ASIC Market Supervision Update issue 17
Consultation on CP168 - Australian equity market structure: Further proposals and extension for consultation period
ASIC released Consultation Paper 168: Australian equity market structure: Further proposals ('CP 168') on 20 October, which looks at equity market structure issues arising from developments in Australia's financial markets.
To enable industry additional time to analyse the issues and provide considered feedback, ASIC has decided to extend the consultation period. The deadline for comment will now be Friday, 10 February 2012.
The extension of time is consistent with ASIC wanting to ensure the approach is manageable from both the perspective of ASIC and industry. ASIC intends to engage with AFMA and SAA to receive feedback, including meeting them and their members in December and January.
Should participants want a one-on-one meeting with ASIC to discuss CP168, they should email ASIC at email@example.com with the topics they want to discuss. Questions can also be emailed to this address, or call ASIC's Tania Mayrhofer on (02) 9911 2156 or Antonia Fong on (02) 9911 5926.
We look forward to industry's contribution and co-operation in this important consultation process.
ASX 24: Overnight and intraday options
During its market surveillance, ASIC is noticing an increasing practice in the overnight and intraday options markets where market participants are using their discretion to alter the option strike to achieve the required price for their clients. With overnight and intraday options most commonly traded at 1.0 point, market participants appear to be simply moving the contract strike price to enable the paid premium to remain at 1.0 point.
ASIC reminds market participants of their obligations under the ASIC/ASX 24 Market Integrity Rules ('MIR'), in particular obligations under MIR 3.1.13(1) relating to acting in accordance with client instructions. The MIR states that "A Market Participant must act on behalf of a Client only in accordance with that Client's instructions, unless to do so would be contrary to the Rules".
ASIC believes that entering an overnight or intraday option order that is not strictly in accordance with client instructions is a breach of this MIR.
Further to this, where an order is executed and the trade allocated to the client's account, this may constitute a breach of MIR 3.1.17(1) which states that "A Market Participant must not offer and/or allocate Trades to a Client unless those Trades have been obtained under instructions previously obtained from that Client".
As a result ASIC recommends participants ensure instructions are sought from clients before order entry, to allow them to amend the options strike price to obtain the premium price.
ASX 24: Capital Rules
As part of the new multi-market environment, ASIC reminds participants of modified capital rule obligations, which come into force on 1 January 2012.
Non-clearing ASX 24 market participants’ monthly returns
From 1 January 2012, non-clearing ASX 24 market participants must submit monthly Net Tangible Assets returns to ASIC 10 business days after the end of each month. This is a change from the one-month time period previously allowed.
The change is due to ASIC being able to obtain more relevant financial information, as well as harmonising the requirement with the 10-business day deadline for non-clearing ASX market participants.
Monthly reconciliation of client money
From 1 January 2012, all ASX 24 market participants (clearing and non-clearing) will need to lodge monthly client money reconciliations with ASIC one month after the end of each month. The monthly reconciliation can be emailed directly to the ASIC Market Participant inbox. ASIC has amended the 10-day requirement to submit monthly reconciliations, to one month after the end of the month.
Daily reconciliation of client money
Also as of 1 January 2012, all ASX 24 market participants (clearing and non-clearing) must complete daily client money reconciliations. Consistent with the requirement of daily reconciliation on the ASX market, the harmonisation of the two markets will go to protecting client money by ensuring it is properly segregated and accounted for.
More information on this can be found in Regulatory Guide 226: Guidance on ASIC market integrity rules for capital and related requirements: ASX, ASX 24 and Chi-X markets ('RG 226').
Competition: Trades 'at or within the spread'
The ASX has introduced a Crossing Trade Report for participants entering into transactions using the pre-trade transparency exception ‘at or within the spread’.
This trade report enables participants to report off-market trades that meet the pre-trade transparency exception in rule 4.2.3(1)(b) of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011(MIRs) or the waiver in paragraph 5 ASIC Class Rule Waiver CW 11/1103. ASIC has given the waiver in paragraph 5 of [CW 11/1103] to participants so they do not need to include PureMatch market data in their consolidated best bid and offer data until 1 March 2012.
As stated in the ASIC FAQs, we expect participants to have robust processes in place to ensure trade reporting systems and associated filters enable only trades that are actually 'at or within the spread' to be reported to a relevant market operator under the appropriate exception code. We will have no tolerance for error and will not accept any variation away from the best available bid and offer. Participants cannot rely on a market operator's acceptance of a trade as evidence that a trade meets the criteria for the MIR4.2.3 exception or the [CW 11/1103] waiver.
Participants are reminded to refer to MIR 4.2.3(1)(b), CW 11/1103, RG 223 and the FAQs on the ASIC Website (specifically Section A. Pre-trade transparency exception – MIR4.2.3 'at or within the spread') for further information. ASIC continues to publish on the market supervision section of its website FAQs dealing with the competition MIRs and implementation issues.
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 firstname.lastname@example.org, or through your relationship manager.
For more information
Please see www.asic.gov.au/market-supervision.