ASIC Market Supervision Update issue 20

Previous issues

ASIC provides direction on market structure reforms

ASIC has announced that it has refined proposals for market structure reform and has issued a timetable for implementing the regulatory framework. The revised proposals are based on feedback received on the key issues impacting market structure that were outlined in Consultation Paper 168 Australian equity market structure: Further proposals (CP 168).

The revised proposals relate to a range of market issues, including, automated trading, extreme price movements, enhanced data for surveillance, best execution and pre-trade transparency.

The timetable for implementing the regulatory framework will see continued industry consultation and the preparation of draft market integrity rules (MIRs) and guidance through to May 2012, the release of draft MIRs and guidance in June 2012 followed by a four week consultation period with an analysis of potential impacts, the release of final MIRs and guidance subject to Ministerial consent in October 2012, and a staggered implementation of the final rules through to end Q1 2014.

As always, ASIC thanks those parties that have provided feedback to CP 168 and participated in ongoing dialogue over the past few months.

Participant controls: prudent risk management

Market participants are reminded of their obligations, both under the ASIC/ASX and ASIC/ASX 24 Market Integrity Rules, to demonstrate prudent risk management procedures.

Trading participants in particular, are reminded that they must at all times have and maintain appropriate controls to ensure that trading messages submitted by the trading participant do not interfere with the integrity of the market. These controls include appropriate filters and necessary organisational and technological resources.

ASX 24 market participants are specifically required to set and document appropriate pre-determined order and/or position limits on each of their client accounts. They are also required to set and document maximum price change limits. Orders in excess of the agreed pre-determined limits must be rejected by the market participant's order system. It has come to the attention of ASIC that some ASX 24 market participants are setting the volume per order and maximum price change limits at maximum default levels for some contracts. ASIC is of the view that limits set at such levels do not represent adequate risk management limits and processes for a market participant's order system.

ASIC's surveillance of the market more generally continues to observe instances of inappropriate hard filters, and poor controls around exceptions triggered by soft filter breaches, which can lead to disorderly and inefficient markets. Market participants are responsible for ensuring hard filters are set at reasonable levels and are adequately tested. ASIC is similarly concerned about designated trading representatives (DTRs) ignoring soft warnings by authorising trades without considering the circumstances of the market and the impact of the order(s). Participants providing DMA / AOP services to clients should be particularly vigilant in ensuring their compliance with controls and filters as required under the ASIC / ASX Market Integrity Rules.

Failure to meet the obligations outlined above may result in ASIC taking action against offending participants.

Compliance with continuous disclosure provisions: Leighton Holdings

Last month, Leighton Holdings Limited (Leighton) paid a total of $300,000 after ASIC served three infringement notices alleging it had not complied with the continuous disclosure provisions of the Corporations Act 2001 (the Corporations Act) and relevant provisions of the ASX Listing Rules. ASIC also accepted an enforceable undertaking (EU) from Leighton which commits the company to reviewing its disclosure practices.

The infringement notices were issued following an investigation by ASIC into the matters in an announcement Leighton made to the market on 11 April 2011, in which Leighton announced a profit write down of $907 million. The alleged continuous disclosure breaches related to information concerning Leighton’s Airport Link project, its Victorian Desalination project and its investment in the Al Habtoor Leighton Group that were not immediately notified to the ASX.

ASIC Chairman Greg Medcraft said that the enforcement outcome achieved in this case illustrated the variety of regulatory tools available to ASIC in maintaining overall integrity of our markets, and achieving one of its key priorities of fair and efficient markets.

‘All listed companies should have procedures in place to ensure that they comply with their continuous disclosure requirements,’ he said.

Leighton paid the three penalties of $100,000 each on 16 March 2012 in compliance with the infringement notices. As provided by the Corporations Act, compliance with the notice is not an admission of guilt or liability, and Leighton is not regarded as having contravened section 674(2) of the Act (Obligation of an entity to provide information to market operator). Under the EU, Leighton will engage an independent consultant to review and recommend changes to its continuous disclosure procedures, and Leighton has agreed to implement those recommendations. The progress and effectiveness of any changes to Leighton’s procedures will be subject to an annual review for three years.

Markets Disciplinary Panel: Disciplinary matters

ASIC recently announced that Nomura Australia Ltd (Nomura) had paid a penalty of $30,000 to ASIC in order to comply with an infringement notice given to it by the Markets Disciplinary Panel (MDP).

The infringement notice was in relation to the entry of two orders to sell the security, Alumina Limited (AWC) on 18 March 2011 that allegedly resulted in the market for AWC being neither fair nor orderly. As a result, Nomura is alleged to have contravened section 798H(1) of the Corporations Act 2001, by reason of contravening Rule 5.9.1 of ASIC Market Integrity Rules (ASX Market) 2010, which provides that 'a Market Participant must not do anything which results in a market for a product not being both fair and orderly, or fail to do anything where that failure has that effect'.

Further details on the evidence before the MDP that led to the infringement notice, and the considerations that were taken into account when determining the penalty are set out in ASIC Advisory 12-59AD.

The MDP is a peer review body that exercises ASIC's power to issue infringement notices and accept enforceable undertakings in relation to alleged breaches of the market integrity rules. The market integrity rules are made by ASIC and apply to market operators, market participants and prescribed entities under the regulations. Penalties are determined in accordance with relevant guidance issued in ASIC Regulatory Guide 216 Markets Disciplinary Panel (RG 216).

 

ASIC publishes key regulatory documents

 

Exchange traded funds report

ASIC has released a report on exchanged traded funds (ETFs) outlining how this growing industry is regulated in Australia and the impact of proposed international principles to address concerns by overseas regulators. Report 282 Regulation of Exchange Traded Funds (REP 282) explains ASIC's current understanding about the operation of ETFs and ongoing work in the area.

While ETFs can provide a convenient and low-cost option for investors to diversify and receive returns close to the performance of market indexes or other assets with often lower fees to traditional managed funds, downsides can include increased complexity and counterparty risk. The report is intended for stakeholders in the ETF industry.

Retail investors can access comprehensive information on ETFs on the MoneySmart website.

 

ASIC enforcement report

 

ASIC has released its first report detailing ASIC enforcement actions for the period 1 July to 31 December 2011. The report outlines categories of various gatekeepers against whom ASIC has taken action, including financial advisers, responsible entities, credit licensees, market participants, directors, company officers, insolvency practitioners and auditors. The enforcement outcomes set out in the report, relate to a wide range of matters from offences attracting significant penalties to more minor record-keeping type offences. In total, there were 355 enforcement outcomes, including 252 criminal actions, in the six-month period: Report 281 ASIC enforcement outcomes: July to December 2011 (REP 281).

 

ASIC releases guidance and policy proposals: carbon financial products

 

ASIC has released Regulatory Guide 236 Do I need a licence to participate in carbon markets? (RG 236) to help businesses comply with their legal requirements leading up to the introduction of Australia's carbon pricing mechanism later this year. As of 1 July 2012, emission units recognised under the pricing carbon mechanism will be financial products under the Corporations Act, and ASIC will be responsible for regulating entities and individuals that do provide such financial services.

RG 236 is designed to help entities and individuals determine whether they require an Australian financial services (AFS) licence to provide financial product advice and other financial services in relation to carbon markets and emission units. It also provides an introduction to ASIC's role in relation to carbon markets and emissions units, details regarding which emissions units are financial products, and outlines the steps required to apply for an AFS licence or vary an existing licence.

More information on the Clean Energy Legislative Package, which includes the Clean Energy Act 2011 – the key piece of legislation that establishes the carbon pricing mechanism - can be found at www.climatechange.gov.au

 

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