ASIC Market Supervision Update issue 22

Previous issues

Compliance: advertising and compliance reviews

As part of its ongoing review of market participants’ compliance measures, ASIC has noticed a trend with some security dealers who offer retail clients OTC products (such as CFDs and exchange traded options), but with advertising of returns and benefits of investments that may be misleading.

In particular, ASIC is concerned by the use of claims that making positive returns is ‘easy’ and takes only a ‘small amount of time’, as well as the use of simulated returns from the past that show significant positive returns, but with no qualification or clear warning that they are merely hypothetical and should be used with caution.

ASIC is similarly concerned by claims that trading strategies such as exchange trading options can be arranged to virtually eliminate the chance of losses. ASIC reminds dealers of their obligations under s1041E and s1041H of the Corporations Act 2001 (Corporations Act) which deal with false or misleading statements, and misleading or deceptive conduct respectively.

ASIC also notes that some market participants are failing to adequately maintain records of their compliance reviews to ensure compliance with market integrity rules and Chapter 7 Corporations Act requirements. More specifically, participants are reminded of their obligation to maintain evidence of monitoring of client trading for disorderly trading, churning of client accounts by advisers, unauthorised trading in client accounts, and manipulative trading by clients.

Participants are similarly reminded of their obligations to review representatives’ statements of advice when personal advice is provided, and to check that market and compliance material for compliance with Corporations Act requirements is not misleading.

[Additional note about published guidance] ASIC has previously published guidance covering the themes above, specifically Regulatory Guide 53The use of past performance in promotional material (RG 53) and Regulatory Guide 234 Advertising financial products and advice services: Good practice guidance (RG 234). Dealers and participants should consider this guidance to ensure they are complying with their legal obligations.

[End addition]

ASIC will continue to monitor the above measures closely, and will take action where necessary.

SAA Annual Conference, Melbourne

The Stockbrokers Association of Australia (SAA) recently held its annual conference. Held over two days in Melbourne, it was touted as presenting another fresh, exciting program featuring a line up of high profile speakers, including ASX CEO and Managing Director Elmer Funke Kupper, Chief Ombudsman of the Financial Ombudsman Service (and ex-ASIC Commissioner) Shane Tregillis, Minister for Financial Services and Superannuation, the Hon Bill Shorten, as well as ASIC Chairman Greg Medcraft.

Chairman Medcraft delivered a keynote speech to delegates on ‘Maintaining market integrity in a changing environment’, which covered key areas of the markets regulatory space, including market structure and Consultation Paper 168, dark pools and high frequency trading, and the Markets Disciplinary Panel.

The Chairman’s speech provided a snapshot of what ASIC is currently focused on in relation to market integrity, which he said, ‘is part of ASIC’s commitment to its strategic outcomes of fair and efficient financial markets, supported by confident and informed investors and consumers.’

Senior Executive Leader of Market and Participant Supervision (MPS), Greg Yanco, also delivered a series of presentations to delegates, providing updates on recent developments in the markets and participants supervisory space. He provided further insight into the increased role of technology in the HFT and dark pools space, reinforcing the ASIC view that while there are efficiency gains, there is also some regulatory risk.

He also spoke about enhanced market surveillance technology that will provide ASIC’s systems with greater capability and capacity, and the importance of such measures given the advancements being made in the technology space.

Amanda Mark, Senior Manager of the Participation Relationship Team in MPS also spoke to delegates, providing insight into the surveillance themes that ASIC will be focusing on going forward. This focus will include an emphasis on evidence of supervision of Responsible Executives and unauthorised and/or excessive trading, ASIC providing guidance in relation to best execution, and the continued proactive visits and reviews of market participants.

Future of Financial Advice reforms 

The Future of Financial Advice (FoFA) legislation was passed by the House of Representatives on 22 March 2012, and is now awaiting consideration by the Senate.

The reforms are crucial to improving consumer trust and confidence, improving the quality and access to advice, and minimising the potential for product providers to influence personal advice recommendations by advisers.

The FoFA legislation amends the Corporations Act by:

  • introducing a prospective ban on conflicted remuneration structure in relation to the distribution of and advice about a range of retail investment products (with some exceptions)
  • introducing a duty for financial advisers to act in the best interests of their clients when providing them with personal advice
  • introducing an opt-in obligation that requires personal advice providers to renew their clients’ agreement to pay ongoing fees every two years and give clients an annual fee disclosure statement, and
  • enhancing powers for ASIC.

 

 

The FoFA reforms will commence on 1 July 2012 and compliance will be mandatory from 1 July 2013. The Government has announced that holders of Australian financial services licences can choose to comply with the FoFA reforms from 1 July 2012. If AFSL holders want to comply with the FoFA reforms from 1 July 2012 (and before 30 June 2013), they will be required to notify ASIC. Further information will be provided on the ASIC website during the coming months about the process for notifying ASIC.

 

Markets Disciplinary Panel: Commonwealth Securities Ltd

ASIC recently announced that Commonwealth Securities Ltd (CommSec) had paid a penalty of $35,000 to ASIC, in order to comply with an infringement notice given to it by the Markets Disciplinary Panel (the MDP).

The penalty was for the entry of an erroneous Priority Crossing in the security Oz Minerals Limited (ASX code: OZL) that allegedly resulted in the market for OZL not being both fair and orderly.

As a result, Commsec is alleged to have contravened subsection 798H(1) of the Corporations Act by reason of contravening market integrity rule 5.9.1 of the 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.’

The MDP was satisfied that CommSec entered a Priority Crossing for 200,000 shares in OZL, but that the Order was erroneous in that CommSec intended to enter a Priority Crossing for 200,000 fully paid ordinary shares of Duet Group (ASX Code: DUE).

The CommSec Designated Trading Representative (DTR) received alerts in CommSec’s order management system prior to the entry of the Order on the trading platform, but nevertheless entered the Order.

The Order resulted in the trade price of OZL falling 87%, from $11.88 to $1.545, 153 Market Transactions and involved 15 Trading Participants as counterparties on the buy side.

Consistent with guidance provided in ASIC Regulatory Guide 216 Markets Disciplinary Panel (RG 216), the MDP took various factors into consideration, including that CommSec had an alert procedure in place, CommSec co-operated with ASIC throughout the investigation and did not dispute any material facts, and that it was an isolated incident.

 

ASIC takes this opportunity to remind market participants of their obligation to prevent similar erroneous orders that are significantly away from the market price. This can include implementing new ‘fat finger filters’ and the introduction of quarterly ‘Market Access’ reviews on DTR access, filters, AOP administration, training and knowledge.

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 RG 216.

 

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 09:38