ASIC Market Supervision Update Issue 42

Other issues

 

Change in implementation date for a number of market integrity rules

ASIC has received Ministerial consent to amend the market integrity rules to change the implementation date of certain rules relating to short sale tagging, regulatory data, course of sales reporting and crossing system reporting, as set out in the following table. This will give market participants and market operators more time to make the necessary system changes and will coincide with enhancements to ASIC's market surveillance system.

If market participants or market operators have any questions about these changes, please liaise with your ASIC relationship manager. Given the complexity of the rules, ASIC intends to issue further guidance and is in discussions with industry about their implementation.

Description

Current implementation date

Proposed new implementation date

Short-sale tagging

Rule 5.12.1 of the

ASIC Market Integrity Rules (ASX Market) 2010

and

ASIC Market Integrity Rules (Chi-X Australia Market) 2011

will require participants of ASX and Chi-X to specify, at the time a sell order is placed on the ASX or Chi-X market, the quantity of the order that is a short.

10 March 2014

28 July 2014

Regulatory data

Chapter 5A of the

ASIC Market Integrity Rules (Competition in Exchange Markets) 2011

(

Competition MIRs

) will require participants of ASX and Chi-X to provide regulatory data to market operators.

10 March 2014

28 July 2014

Course of sales reporting

Paragraph 5.1.6A(5)(b) of the Competition MIRs requires a market operator to provide a code identifying the market, crossing system or other facility on which the transaction was executed, in its course of sale reports.

10 March 2014

*

28 July 2014

Crossing system reporting

Revised Rule 4A.2.2 of the Competition MIRs will require a market participant that operates a crossing system to notify ASIC of any changes to the information in its initial crossing system report, rather than providing a monthly report in relation to activity on its crossing systems as required under current Rule 4A.2.2.

10 June 2014

**

28 October 2014

Notes:

* The implementation date for paragraph 5.1.6A(5)(b) is tied to the implementation date for participants under Chapter 5A (Regulatory Data).

** The implementation date for revised Rule 4A.2.2 is tied to the date that is 3 months after the implementation date for participants under Chapter 5A (Regulatory Data).

 

Markets Disciplinary Panel: Macquarie Bank Limited

On 17 December 2013, ASIC announced that Macquarie Bank Limited (Macquarie) had paid a penalty of $175,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel (MDP). The penalty was for failing, on two separate occasions, to deposit a total of $23 million ($14 million and $9 million respectively) received from a client, into client accounts maintained by Macquarie and designated as clients segregated accounts.

As a result of Macquarie's failure to deposit monies received from the client, the MDP had reasonable grounds to believe that Macquarie had contravened Rule 2.2.6(a) of the ASIC Market Integrity Rules (ASX 24 Market) 2010, and thereby contravened section 798H(1) of the Corporations Act 2001 (Corporations Act).

The MDP issued Macquarie with an infringement notice specifying a penalty of $175,000, the biggest penalty handed down by the MDP to date. Consistent with guidance provided in ASIC Regulatory Guide 216 Markets Disciplinary Panel (RG 216), the MDP took various factors into consideration, noting that:

  • MIR 2.2.6(a) is aimed at ensuring the segregation of Client monies from that of the Market Participant, with a strict, mandatory obligation on Market Participants to deposit and maintain Client monies in Client Accounts designated as segregated Client Accounts;
  • Macquarie's failure to deposit monies received from the Macquarie Client into Client Accounts maintained by Macquarie and designated as segregated Client Accounts, on two separate occasions, was negligent on the part of Macquarie;
  • The misconduct transpired over an unacceptable length of time. Macquarie rectified the breaches around 10 Business Days after they were first identified;
  • The potential loss to the Macquarie Client, in the event of Macquarie's insolvency, was real and significant for a period of around 10 Business Days;
  • One course of conduct resulted in the two breaches of MIR 2.2.6(a);
  • Macquarie had a minimal history of non-compliance including no previous contraventions found against it by the MDP;
  • Macquarie co-operated with ASIC throughout its investigation and did not dispute any material facts; and
  • Macquarie agreed not to contest the matter, thereby saving time and costs that would otherwise have been expended.

 

Important regulatory information

 

Pursuant to subparagraph 7.2A.15(4)(b)(i) and (ii) of the Corporations Regulations 2001, Macquarie 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 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 and other matters can be accessed using this link: MDP Infringement Notices Register.

 

Enforceable undertakings

Commonwealth Securities Ltd (Commsec) and Australian Investment Exchange Ltd (Ausiex), and National Australia Bank (NAB) have each entered into an enforceable undertaking (EU) with ASIC.

 

CommSec / Ausiex

On 17 December, ASIC agreed to an EU from CommSec and Ausiex which requires them to appoint an independent expert to review their handling of client money and develop a plan to rectify any deficiencies found in their client money processes.

The EU stems from weaknesses in the client money-handling arrangements of CommSec and Ausiex. While ASIC acknowledges the completion of a remediation program in 2012, ASIC considered it appropriate to seek the view of an independent expert to further evaluate the client money handling controls. This underlines the importance ASIC places on the important safeguards protecting the interests of retail investors.

ASIC acknowledges the cooperation of CommSec and Ausiex, and their constructive work in agreeing to the terms of the EU.

 

NAB

On 23 December, ASIC agreed to an EU from NAB following an investigation into the 18 October 2012 share price spike of the ASX 200. The EU specifically relates to NAB's responsibility for potential market misconduct undertaken by the trading personnel of a contractor that led to the spike.

NAB agreed to adopt specific monitoring and control systems for its direct market access trading, and ASIC will supervise the certification of those systems for three years.

NAB will also make a voluntary contribution of $2 million to fund independent financial literacy projects in Australia. NAB's review under the EU will seek to address ASIC's concerns about the inadequacy of its systems and controls relating to its direct market access.

ASIC acknowledges NAB's cooperative approach on this matter.

 

Online fraud

ASIC would like to remind market participants of the need to remain vigilant regarding online instructions received from clients.

In recent months, ASIC has become aware of numerous instances of identity fraud on client accounts. The conduct often involves the impersonation of a client by mimicking that client's email address, or establishing an email address which is markedly similar to that of an existing client. After establishing email contact with an adviser, the individual then issues instructions to liquidate the client's positions and have the proceeds distributed to alternative bank accounts (including third party accounts).

In many instances, such activity is made possible due to the failure to adhere with the participant's policies and procedures relating to payment.

Participants should ensure they have robust policies and procedures in relation to banking instructions from clients in place, and that such policies and procedures are reviewed regularly.

 

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