ASIC Market supervision update issue 19

Previous issues

Transitional arrangements for connecting to multiple markets

ASIC will extend the transitional period for compliance with the best execution competition Market Integrity Rule 3.1.1 from 31 October 2012 to 1 March 2013. It will also clarify the rule so that ASX participants may nominate to transmit orders only to ASX TradeMatch until 1 March 2013. Given the decision to connect to a new order book is dependent on whether connecting will provide a better outcome to clients on a consistent basis, the extension of the transitional period will allow participants more time to consider whether to connect to an order book other than ASX TradeMatch,

Participants relying on the 1 March 2013 transitional period are expected to review whether they can obtain a better outcome on other order books before 1 March 2013. If connection to a new order book does not provide a better outcome for clients on a consistent basis, ASIC will not expect participants to connect to those order books, even after 1 March 2013.

When connecting to a new order book a participant is expected to take all reasonable steps to phase-in their client order flow in a reasonable timeframe. Where there are constraints to phasing-in order flow in a reasonable timeframe participants should discuss this with ASIC.

ASIC intends to provide a further update in July 2012 based on dialogue with stakeholders and its ongoing monitoring of trading activity on the order books of licensed markets.

Crossings and updates to FAQs

ASIC has extended Class Waiver 11/1103 (CW 11/1103), which relieves participants from the need to include PureMatch data in their consolidated best bid and offer data. The Class Waiver was to be in place until 1 March 2012, but will now be extended to reflect the fact that PureMatch is yet to obtain the sufficient liquidity since commencing its operations, to warrant inclusion in the National Best Bid/Offer (NBBO).

While the waiver will not have a termination date, it is the intention of ASIC to revoke it with 3 months notice, once PureMatch does reach a liquidity level – on average over ten consecutive trading days – of 0.2% of the total on-market trading volume in those securities quoted on PureMatch. More information on the Class Waiver and the manner in which it operates, can be found in the Markets FAQ section of the ASIC website. The updated FAQ also provides information in relation to on-market crossings.

We have also inserted FAQ A10, which deals with the pre-trade transparency exception of MIR 4.2.3 in relation to 'at or within the spread'. In particular, we have provided information that ASIC considers a transaction 'at or within the spread' entered into other than on an order book under the MIR, is not an 'on-market' transaction' within the meaning.

The FAQ section is regularly updated and provides useful guidance to market participants, reflecting the queries that ASIC receives from industry.

Market participants: review of compliance measures

ASIC routinely conducts on-site and desk-based surveillances of a market participant's compliance with its rules and regulations. In particular, ASIC will assess the compliance measures that a market participant undertakes in assessing its own compliance. During some recent reviews, ASIC has observed that some participants are failing to retain adequate documentary evidence of reviews they have performed in relation to requirements related to client order priority (Market Integrity Rule 5.1) as well as Corporations Act requirements regarding the contents of statements of advice, among other requirements.

ASIC recommends that participants review the documentation that they currently retain, to ensure they can sufficiently demonstrate that they and their Responsible Executives and/or Responsible Managers are carrying out the required supervisory procedures (as per MIR 2.1.3). Similarly, participants should ensure they have sufficient documentary evidence to demonstrate compliance with the general obligations in section 912A of the Corporations Act, including that of taking reasonable steps to ensure compliance with financial services laws (which include Market Integrity Rules).

ASX 24: Capital Rules

ASIC takes this opportunity to remind participants that modified capital rule obligations came into force on 1 January 2012, and impact both ASX 24 non-clearing and market participants. From 1 January 2012, non-clearing ASX 24 market participants are required to submit monthly Net Tangible Assets ('NTA') returns to ASIC 10 business days after the end of each month. This is a change from the one-month time period that was previously allowed. From 1 January 2012, all ASX 24 market participants (clearing and non-clearing) are required 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.

It appears that some participants are unaware of the change in the reporting timeframe, and it is imperative that all market participants update their processes and procedures to ensure compliance with the requirement.

ASIC also takes this opportunity to remind participants of their obligation to report to ASIC within three months of the end of the financial year, its annual declaration for financial statements, directors' declarations and auditor's reports for the purposes of complying with ASIC (ASX 24) MIR 6.2.1(2)(a). Where a market participant holds client monies, it is required to provide an annual declaration for clients' funds as referred to ASIC (ASX 24) MIR 2.3.5.

Should participants wish to discuss with ASIC any of the above, or their compliance obligations more broadly, they are encouraged to contact us using the information provided below.

Extreme cancellation range - filters

As part of ongoing dialogue with market participants, ASIC has learned that some market participants may be experiencing some issues with the extreme cancellation range for shares priced below 10 cents. ASIC will continue to review and coordinate with stakeholders to resolve any issues.

We take this opportunity to remind the market that while the obligations in the market integrity rules to cancel trades falling within the extreme cancellation ranges belong to market operators, market participants should be taking steps to manage orders falling within the extreme cancellation ranges.

In April 2011, ASIC released Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223) which at paragraph 37 discusses market participant risk filters when submitting orders into the market and how they interact with order entry controls of market operators. ASIC encourages participants to consider the relevant paragraph of RG223 when calibrating filters. We expect market participants to consider extreme cancellation ranges in the operation of these filters.

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.

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ASIC's Market supervision update is a periodic eNewsletter from the Australian Securities & Investments Commission, 100 Market Street, Sydney, NSW, Australia, 2000. You are receiving this because you asked to be put on the mailing list.

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Last updated: 30/03/2021 09:35