ASIC Market Supervision Update Issue 40
Dark liquidity: commencement of new market integrity rules
ASIC would like to remind market participants of new market integrity rule obligations relating to dark liquidity, that come into effect on 10 November 2013.
The new rules relate to the following areas (with the relevant ASIC Market Integrity Rules (Competition in Exchange Markets) provision in brackets):
- Crossing system transparency – crossing system operators must publish on a website, information about their crossing system (e.g.products traded) (Rule 4A.3.1);
- Crossing system tick sizes – the tick sizes that apply to exchange markets will also apply to crossing systems (Rule 4A.6.1);
- Client opt out – crossing system operators must allow clients to opt out of using their system (Rule 4A.4.4); and
- Suspicious activity in a crossing system – if suspicious activity is identified in a crossing system, it must be reported to ASIC (Rule 4A.5.2)
ASIC has previously released guidance in the form of Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223), which clarifies ASIC’s expectations of market operators and participants.
We have granted a waiver to:
- extend the time for commencement of Rule 4A.5.1 by six months, so that it now commences on 10 May 2014, as foreshadowed in ASIC Media Release 13-213; and
- confirm that the disclosure required in Rule 4A.3.2 need only be made to users and prospective users of a crossing system rather than to all clients of a market participant.
Media Release MR 13-213 (August 2013) outlined the timing and implementation of these, and other rules.
These new rules followed extensive internal analysis and consultation with industry.
Markets Disciplinary Panel
ASIC recently announced the payment of two penalties by market participants for the purposes of complying with infringement notices issued by the Markets Disciplinary Panel (MDP).
UBS Securities Australia Pty Ltd
On October 22, ASIC announced that UBS Securities Australia Limited (UBS) had paid a penalty of $50,000 to comply with an infringement notice given to it by the MDP. The penalty was for conduct which resulted in a market for a put option not being both fair and orderly
As a result of the incorrect keying in of a price as $0.115 instead of $1.115, the MDP had reasonable grounds to believe that UBS had contravened Rule 5.9.1 of the ASIC Market Integrity Rules (ASX Market) 2010, and thereby contravened section 798H(1) of the Corporations Act 2001 (Corporations Act).
The MDP issued UBS with an infringement notice specifying a penalty of $50,000. Consistent with guidance provided in ASIC Regulatory Guide 216 Markets Disciplinary Panel (RG 216), the MDP took various factors into consideration, including that:
- MIR 5.9.1 is aimed at ensuring a fair, open and transparent trading system, with a strict obligation imposed on Market Participants not to do anything which results in a market for a Product not being both fair and orderly;
- The breach was inadvertent on the part of UBS as the UBS DTR failed to properly exercise his functions to the requisite high standard when he incorrectly keyed the price as $0.115 instead of $1.115 and entered the second part of the Relevant Order into the ASX Trading Platform;
- The MDP noted that in this matter the UBS DTR did not receive any price variation warning messages or alerts. Notwithstanding this, an important aspect of the role of the DTR is to pay proper attention and diligence to prevent the entry of Orders into the Trading Platform that could result in a market that is not both fair and orderly. This is a critical measure in maintaining the integrity of a market;
- UBS took remedial measures to prevent recurrence of the breach;
- UBS has previously been sanctioned by the ASX Disciplinary Tribunal regarding the predecessor rule to MIR 5.9.1 and involving a DTR (ASX Circular 431/09 dated 3 December 2009), and has also recently been sanctioned by the MDP regarding a DTR in breach of MIR 5.9.1, (MDP Circular 2013–4 dated 18 July 2013)
- UBS cooperated with ASIC throughout its investigation and did not dispute any material facts; and
- UBS agreed not to contest the matter, thereby saving time and costs that would otherwise have been expended.
Further details of the background of this matter are in MDP Circular 2013/07.
ABN AMRO Clearing Sydney Pty Ltd
On October 30, ASIC announced that ABN AMRO Clearing Sydney Pty Ltd ("ABN AMRO") had paid a penalty of $130,000 to comply with an infringement notice given to it by the MDP.
By reason of ABN AMRO's entry of Relevant Orders into the ASX Trading Platform on 4 July 2012, the MDP had reasonable grounds to believe that ABN AMRO contravened Rules 5.6.1, 5.6.3 and 5.9.1 of the ASIC Market Integrity Rules (ASX Market) 2010, and thereby contravened subsection 798H(1) of the Corporations Act which requires compliance with the market integrity rules.
The MDP issued ABN AMRO with an infringement notice specifying a total penalty of $130,000. Consistent with guidance in RG 216, the MDP took various factors into consideration, including that:
- The remedies applied should promote market integrity and confident and informed participation of investors in financial markets;
- MIR 5.6.1 is aimed at ensuring a fair, orderly and transparent trading system, with a strict obligation on Trading 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 or the proper functioning of the Trading Platform;
- MIR 5.6.3 is aimed at promoting confidence in the integrity of the market by ensuring that Participants have adequate organisational and technical resources to ensure AOP systems operate without interfering with the efficiency and integrity of the Market or the proper functioning of the Trading Platform;
- ABN AMRO's failure had the potential to damage the efficiency and integrity of the Market and to cause substantial damage or loss to third parties;
- MIR 5.9.1 is aimed at ensuring a fair, open and transparent trading system, with a strict obligation on Market Participants not to do anything, which results in a market for a Product not being both fair and orderly. The misconduct had the potential to damage the reputation and integrity of the Market;
- ABN AMRO self-reported the breaches to ASIC and took remedial steps in response to those breaches;
- ABN AMRO did not derive any actual or potential benefit from the breaches;
- Automated filters on the other instances of the AOP system which were used by ABN AMRO to trade Products on the ASX were not rendered inoperative by the missing computer command, and all other automated filters within the AOP system relating to client direct market access automated trading, were also unaffected;
- ABN AMRO co-operated with ASIC throughout its investigation and did not dispute any material facts; and
- ABN AMRO agreed not to contest this matter, thereby saving time and costs that would otherwise have been expended.
Further details of the background of this matter are in MDP Circular 2013/08.
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 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 subsection 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. Infringement notices for this are in the Infringement Notices Register.
Participant portal: consultation
In the coming months, ASIC will be engaging with a range of participants – small, medium and large - as it begins to finalise the design of its new participant portal. The establishment of a participant portal will greatly enhance efficiencies for participants in dealing with ASIC, and allow them to lodge with ASIC, certain material in accordance with their obligations.
ASIC expects that this engagement will take on a consultative approach, which will assist in prioritising features for the final makeup of the portal.
ASIC looks forward to industry collaboration and cooperation on this.
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.