ASIC Market Supervision Update issue 13

Previous issues

Guilty plea by Sydney executive to ASIC insider trading charges

Justin O'Brien, a former director of business development for the strategic shareholder consulting services company, Georgeson, pleaded guilty on 19 July 2011 to four charges of insider trading.

In evidence of swift action, the charges relate to an investigation commenced by ASIC in February 2011 into the purchase of shares in four separate ASX-listed companies between 30 June 2010 and 11 January 2011.

ASIC alleges that at the time Mr O’Brien acquired the shares, he possessed inside information he obtained in the course of his employment concerning major corporate transactions relating to each of the companies that were subsequently announced to the market. The alleged trading was first identified by ASIC's market surveillance team in mid-January 2011.

The matter was committed for sentencing in the Supreme Court and listed for arraignment on 5 August 2011. Bail was granted on a number of conditions, including the surrendering of passports to ASIC.

The matter will be prosecuted by the Commonwealth Director of Public Prosecutions.

 

Competition: workshop on best execution and other compliance matters

On 22 July, ASIC hosted a workshop for market participants on best execution and compliance matters associated with the new competition market integrity rules. More than 140 people attended ASIC offices across the country and discussed the intricacies of the best execution regime, including our expectations for policies, monitoring and disclosure. Also discussed were a number of the other competition market integrity rules, including pre-trade and post-trade transparency, other participant and market operator obligations and extreme price movements.

 

Market changes limited for the commencement of competition

ASIC has discussed and agreed with ASX and Chi-X that there should be limited further operational changes before 1 March 2012 beyond those that have already been announced and that are materially progressed. As a general proposition, this limitation would include changes to operating rules and procedures, implementation of new initiatives that may require system and process changes and any other change of a nature that would require consultation with industry.

We consider that the launch of Chi-X and PureMatch, and ASX's new data centre are all initiatives that have been known to the industry for some time and are materially progressed. Our aim is to limit change that may impact the orderly introduction of competition. Market operators may consider changes from 1 March 2012 and after adequate consultation with the industry.

For example, ASIC considers that a change to trading hours or to the opening or closing mechanism of an order-book would impact systems and require change. ASIC has confirmed with ASX and Chi-X our expectation that they will initially have the same core trading hours of 10:00am to 4:12pm and that ASX will retain its existing opening and closing auction mechanism for TradeMatch and Chi-X will offer continuous trading during this period.

ASIC's approach to limiting change is an interim position while important changes are occurring in our market at or about the time of the introduction of competition. ASIC will continue to discuss potential future changes with market operators as well as an approach for consulting with industry about future changes.

 

Notification of AOP certifications

Market participants who are confirming or certifying AOP systems intended to access Chi-X from 31 October 2011 should send their certifications or confirmations to ASIC as early as possible.

Market participants who send certifications or confirmations to ASIC after 7 October cannot be assured of a written confirmation from ASIC by 31 October 2011.

Market participants should discuss any problems with this in advance with their relationship managers.

 

Disclosure to 'existing' clients and evidencing of best execution

As previously foreshadowed, ASIC has provided further guidance to market participants in relation to what its expectations about disclosing the detail of best execution policies to inactive clients. ASIC understands that there may be some practical issues in meeting the obligations in full for all existing clients, as this may include active and inactive clients. If market participants take the view that a client is inactive, and is unlikely to place an order with the market participant in the 12 months from 31 October 2011, ASIC would consider it suitable for the participant to make the disclosure prior to accepting the next order from the client.

More information on this, and what ASIC will expect regarding the evidencing of best execution, is included in the updated FAQ on Competition market integrity rules and implementation issues.

 

Competition: order entry controls

ASIC has decided to grant ASX a waiver for its order entry controls until the end of November 2011 or the commencement of PureMatch (whichever is earlier)

Part 2.1 of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011 requires market operators dealing in equity market products ie ASX and Chi-X) to have automated order entry controls in place by 31 October 2011. The rules do not prescribe whether the reference price for the controls should be static or dynamic. ASIC believes it is a better market integrity outcome for ASX to have a dynamic reference price, which will require more development and testing time. Prior to the introduction of ASX's dynamic order entry control arrangements for equity market products, ASX will continue to have its current procedures in place to respond to disorderly markets and it will need to comply with the new extreme trade cancellation requirements (in Part 2.2) that apply from 31 October.

In accordance with Part 2.1, ASX will inform the market of its order entry control arrangements before putting them in place. We understand this communication will occur soon.

We reiterate that the new market level order entry controls and extreme trade cancellation rules do not in any way alter the obligations on market participants to have certain controls in place. In particular, controls to ensure trade messages do not interfere with the efficiency and integrity or the proper functioning of a trading platform (part 5.5 of the ASIC Market Integrity Rules (ASX Market) 2010 and Chi-X Market equivalent).

As foreshadowed in our Response to submissions on Consultation Paper 145 Australian equity market structure: proposals, ASIC intends to consult further in Q3 this year on automated volatility controls. This will include a review of the order entry control and extreme cancellation range requirements.

 

Competition: trade confirmations and price averaging across markets

ASIC has been asked by a number of market participants to provide clarification in relation to accumulation and price averaging across markets, and in particular whether it would be sufficient to simply provide an average of the transactions executed, regardless of which market the trade is executed on. ASIC's interpretation of the current legislation (incorporating the Corporations Act, Regulations and Market Integrity Rules) is that it would be sufficient for the wording of the confirmation to note that the broker is a participant of ASX and Chi-X, and that the trade may have been executed on either or both of those markets. Should the client however request itemisation from the broker, then the broker would need to provide that.

In relation to price averaging, it can only occur if the client had requested it in writing. When there have been two executions on different markets, but at the same price, then one item on the confirmation would suffice.

ASIC will continue to monitor the space related to confirmations, and should it consider that changes need to be made, will consult with industry and participants to make improvements accordingly.

Contact ASIC

Market participants should contact ASIC for market integrity issues and ASX for operational issues. Contact ASIC’s Market and Participant Supervision group on 1300 029 454 and you will have these voice menu options:

  • Option 1 for real time market matters
  • Option 2 for other market related matters
  • Option 3 for Participant enquiries or matters
  • Option 4 for Market wide announcements.

Or you can reach the Market and Participant Team by email market.participants@asic.gov.au, or through your relationship manager.

 

For more information

Please see www.asic.gov.au/market-supervision.

Last updated: 30/03/2021 09:35