ASIC Market Supervision Update Issue 23

Previous issues


ASX 24: trading around expiry

ASIC has noted an increase in automated orders being entered on the levelling and open of each trading session, and which are cancelled shortly thereafter. This appears to have increased leading up to the June expiry of the ASX 24 Three-Year and Ten-Year Government Bond Futures contracts and the ASX 24 SPI200 Index Futures contract.

ASIC reminds ASX 24 Market Participants of their obligations under ASIC Market Integrity Rule (ASX 24 Market) 2010, 2.2.1(1)(d), 2.2.1(2)(a) and 2.2.1(3). They include:

  • that pre-trade limits and rejection capabilities reflect prudent risk management;
  • that clients have the skills, facilities and procedures to operate a market connection; and
  • that orders and order systems comply with the rules.

The obligation relating to order systems includes systems that generate algorithms or instructions. Rule 2.2.1 (2) (a) further states participants are responsible for all orders entered through their terminals by their clients.

Rule 3.1.3 states that "a Market Participant must not enter Orders where there does not exist an intent to trade". Entering large numbers of orders into the 'roll' markets then cancelling the majority based on a perceived 'unfavourable' queue position, through either single or multiple trading participants, is contrary to the rule's intent. Given that such conduct suggests a lack of intent to trade, it also has the potential to contravene sections 1041A (market manipulation), 1041G (dishonest conduct) and 1041H (misleading or deceptive conduct) of the Corporations Act. Participants and clients are required to fund all orders upon placement, not just execution.

Participants should have pre-trade risk management systems and practices that can monitor, control and manage the total potential exposure they and their clients take on.

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

 

Short selling: reporting

ASIC has become aware of short sales that are not being reported in accordance with the Corporations Act (section 1020B) and Regulatory Guide 196 Short selling (RG 196).

Clients are required to report to their brokers when they are short selling, and also to ASIC if they have a large enough net short position. Participants are reminded that they must also report gross short sales to the market operator.

RG 196, provides guidance on when clients must report to their brokers when covering short positions, and the way the reports are made. ASIC reminds participants, and their clients, of these obligations, particularly anyone having offshore clients.

Failing to comply with the short sale reporting requirements may be breach of the Corporations Act, and ASIC will take action where necessary.

ASIC also reminds industry that it will be shortly proceeding with rules regarding short sale tagging. This had been previously foreshadowed in Report 237 Response to submissions on CP 145 Australian equity market structure: Proposals

 

ASIC updates policy on administrative action against financial services providers

ASIC has updated Regulatory Guide 98 Licensing: Administrative action against financial services providers (RG 98) to help the financial services industry understand when and how ASIC may take administrative action such as a banning. The updated RG 98 provides guidance on the administrative powers ASIC uses when enforcing financial services laws and gives examples on the matters it will generally take into account when exercising those powers.

The main changes relate to ASIC’s power to suspend or cancel an Australian financial services (AFS) licence or ban a person from providing a financial service based on anticipated future conduct. That is, where ASIC believes the licensee is likely to contravene their licence obligations or that a person is likely to contravene their legal obligations.

ASIC recommends strongly that AFS licence holders become familiar with the guidance, to ensure they do not fall foul of their obligations.

Holders of an AFS licence should be aware of the type of conduct that may lead to licence cancellation. This includes:

  • systemic or persistent breaches when there is a significant risk to investors or market integrity, including failure to address issues after they were brought to its attention;
  • a licensee being dishonest; and
  • when the licensee has misled or hindered ASIC, including concealing or destroying records.

Conduct that may lead to an individual banning, includes:

  • insider trading;
  • market manipulation;
  • not having a reasonable basis for advice when advising on high-risk products;
  • unauthorised discretionary trading; and
  • misleading clients about the products being bought or sold on their behalf.

Before taking action, ASIC will consider:

  • The seriousness of the suspected misconduct;
  • internal controls;
  • conduct after the alleged contravention occurs;
  • public benefit;
  • the likelihood action will change behaviour and have a deterrent effect; and
  • any mitigating factors such as if the misconduct was accidental and the person will correct or cease the conduct.

 

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