ASIC Market Supervision Update Issue 36

Previous issues

Client money and the use of 'buffers'

ASIC would like to remind market participants of their obligations relating to client money and the use of 'buffers'.

Market participants of the ASX, ASX 24 and Chi-X markets (who are likely to also be Australian financial services (AFS) licence holders) regularly deal with large amounts of money relating to financial products on behalf of clients. Where money is paid to a market participant by a client (or on behalf of a client) in connection with a financial service, the market participant must hold that money in a client money trust account (or clients' segregated account (CSA) in the futures market).

Division 2 of Part 7.8 of the Corporations Act 2001 sets out the obligations for AFS licensees in relation to client money. Part 3.5 of the market integrity rules for ASX and Chi-X provides further obligations relating to client money for market participants trading on those markets. Part 2.2.6 of the market integrity rules for ASX 24 sets out requirements relating to CSA obligations on the futures market.

These provisions include detailed requirements for establishing and maintaining a client money trust account or CSA, including:

  • when money must be paid into a client money trust account or CSA
  • the removal of non-client money from a client money trust account or CSA, and
  • circumstances in which money can be withdrawn from the client money trust account or CSA.

ASIC is aware that some participants are continuing the practice of maintaining 'buffers' in their client money trust accounts or CSAs. In this context, 'buffer' refers to money belonging to a market participant deposited or held in a client money trust account or CSA.

Participants are reminded that 'buffer' money is not client money, as it does not fall within the client money definition in s981A(1) of the Corporations Act. Accordingly, the practice of depositing or retaining 'buffer' money in a client money trust account or CSA is not permitted.

ASIC reminds participants of their obligations to remove money that is not client money as soon as practicable. This should be done within one month after the money has been paid into the client money account. Participants are obliged under ASX and Chi-X market integrity rule 3.5.9 and ASX 24 market integrity rule 2.3.2 to reconcile trust accounts by the end of each business day. ASIC considers best practice to be that non-client money is removed the day after the reconciliation.

Failing to comply with these market integrity rules can attract a penalty of up to $1 million.

 

Responsible Executive annual notification

By 10 July 2013, market participants should have ensured that each of their Responsible Executives had conducted an annual review (as at 30 June 2013) and provided a representation to the market participant that the obligations under ASX and Chi-X market integrity rule 2.3.3 have been met.

Market participants are also reminded that by 31 July, they must provide a written notification to ASIC that contains the information prescribed in ASX and Chi-X market integrity rule 2.3.5, as part of the annual continuing education and compliance self-assessment for Responsible Executives. Notifications should be provided to market.participants@asic.gov.au.

 

Markets Disciplinary Panel

The Markets Disciplinary Panel (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. ASIC has recently published the following matters where infringement notices were issued by the MDP.

Credit Suisse

On July 12, ASIC announced that Credit Suisse Equities (Australia) Limited (Credit Suisse) had paid a penalty totalling $95,000 to comply with an infringement notice given to it by the MDP. The penalty was for not having in place adequate organisational and technical resources for its Automated Order Processing ('AOP') system to account for corporate actions, which interfered with the efficiency and integrity of the Market; and resulted in a market for a stock not being both fair and orderly.

By reason of Credit Suisse's entry of an Order into the ASX Trading Platform on 7 November 2011, the MDP had reasonable grounds to believe that Credit Suisse contravened Rule 5.6.3 and 5.9.1 of the ASIC Market Integrity Rules (ASX Market) 2010 ('MIR 5.6.3 and MIR 5.9.1') and thereby contravened subsection 798H(1) of the Corporations Act 2001 ('Corporations Act') which requires compliance with the market integrity rules.

The MDP issued Credit Suisse with an infringement notice specifying a penalty of $65,000 for the MIR 5.6.3 breach and $30,000 for the MIR 5.9.1 breach – totalling $95,000. Consistent with guidance provided in ASIC Regulatory Guide 216, Markets Disciplinary Panel (RG 216), the MDP took various factors into consideration, including that:

  • Credit Suisse failed to ensure that its organisational and technical resources were such that its AOP system could account for corporate actions including share consolidations or reconstructions.
  • The entry of an Order into the ASX Trading Platform resulted in a 48% price decrease and the impact of the trade had the potential to damage public confidence in the market.
  • Credit Suisse did not self–report the breaches to ASIC and failed to inform both ASIC and the ASX in a timely manner. The latter failure resulted in the trade not being cancelled.
  • Credit Suisse took action to prevent any recurrence of the breaches.
  • Credit Suisse co–operated with ASIC throughout its investigation and did not dispute any material facts.
  • Given Credit Suisse's previous regulatory record regarding AOP contraventions, the MDP noted that any future, repeat contraventions in similar or comparable matters would not be viewed favourably.

Further details in relation to the background of this matter can be found in MDP circular 2013-03.

UBS

On July 18, ASIC announced that UBS Securities Australia Ltd (UBS) had paid a penalty of $30,000 to comply with an infringement notice given to it by the MDP. The penalty was for conduct which resulted in a market for a security not being both fair and orderly.

By reason of UBS' entry of an Order into the ASX Trading Platform on 16 December 2011, the MDP had reasonable grounds to believe that UBS contravened MIR 5.9.1, and thereby contravened subsection 798H(1) of the Corporations Act.

The MDP issued UBS with an infringement notice specifying a penalty of $30,000. Consistent with guidance provided in RG 216, the MDP took various factors into consideration, including that:

  • UBS had in place filter parameters that automatically routed the client Order for authorisation by a supervisor, a UBS DTR.
  • Although the DTR involved was an experienced DTR with no history of previous errors, he failed to perform the DTR function to the requisite high standard.
  • Having proper regard to any internal alerts generated is a critical measure in maintaining the integrity of a market.
  • UBS undertook remedial measures to prevent recurrence.
  • UBS co–operated with ASIC throughout its investigation and did not dispute any material facts.

Further details in relation to the background of this matter can be found in MDP circular 2013-04.

Euroz

On July 19, ASIC announced that Euroz Securities Limited (Euroz) had paid a penalty of $35,000 to comply with an infringement notice given to it by the MDP. The penalty was for conduct which resulted in a market for a security not being both fair and orderly.

By reason of Euroz's entry of an Order into the Trading Platform on 16 December 2011, the MDP had reasonable grounds to believe that Euroz contravened MIR 5.9.1, and thereby contravened subsection 798H(1) of the Corporations Act.

The MDP issued Euroz with an infringement notice specifying a penalty of $35,000. Consistent with guidance provided in RG 216, the MDP took various factors into consideration, including that:

  • The Order caused a 99% price decrease and had the potential to damage the reputation and integrity of the market.
  • The Euroz DTR failed to exercise an appropriate level of care and skill in placing the Order.
  • In the MDP's view, all applicable and appropriate trading software generated filters and alerts ought be configured at all times by a DTR, as far as is practicable.
  • Euroz took remedial measures to prevent recurrence of the breach.
  • Euroz co–operated with ASIC throughout its investigation and did not dispute any material facts

Further details in relation to the background of this matter can be found in MDP circular 2013-05.

Important regulatory information

Pursuant to subparagraph 7.2A.15(4)(b)(i) and (ii) of the Corporations Regulations 2001, Credit Suisse, UBS and Euroz have each complied with their infringement notice. Such compliance is not an admission of guilt or liability, and they are each not taken to have contravened subsection 798H(1) of the Corporations Act.

Infringement notices for these and other matters can be accessed at MDP Infringement Notices Register.

 

Contact ASIC

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 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