ASIC Market Supervision Update Issue 26

Previous issues

Retail client adviser accreditation

ASIC would like to remind market participants of their obligations relating to the accreditation of their retail client advisers.

As market participants would be aware, advisers that were accredited as at 1 August 2011 in accordance with Part 2.4 of the ASIC Market Integrity Rules (ASX) 2010, are required to renew their accreditation by 30 November 2012. Participants should note that Renewal Period for the 2012 Renewal Process is 1 October 2012 to 23 November 2012, and that all applications must be received by ASIC no later than 23 November 2012.

Under Rule 2.4.1 of the ASIC Market Integrity Rules (ASX), a market participant must ensure that each representative that provides financial product advice to retail clients in relation to options contracts, futures market contracts or warrants, holds the relevant accreditation.

ASIC also informs participants that it has updated the set of forms which market participants can use to submit their various applications and notifications for Accredited Derivatives Advisers.

 

Automated order processing: certifications and prevention of NCBO trades

When considering an AOP certification submission, ASIC will assess the ability of the market participant to comply with the ASIC Market Integrity Rules, specifically Rules 5.6.3(a), 5.7.1 and 5.7.2.

ASIC also expects the market participant to demonstrate that it has in place, appropriate organisational and technical resources, including filters, filter parameters and processes. ASIC considers this crucial to a market participant demonstrating that it can effectively manage, on a pre-trade basis, transactions where principal orders or orders from the same client on opposing sides of the market may match, such that there is no change in beneficial ownership (NCBO).

ASIC is aware of the difficulties in pre-trade prevention of all instances of NCBO trades, and acknowledges that participants will need to have in place appropriate procedures to manage NCBO trades on a post trade basis.

Markets Disciplinary Panel

ASIC recently announced the payment of three penalties to ASIC for the purposes of complying with infringement notices issued by the Markets Disciplinary Panel (MDP).

Commonwealth Securities Ltd (CommSec)

On 24 September, ASIC announced that CommSec had paid a penalty of $50,000 to ASIC in order to comply with an infringement notice given to it by the MDP. This was for the execution of 48 crossings that involved no change in beneficial ownership in the fully paid, ordinary shares of Oaks Hotels & Resorts Limited (OAK) that allegedly interfered with the efficiency and integrity of the market.

Consistent with guidance provided in ASIC Regulatory Guide 216 Markets Disciplinary Panel (RG 216), the MDP took various factors into consideration, including that:

  • Market integrity rule 5.5.2 is aimed at reinforcing the importance of having appropriate organisational and technical resources so that orders incompatible ith the efficiency and integrity of the market are not submitted to the Trading Platform and the MIRs and market Operating Rules are otherwise complied with.
  • The conduct on the part of CommSec appeared to have been reckless. Three of the Orders triggered filter alerts, and although this was not for NCBO reasons, the Orders were diverted to the relevant DTR for review who reviewed and approved them, despite the Orders being NCBO transactions.
  • While CommSec did have filters and reviews in place regarding NCBO Orders, the filters and reviews were inadequate as they were designed only to identify and filter NCBO transactions in which the account number was the same on both sides.
  • CommSec co-operated with ASIC and attempted to address concerns arising from the investigation, by way of engagement with ASIC.
  • CommSec agreed not to contest the matter, thereby saving time and costs that would otherwise have been expended.
  • One relevant action has been taken against CommSec in relation to the market integrity rules, and CommSec has been sanctioned by the ASX Disciplinary Tribunal on seven occasions since 2002.

Credit Suisse Equities (Australia) Limited (Credit Suisse)

On 27 September 2012, ASIC announced that Credit Suisse had paid a penalty of $52,000 to ASIC in order to comply with an infringement notice given to it by the MDP. This was for having erroneously initiated a Credit Suisse trading strategy with an instruction to purchase ordinary shares in Celamin Holdings NL into the incorrect trading system within Credit Suisse's Automated Order Processing (AOP) system.

As a result, Credit Suisse is alleged to have contravened subsection 798H(1) of the Act by reason of contravening rule 5.6.1 of the ASIC Market Integrity Rules (ASX Market), pertaining to a market participant having appropriate automated filters and that the system does not interfere with the efficiency, integrity, or proper functioning of any trading platform.

Consistent with guidance provided in RG 216, the MDP took various factors into consideration, including that:

  • MIR 5.6.1 is aimed at ensuring a fair, orderly and transparent trading system, with a strict obligation imposed on Market Participants which use systems for AOP, to ensure that at all times they have appropriate automated filters and that their AOP systems do not interfere with the efficiency and integrity of the Market.
  • The conduct had the potential to damage the efficiency and integrity of the ASX Market.
  • Credit Suisse self-reported to ASIC and co-operated with ASIC throughout its investigation and did not dispute any material facts.
  • Credit Suisse agreed not to contest the matter, and took remedial action to prevent reoccurrence.
  • It was accepted by the MDP that the alleged breach was an isolated incident.
  • Credit Suisse had no recorded history of non-compliance with the Market Integrity Rules.

Barclays Bank PLC (Barclays)

On 15 October 2012, ASIC announced that Barclays had paid a penalty of $80,000 to ASIC in order to comply with an infringement notice given to it by the MDP. This was for withdrawing $13.8 million (AUD) of client monies from the Barclays' Client Segregated Account, instead of its own account, on 27 January 2011, without authorisation and failing to return the client monies for five business days.

As a result, Barclays is alleged to have contravened subsection 798H(1) of the Act by reason of contravening rule 2.2.6(d) o the ASIC Market Integrity Rules (ASX 24 Market) 201, relating to permitted withdrawals from a client's segregated account.

Consistent with guidance provided in RG 216, the MDP took various factors into consideration, including that:

  • MIR 2.2.6(d) is aimed at ensuring the segregation of client monies from that of the participant, with a strict, mandatory obligation on participants to hold and use client monies only as permitted.
  • The unauthorised withdrawal of client monies was due to the carelessness of Barclays by failing to ensure that client monies were not withdrawn in error.
  • The conduct of Barclays was further compounded by the fact that the erroneous withdrawal was not identified, escalated and rectified immediately, but were instead subject to discussions over at least five business days.
  • The MDP considers any breaches of the rules relating to client money segregation to be particularly serious in nature.
  • While Barclays self reported the breach to ASIC, this occurred fourteen days after the breach was identified, which was an unacceptable delay in the circumstances.

Important regulatory information
Pursuant to subparagraph 7.2A.15(4)(b)(i) and (ii) of the Corporations Regulations 2001, each of the three parties named above have complied with the respective infringement notice. Such compliance is not an admission of guilt or liability, and none of the parties are taken to have contravened section 798H(1) of the Corporations Act.

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.

Last updated: 30/03/2021 09:35