ASIC Market Supervision Update Issue 43

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Rule 3.4.3 Confirmations – clients other than retail clients

ASIC would like to remind market participants of the amendments to Rule 3.4.3 ASIC Market Integrity Rules (ASX Market) 2010 and ASIC Market Integrity Rules (Chi-X Australia Market) 2011), that come into effect on 9 May 2014. The amendment requires notifications to non-retail clients when trading as principal, or in a crossing system.

This Rule was introduced in November 2013 as part of the Market Integrity Rules on dark liquidity and high-frequency trading.

 

ASIC has also made available further guidance on Rule 3.4.3 in the form of a FAQ.

 

Participants with further questions should contact their relationship managers.

 

New competition market integrity rules

ASIC would also like to remind market participants that new competition market integrity rules came into effect on 10 February 2014:

 

  • Rule 4A.3.2 Disclosure requirements for Crossing Systems – Information for users
  • Rule 4A.3.3 Notification of Crossing system outages
  • Part 4A.4 Fair treatment, fairness and priority in dealing and opting out by users of Crossing Systems
  • Rule 7.4.1 Protection of Order information
  • Rule 7.5.1 Prohibition on Order incentives

The first three rules relate only to market participants that operate a crossing system; however the last two rules apply to market participants more broadly. More information relating to these rules can be found in Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223).

 

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).

 

 Citigroup Global Markets Australia Pty Limited

 On January 21, ASIC announced that Citigroup Global Markets Australia Pty Limited (Citigroup) had paid a penalty of $40,000 to comply with an infringement notice given to it by the MDP. The penalty was for failing to demonstrate prudent risk management procedures by not setting and documenting appropriate maximum price change limits on 23 November 2011, as required.

 

By reason of this failure, the MDP had reasonable grounds to believe that Citigroup had contravened MIR 2.2.1(1)(b) of the ASIC Market Integrity Rules (ASX 24 Market) 2010, and thereby contravened section 798H(1) of the Corporation Act 2001 (Corporations Act) which requires compliance with the market integrity rules.

 

The MDP issued Citigroup with an infringement notice specifying a penalty of $40,000. Consistent with guidance provided in ASIC Regulatory Guide 216 Markets Disciplinary Panel (RG 216), the MDP took various factors into consideration, including that:

 

  • MIR 2.2.1(1)(b) is aimed at ensuring that all market participants must at all times have and maintain appropriate controls to ensure that orders submitted by them into a trading platform do not interfere with the integrity of the market
  • Market participants are specifically required to set and document appropriate pre-determined order and/or position limits on each of their client accounts. Setting limits at a maximum setting of 999.9 basis points is inadequate and does not demonstrate prudent risk management procedures as a market participant with DMA clients
  • The breach was careless on the part of Citigroup as it neglected to set and document maximum price change limits for the Citigroup client, instead relying on its AOP system which had an inadequate maximum price change limit set at the maximum of 999.9 basis points for ASX 30 Day Interbank Cash Rate Futures Contracts
  • Citigroup did not derive any actual or potential benefit from the breach
  • Citigroup requested cancellation of the relevant deal from the ASX on three separate occasions on 24 November 2011, but was denied on the basis of rules [3100] and [3210] of the ASX 24 Operating Rules at the relevant time
    • immediately updated its AOP system's maximum price change limit setting for ASX 30 Day
      Interbank Cash Rate Futures Contracts
    • implemented through stages during the course of 2012, a new AOP system (supplied by
      another third party software vendor) incorporating a risk management tool with functionality
      for tailored volume and price limits
    • enhanced its client setup manual in relation to the setting and review of risk management tools
    • enhanced its futures compliance manual in relation to the cancellation process
    • trained its futures sales and electronic execution teams on a number of issues including risk management setup and cancellation process
    • undertook a review of automated trading
  • Citigroup co-operated with ASIC throughout its investigation and did not dispute any material facts, and
  • Citigroup agreed not to contest the matter, thereby saving time and costs that would otherwise have been expended.

 

Pershing Securities Australia Pty Ltd

On 31 January ASIC announced that Pershing Securities Australia Pty Ltd (Pershing) had paid a penalty of $15,000 to comply with an infringement notice given to it by the MDP. The penalty was for failing to give confirmations to retail clients for market transactions entered into on the retail clients' instructions.

 

By reason of this failure, the MDP had reasonable grounds to believe that Pershing had contravened MIR 3.4.1(1) of the ASIC Market Integrity Rules (ASX Market) 2010, and thereby contravened section 798H(1) of the Corporations Act which requires compliance with the market integrity rules.

 

The MDP issued Pershing with an infringement notice specifying a penalty of $15,000. Consistent with guidance provided in ASIC Regulatory Guide 216 Markets Disciplinary Panel (RG 216), the MDP took various factors into consideration, including that:

 

  • MIR 3.4.1 is aimed at ensuring the timely sending of confirmations to all retail clients to uphold financial security and the integrity of the market. This is fundamental to client protection as confirmations safeguard against possible unauthorised trading activity
  • The breach was careless on the part of Pershing as it neglected to act on internal checks and balances to detect the incorrect set-up of trading accounts, especially in the circumstances where it had provided third party access to its client on-boarding system
  • The breach transpired over an unacceptable length of time between 1 August 2010 and June 2012, being approximately two years
  • Pershing undertook remedial steps in response to the breach including implementing education and training on the setting-up of trading accounts, performing regular audits to check that clients are receiving confirmations, and building exception reports to minimise or eliminate recurrences of the same breach
  • Pershing self-reported the breach to ASIC
  • Pershing did not derive any actual or potential benefit, nor cause any actual or potential detriment, as a result of the breach, and
  • Pershing 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, 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 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.

 

 

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