
Treasury and ASIC consulted industry prior to the implementation of all ASIC Market Supervision cost-recovery related amendments to the Corporations (Fees) Regulations 2001 (Fees Regulations).
The fee model in effect between 1 January 2012 and 30 June 2013 was first released for consultation in August 2011 and implemented on 1 January 2012. The current arrangements commenced on 1 July 2013 and represent an incremental update to that model. They were consulted on from late 2012 through to April / May 2013.
The five key elements involved in Treasury and ASIC's joint consultation activities undertaken from August 2011 are discussed in turn below.
a) ASIC market supervision cost recovery consultation paper (1 January 2012–30 June 2013)
Treasury proposed that cash equity market participants be included in the post-Competition cost recovery regime from 1 January 2012, and that the duration of the first cost recovery arrangement involving cash equity market participants should be 18 months.
Following initial discussions with key industry stakeholders, Treasury released a cost recovery consultation paper on the proposed initial post-Competition cost recovery arrangements for ASIC Market Supervision on 26 August 2011. Treasury then 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. The Corporations (Fees) Amendment Bill 2011, the transcript to the public hearing and the Economics Committee report (published on 12 October 2011), are available at:
c) The Market Supervision Cost Recovery Stakeholder Panel
The Minister established the Market Supervision Cost Recovery Stakeholder Panel in late 2011 to provide stakeholder perspectives to the Government on financial market supervision proposals and approaches for cost recovery. Treasury chairs this Panel and ASIC also attends Panel meetings.
Representatives from ASX and Chi-X, market participant and industry representative bodies (e.g. the Australian Financial Markets Association (AFMA), The Stockbrokers Association of Australia (SAA), the Financial Services Council (FSC) and the Australian Shareholders Association (ASA)), some market participants and a financial markets academic sit on the Market Supervision Cost Recovery Stakeholder Panel. Treasury convened the Panel's first meeting in early 2012 to gather important early feedback for the Government on the overall cost of the Enhanced Market Supervision (EMS) programme of works, and on the general operation of the post-competition cost recovery arrangements. Follow-up meetings have been held in May 2012, November 2012, January 2013 and May 2013.
d) Cost Recovery Discussion Paper (1 July 2013 – 30 June 2015)
On 11 December 2012, Treasury released a Cost Recovery Discussion Paper to seek industry feedback on the proposed arrangements for the recovery of ASIC's market supervision costs for the period from 1 July 2013 to 30 June 2015. This paper was developed with key input from the Market Supervision Cost Recovery Stakeholder Panel.
All stakeholders had the opportunity to request a meeting with Treasury and make a submission to the Discussion Paper. Following the release of the Discussion Paper, further stakeholder meetings were conducted by Treasury (in conjunction with ASIC) in Sydney in late January and early February 2013.
The consultation period for the Discussion Paper closed on 1 February 2013. Treasury received eighteen submissions, eight of which were confidential, in response to the paper. Copies of the public submissions are available from Treasury’s website.
e) Consultation on a draft CRIS and proposed amendments to the Fees Regulations (1 July 2013 – 30 June 2015)
A draft of a Cost Recovery Impact Statement (CRIS) and a set of proposed amendments to the relevant provisions in the Corporations (Fees) Regulations 2001 (the Regulations) were released for a three week consultation period on 24 April 2013 on Treasury's website.
Treasury received five submissions from industry, of which three were confidential, in response to the consultation documents. The non-confidential submissions were made by ASX and Chi-X. Copies of the public submissions are available from Treasury’s website. The final CRIS includes slight changes in light of this industry feedback.
3. How much is the Government seeking to recover from industry?
For the period from 1 July 2013 to 30 June 2015, the Government is seeking to recover $42.88 million from industry and the Financial Industry Development Account (FIDA). The amount of $42.88 million to be recovered represents ASIC's total cost for undertaking the cost-recoverable market supervision measures, including a portion of the deferred costs associated with implementing market competition and commencing the Enhanced Market Supervision (EMS) program of works.
The availability of FIDA contributions remains uncertain at 15 August 2013. If forthcoming, the FIDA contributions will reduce market supervision charges on industry by a maximum of $2.93 million over the period.
4. What do the costs relate to?
The costs relate to the additional expenditure that ASIC needs to incur to undertake the three cost-recoverable market supervision measures, in particular:
a) Transfer of market supervision
- Implementing a real-time market surveillance system (MSS)
- Undertaking real-time market surveillance and post-trade analysis to detect market misconduct (i.e. market manipulation and insider trading)
- Monitoring compliance with the market integrity rules (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)
- 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
b) Market competition and related market structure changes
Slightly less than 40% of the cost incurred to implement market competition prior to 1 January 2012 is being recovered during 1 July 2013 – 30 June 2015 (just over $3 million of a total of approximately $7.6 million incurred to implement market competition prior to 1 January 2012). The balance has already been recovered over 1 January 2012 to 30 June 2013.
