Market Supervision Update Issue 58

ASIC repeals select market integrity rules

ASIC has repealed a number of obligations under the ASIC market integrity rules to reduce the compliance burden on Market Participants. The changes were registered on 1 May 2015, with effect from 2 May 2015. The changes remove rules that:

  • require certain Participants to notify ASIC of the details of their professional indemnity insurance
  • require certain Participants to obtain ASIC’s consent before sharing business connections, and
  • restrict certain transactions such as special crossings during takeovers, schemes of arrangement and buy-backs.

The repeals follow a consultation launched by ASIC in August 2014 (see 14-208MR). The repealed rules applied across markets operated by the ASX, Chi-X, APX, NSXA and SIM VSE.

The changes are reflected in four updated ASIC regulatory guides:

  • Regulatory Guide 214 Guidance on ASIC market integrity rules for ASX and ASX 24 markets (RG 214)
  • Regulatory Guide 215 Guidance on ASIC market integrity rules for IMB, NSXA and SIM VSE markets (RG 215)
  • Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223)
  • Regulatory Guide 224 Guidance on ASIC market integrity rules for Chi-X and APX markets (RG 224)

Participants do not need to take any further action in relation to any current or proposed consent to business connections from ASIC.

Reference checking of prospective employees

Participants are subject to a rigorous statutory licensing regime. Participants should have strong internal compliance arrangements to ensure their employees meet the high standards of professionalism and competence expected under this regime. When employing or engaging new staff, Participants should consider a range of factors to ensure these standards are maintained.

Participants should seek (for themselves) and provide (for prospective employees) reasonable, objective, relevant, factual, accurate and balanced information for reference checks. Participants should request employees disclose any ongoing investigations by regulators or other bodies related to their participation in the financial services industry.

[Note: If the employee thinks that they may be subject to confidentiality restrictions which prohibit them from disclosing the relevant information to the Participant, it is the employee's responsibility to seek advice (from a lawyer or ASIC) regarding their disclosure obligations.]

A range of resources are available to Participants to assist them in designing a robust recruitment strategy.

Reference Checking in the Financial Services Industry is a handbook produced by Standards Australia with ASIC's assistance. It provides guidance on reference checking, which may be used as a framework for a reference checking process within the financial services industry, as well as additional information on relevant legislation, regulations and reference documents.

Regulatory Guide 104 Licensing: Meeting the general obligations (RG 104) and Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146) also include relevant information.

To further assist Participants, ASIC has prepared a directory for financial services organisations carrying out reference checks.

Consolidated Trading Tool

ASIC's Market Surveillance Team has begun using a tool which allows them to create an instant snapshot of any security or trading account. The Consolidated Trading Tool builds on existing functionality within ASIC's Market Analysis and Intelligence (MAI) surveillance system, increasing ASIC's ability to monitor markets.

For some time, ASIC has been incorporating order and trade data from ASX and Chi-X (including Regulatory Data) into MAI to provide a more granular view of market trading. The newly created Consolidated Trading Tool is able to merge this information into a snapshot for individual securities or trading accounts.

A number of analytical metrics can then be utilised by Surveillance Analysts to determine whether the trading behaviour in question is suspicious (and if so, whether further inquiries are warranted). The use of this tool may enable ASIC to further reduce the number statutory notices which would have previously been sent to Participants.

Cyber Resilience Model

ASIC's Investment Banks team has developed a Cyber Resilience Model that will enable institutions to assess their cyber resilience against standards developed by the United States National Institute of Standards and Technology (NIST Cyber Security Framework).

The NIST Cyber Security Framework is a voluntary, technology-neutral, cyber risk management tool. It uses a common language to manage cyber risk in a cost-effective way based on business requirements, risk tolerances, and resources.

Using the Cyber Resilience Model, organisations can compare their current cyber risk framework against their desired level of cyber resilience, to determine areas requiring further consideration and investment.

Later this month, ASIC will send the Cyber Resilience Model to eighteen investment banks to complete. Once received, their results will be collated, and aggregated information provided to each participant so they can assess their cybersecurity framework relative to the rest of the industry.

This work follows on from the release of ASIC Report 429 Cyber Resilience: Health Check (REP 429) in March 2015.

Market structure reviews

ASIC will undertake a review of high-frequency trading (HFT) during 2015. The objective of this review is to assess developments since our previous review was conducted. In addition to updating our analysis on the equities market, the review will also look at HFT in the futures market.

In March 2013, ASIC published Report 331 Dark liquidity and high-frequency trading (REP 331). This report was the culmination of work by two ASIC taskforces which examined the impact of dark liquidity and HFT in Australia.

ASIC will also undertake a separate review of dark liquidity during 2015. This review will consider how dark liquidity and dark trading venues are evolving in our market and abroad. It will also re-test whether the balance of lit and dark liquidity is impacting price formation in our market.

As part of each review, ASIC will meet with industry representatives and overseas regulators to gather intelligence about trends and developments within Australia and abroad. Key findings from our analyses will be published at the conclusion of the reviews.

Leap second change

An extra second (leap second) will be inserted at 23:59:59 (Coordinated Universal Time) on 30 June 2015. This is the equivalent of 09:59:59 (Australian Eastern Standard Time) on Wednesday 1 July 2015, at which time Australian Markets will be opened or in a continuous trading state.

Details of the change are published in Bulletin C49 issued by the International Earth Rotation and Reference Systems Service.

ASIC recommends that financial markets stakeholders review their information systems and processes and address any potential business impacts. Relevant questions to ask include:

  • Will the insertion of the leap second impact time-stamps on your trading system?
  • Do you have any critical processes that are initiated at 10.00.00 on 1 July 2015?
  • Will you be sourcing any time critical reference information at the relevant time and, if so, how will this be impacted by the leap second change?

The ASX and Chi-X have published information about their approach to the management of the leap second change on their websites.

Last updated: 30/03/2021 09:37