ASIC Market Supervision Update Issue 31
Failure to notify ASIC of significant breaches
ASIC would like to remind market participants and Australian financial services licence (AFS licence) holders of their obligations under s912D of the Corporations Act 2001 ('Corporations Act'). This section states specified breaches or likely breaches must be reported to ASIC where the breach, or likely breach, is significant.
While the obligation to report is limited to 'significant' breaches, ASIC is concerned that some participants are taking an inappropriately and unhelpfully narrow view of this obligation. While ASIC does not expect all breaches, or likely breaches, to be reported, those that are 'significant' must be reported to ASIC. It is the responsibility of the AFS licence holder to determine whether a breach (or likely breach) is reportable. However, ASIC encourages AFS licence holders to err on the side of making a report in cases where they are unsure whether a breach is significant.
Regulatory Guide 78 Breach Reporting by AFS licensee(RG 78) provides guidance on the obligation imposed by section 912D, including the factors that should be considered when determining whether a breach (or likely) breach is significant.
The Market and Participant Supervision team will refer instances of non-reporting to its enforcement area for further investigation, where appropriate.
Publication of new block trade tiers and new competition market integrity rules compilation
The revised ASIC Market Integrity Rule (ASX Market) 4.2.1 relating to block trade tiers, will take effect on 26 May 2013. The revised rule will allow for a transaction to be executed without pre-trade transparency where the consideration for the transaction is not less than $1 million or more for Tier 1 products; $500,000 or more for Tier 2 products; and $200,000 or more for Tier 3 products.
The rule provides that the products that fall within each tier will be published by ASIC. The allocation of tiers will take effect 20 business days following their publication on the website. ASIC will perform this calculation quarterly on the first Monday of each March, June, September and December, and published on the following Friday. If the Monday is a public holiday, it will be calculated on the next business day. If the Friday is a public holiday, it will be reported on the next business day. In 2013 these dates are: 4 and 8 March, 3 and 7 June, 2 and 7 September, and 2 and 7 December.
ASIC will populate a CSV file with the products allocated to tiers 1 and 2, including the stock code and company name. Changes to tiers 1 and 2 will also be identified. The file will be saved with the naming convention: MIR4.2.1 block trade tiers YYYYMMDD. The file will be published on the ASIC website at www.asic.gov.au/block-trade-tiers.
A sample CSV file with mock data is located there now to assist with system development.
ASIC would also like to inform participants that the new compilation of ASIC Market Integrity Rules (Competition in Exchange Markets) 2011 has been published.
Markets Disciplinary Panel
On 22 January 2013, ASIC announced that Susquehanna Pacific Pty Ltd (Susquehanna) had paid a penalty of $25,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel (MDP). This was for not having in place at all times, as required, an appropriate filter in its Automated Order Processing (AOP) system for Exchange Traded Funds (ETF), and for not also ensuring that the use of such a system did not interfere with the integrity of the market.
As a result, Susquehanna is alleged to have contravened subsection 798H(1) of the Corporations Act by reason of contravening rule 5.6.1 of the ASIC Market Integrity Rules (ASX Market) 2010 (MIR 5.6.1).
Consistent with guidance provided in ASIC Regulatory Guide 216 Markets Disciplinary Panel (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 was inadvertent on the part of Susquehanna, rather than deliberate or reckless
- The alleged breach was an isolated incident that resulted from the ETF price filter being inadvertently disabled
- Susquehanna agreed not to contest the matter, thereby saving time and costs that would otherwise have been expended; and
- Susquehanna has no recorded history of non-compliance with the market integrity rules or the prior ASX Market Rules
Important regulatory information
Pursuant to subparagraph 7.2A.15(4)(b)(i) and (ii) of the Corporations Regulations 2001, Susquehanna has complied with the infringement notice. Such compliance is not an admission of guilt or liability, or that Susquehanna has 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.
ASIC Annual Forum 2013
ASIC invites participants and their employees to attend the ASIC Annual Forum 2013, which will be held at the Hilton, Sydney on 25 and 26 March 2013.
Formerly known as the ASIC Summer School, it features international and Australian experts from across the financial landscape, examining the interaction of global trends and their effects on Australia and the region. Registrations to the Forum are now open, and early bird discount are available until 1 March 2013, with registrations closing on Friday 15 March 2013.
Market participants should contact ASIC for market integrity issues and ASX and Chi-X respectively 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 email@example.com, or through your relationship manager.
For more information
Please see www.asic.gov.au/market-supervision.