- Developing and settling a regulatory framework to apply on the commencement of competition in exchange markets
- Upgrading the capability of the MSS 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
- Harmonising and enhancing the MIRs across domestic licensed financial markets (including possible legislative amendments).
c) The Enhanced Market Supervision (EMS) programme of works (post-Competition market landscape)
At the outset of the initial transfer of market supervision, ASIC decided not to commit to a long-term contract for its initial market supervision system (MSS). ASIC's strategy was to initially implement proven, low-risk technology, then go back to the market for a more sophisticated, higher capacity solution that could better handle what ASIC expected would be a rapidly changing trading environment.
ASIC is currently replacing its core market surveillance technology. The largest single expense provision in the EMS programme of works is for the replacement and upgrade of the MSS. By 2016-17 the MSS will be established and all other key elements of the EMS programme will be implemented. At that point, ongoing EMS funding is expected to reduce to a maximum of $4.5 million per annum.
The other key EMS deliverables are shown in the table below, along with the total amount ASIC currently expects to spend delivering each to 30 June 2016 (split by capital expenditure vs. operating expenditure and implementation vs ongoing costs). Whilst MSS costs are adjusted to reflect updated expenditure estimates, costs shown for all other items are according to maximum allowances in the EMS measure. The total therefore reflects the maximum EMS funding approved by the Government ($43.7 million from 2012-13 to 2015-16), less some locked in savings relating to the MSS upgrade.
Approximately one-third of the forecast EMS cost to 30 June 2016 (just over $13 million) is being recovered during 1 July 2013–30 June 2015. The balance will be recovered after 30 June 2015.
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:
|EMS Work stream|
Capex – Implementation
Opex – Implementation
Opex – Ongoing
|Market Surveillance System|
|Register and Portal|
|Market Integrity Workflow|
|Other (including programme management & governance)|
- 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 Australian financial services (AFS) licensee requirements).
5. When did the cost recovery regime commence?
The first cost recovery regime commenced on 1 August 2010 and applied to market operators only.
The cost recovery model that commenced on 1 January 2012 was the first to apply to both market operators and cash equity market participants), and applied until 30 June 2013.
The new arrangements that came into effect on 1 July 2013 represent an update of that model (as to costs recovered), plus minor enhancements. The key enhancements are:
- the fee for minimum participant supervision, and
- simpler late payment penalty fees that are easier to calculate and administer.
6. Who does it apply to?
Who does it apply to?
|Cash equities market||ASX Limited (ASX)|
|Chi-X Australia Pty Ltd (Chi-X)|
|Futures market||Australian Securities Exchange Limited (ASX 24)|
|The FEX Derivaties Market operated by FEX Global Pty Ltd (FEX)|
(At the time of writing, FEX is not yet operational)
|Small financial market||National Stock Exchange of Australia Limited (NSX) |
|SIM Venture Securities Exchange Limited (SIM) |
|IMB Ltd (IMB)|
|Asia Pacific Exchange Limited (APX)|
(At the time of writing, APX is not yet operational)
7. How will the costs be allocated?
Note 1: At the time of writing, FEX and APX are not yet operational.
|Market segment|| 1 Jul-13 to 30 Jun-15 |
|Cash equities markets |
i.e. ASX and Chi-X
|$39.45 million market supervision costs
- Costs 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 12.8%:87.2% split (based on a proxy that reflects each group's share of overall industry revenue).
- Deferred IT (competition), regulatory framework implementation costs (competition) and most Enhanced Market Supervision (EMS) deferred project implementation costs (i.e. EMS expenditure prior to 1 July 2013) will be allocated in a 50%:50% split between operators and participants. Participant-centric elements of EMS will be wholly allocated to participants.
- The result of the functional cost allocation approach is a split of approximately 17% for operators and 83% for participants
Costs will be proportionally allocated to each operator and participant as follows:
- 90% of non-IT costs proportionally allocated based on number of transactions
- 100% of IT costs plus 10% of non-IT costs proportionally allocated based on number of messages (for both orders and transactions)
|Futures markets |
i.e. ASX 24 and FEX
|$3.16 million market supervision costs|
- ASX24 market supervision costs: $2.76 million
- FEX  market supervision costs: $0.40 million
|Small financial markets |
i.e. NSX; SIM; IMB; and APX 
|Market supervision costs: $0.28 million|
8. 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 July 2013; 1 October 2013, 1 January 2014, 1 April 2014, 1 July 2014; 1 October 2014, 1 January 2015 and 1 April 2015.
Late payment penalty fees are payable if quarterly fees remain unpaid by the end of the quarter after the billing period in which ASIC performed its market supervision functions, or any subsequent quarters. 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 penalty fees.
9. What happens to the cost recovery regime after 30 June 2015?
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 2015.
More frequently asked questions about the new
cost recovery regime