ASIC Market Supervision Update Issue 29

Previous issues

Exceptions to the pre-trade transparency requirements

ASIC recently released Information Sheet 164 ASIC market integrity rules: Exceptions to the pre-trade transparency requirements (INFO 164). It provides guidance for ASX Limited (ASX) and Chi-X Australia Pty Ltd (Chi-X), and participants of those markets, on how they can comply with the new rules in Chapter 4 of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011. The new market integrity rules will apply from 26 May 2013.

The guidance relates to exceptions to:

  • Market participants' obligation to submit orders to the pre-trade transparent order book; and
  • Market operators' obligation to make pre-trade information about order on their order book immediately available.

This guidance will be incorporated into an updated Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223). This is expected to be released in coming weeks.

End of year "window dressing"

ASIC reminds market participants to be alert to unusual trading associated with the year end, which can impact share price valuations and end of year performance figures. Often known as 'window dressing', it refers to orders placed at, or near, the close of trading, or on days leading up to the end of a reporting period, seeking to increase prices of a particular share.

Window dressing is a form of market manipulation, and is generally conducted by parties who have an incentive to manipulate prices in or around Reporting Periods and benefit from this practice. These include investment managers, fund managers, MDA service providers and other portfolio managers, who report to clients in relation to investment performance on a periodic basis. As such, market participants should be alert to orders placed near the close on trading days leading up to reporting periods, that may impact the end of day price of securities.

ASIC's Market Surveillance team monitors trading of securities which increase in price near the end of reporting periods, and in the periods ending March, June and September 2012 respectively, targeted up to 50 securities for possible window dressing. A number of these enquiries resulted in referrals to enforcement for further investigation. Market participants ought to be aware of their obligations as gatekeepers, and should take active steps to identify possible misconduct, both by way of system controls and filters, as well as reviews of anomalous trading by designated trading representatives (DTRs) and compliance staff. Should ASIC uncover evidence of window dressing, ASIC's Enforcement team will investigate further, which may result in ASIC Market Integrity Rule or Corporations Act penalties being imposed.

For further information, market participants should consider previous public statements made by ASIC and the ASX:

 

Participant obligation: a fair and orderly market

ASIC also wishes to remind market participants of their obligation to not do anything which may result in a market for a product not being both fair and orderly, or fail to do anything where that failure has that effect (ASIC/ASX Market Integrity Rule 5.9.1).

ASIC has recently investigated instances of participants placing erroneous orders through their trading systems, which can result in a market for a particular security being both not fair, or orderly. To this end, participants must ensure that they have the necessary organisation and technical resources – as required under ASIC/ASX Market Integrity Rule 5.5.2. This should include appropriate automated filters to ensure that trading messages that are submitted do not interfere with the efficiency and integrity of a market.

The failure to comply with either of the aforementioned rules can attract a maximum penalty of $1,000,000.

Market participants should contact their ASIC Relationship Manager if they have any concerns about meeting their requirements. Participants should also consider Regulatory Guide 214 Guidance on ASIC market integrity rules for ASX and ASX 24 market (RG 214), in assessing their compliance obligations, as well as ASIC's approach to supervising compliance.

 

Markets Disciplinary Panel

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

BGC Partners (Australia) Pty Limited

On December 4, ASIC announced that BGC Partners (Australia) Pty Limited ('BGC Partners') had paid a penalty of $45,000 to ASIC in order to comply with an infringement notice given to it by the MDP. This was for withholding the entry of Buy and Sell orders on the ASX 24 Market to enable them to transact with one another, which potentially precluded other participants from participating as counterparty to the orders.

As a result, BGC Partners is alleged to have contravened subsection 798H(1) of the Corporations Act 2001 ("the Act") by reason of contravening Rules 3.1.8 and 3.1.11 of the ASIC Market Integrity Rules (ASX 24 Market) 2010 (MIR 3.1.8 and MIR 3.1.11). The penalties payable under this infringement notice for the alleged contravention of section 798H of the Act are $40,000 and $5,000 (MIRs 3.1.8 and 3.1.11 respectively).

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

  • MIR 3.1.8 and 3.1.11 are aimed at ensuring a fair, open and transparent trading system, with a strict obligation imposed on Market Participants to not withhold orders and not to trade to the exclusion of others
  • The breach was intentional
  • The serious nature of the breach
  • BGC did not self report the breach to ASIC
  • There was actual or potential damage to a third party
  • The breach was an isolated breach that involved one course of conduct that resulted in a breach of two market integrity rules; and
  • BGC had no previous contraventions found against it by the MDP.

 

Euroz Securities Limited

On December 11, ASIC announced that Euroz Securities Limited (Euroz) had paid a penalty of $20,000 to ASIC in order to comply with an infringement notice given to it by the MDP. This was for effecting an Off-Market Special Crossing in the shares of an issuer, iiNet Limited (iiNet), on behalf of that issuer, during the term of an on-market buy-back offer being conducted by that issuer.

As a result, Euroz is alleged to have contravened subsection 798H(1) of the Corporations Act 2001 ("the Act") by reason of contravening Rule 6.6.1 of the ASIC Market Integrity Rules (ASX Market) 2010 (MIR 6.6.1). Rule 6.6.1 provides that "a Trading Participant must not effect a Special Crossing of any Cash Market Products (excluding Warrants) of an Issuer, on behalf of that Issuer during the term of a buy-back offer conducted On-Market by that Issuer.'

The penalty payable under this infringement notice for the alleged contravention of section 798H of the Act was $20,000.

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

  • The execution of a Special Crossing during and pursuant to an on-market buyback by the issuer, risks undermining the principles of fairness and transparency and so operates as a risk to public confidence in the market
  • Euroz did not have policies in place relating to the execution of an on-market buy-back at the time it was executed the relevant special crossing
  • Euroz self-reported to ASIC
  • Euroz cooperated with ASIC throughout its investigation and did not dispute any material facts; and
  • Euroz had no recorded history of non-compliance with the market integrity rules.

Further details on all the infringement notices

 

Important regulatory information

 

Pursuant to subparagraph 7.2A.15(4)(b)(i) and (ii) of the Corporations Regulations 2001, each of the parties named above has 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 09:28