Market Integrity Update - Issue 101 - February 2019

Issue 101, February 2019

Welcoming the Royal Commission Final Report

We welcome the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, released on 4 February 2019.

We’ll consider the report carefully, particularly its recommendations on regulatory and enforcement practices. These recommendations, and the Government’s response, will inform our priorities and strategic direction moving forward. The Royal Commission report identified our enforcement culture as a focus of change. This focus accords with our change agenda, which has included the adoption of our ‘why not litigate?’ enforcement stance, the initiation of our Internal Enforcement Review and the enhancement of our governance structures.

We note the possible breaches of the financial services laws referred to us by the Royal Commission, and consideration of these matters will be prioritised. We don’t, as a general policy, comment on actual or potential investigations.

We look forward to working with the Parliament, the Government, APRA and other regulators to implement the reform agenda to ensure a fair, strong and efficient financial system for all Australians. In coming weeks, we’ll release an update outlining the actions already under way and the further steps we’ll implement to continue to strengthen our governance, culture and practices, and realign our enforcement and regulatory priorities.

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Are you prepared for Brexit?

The United Kingdom is scheduled to leave the European Union on 29 March 2019 (‘Brexit’).

We encourage firms with global operations to review their Australian financial services (AFS) licensing arrangements as part of their broader preparations for Brexit. For example, foreign financial service providers currently relying on an AFS licensing exemption should consider the implications for their AFS licensing status where their global operations are to be transferred to a different EU subsidiary.

We expect firms to have adequate contingency measures to mitigate the potential implications of Brexit for their operations and, importantly, to ensure they have in place appropriate AFS licensing arrangements to provide services in Australia.

We encourage individuals and businesses to stay informed through the UK Government website, including the Department for Exiting the European Union and the FCA webpage on Brexit, and to seek commercial or legal advice as necessary.

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Industry funding invoices issued

Regulated entities should have received their industry funding invoices to recover our FY 2017–18 regulatory costs.

Entities that registered contact details and lodged business activity metrics on the ASIC Regulatory Portal (Portal) would have received an email notification on 31 January 2019 that their invoice is ready to view. Those who didn’t register on the Portal will receive a hardcopy invoice in the mail, with all invoices due for payment by 15 March 2019. Late penalties will apply for non-payment.

This is the first year we’ll recover most of our regulatory costs from the industries we regulate – around 90% of our regulatory activities will be recovered in the form of industry funding levies, with the remaining 10% recovered via ‘fees for service’.

In most cases, small proprietary companies don’t have specific obligations relating to industry funding and won’t receive an invoice. We’ll collect the associated regulatory costs for small proprietary companies through a $4 increase to the annual review fee.

The levies payable by industry subsectors were summarised and published in December 2018. The detailed methodology for how we calculate levies for each industry sector is outlined in the ASIC cost recovery regulations.

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Former mining executive sentenced to serve 9 months for insider trading

Darren Lind has been sentenced to 18 months imprisonment for insider trading, with a minimum custodial term of 9 months to be served.

After a two-week trial in August 2018, Mr Lind was found guilty of two counts of insider trading in shares of ASX listed mining exploration company Minotaur Exploration Ltd (Minotaur).

Mr Lind was a former managing director of Golden Fields Resources Pty Ltd, a company which had a joint venture partnership with Minotaur to explore for copper-gold at its ‘Eloise Project’ site in Cloncurry, Queensland.

The charges related to two share purchases of Minotaur shares by Mr Lind, via his self-managed superannuation fund company, after he learned of positive confidential preliminary exploration drilling results during a meeting with Minotaur executives.

Mr Lind has appealed against his conviction and a hearing is listed on 15 March 2019 in the Supreme Court of South Australia.

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UBS Securities pays $120,000 infringement notice

UBS Securities Australia Limited (UBS) has paid a penalty totalling $120,000 to comply with an infringement notice given by the Markets Disciplinary Panel (MDP).

The MDP had reasonable grounds to believe that UBS breached the Market Integrity Rules, after finding several transactions in relation to six on-market buy-backs conducted by UBS on the ASX market in 2017 were not in the ordinary course of trading and were not in accordance with the clients’ instructions.

UBS purchased approximately 18 million securities over a 7-month period in relation to the buy-backs in circumstances where UBS purchased the securities other than by the matching of orders on an order book. UBS reported the transactions to ASX as ‘Trades with Price Improvement’.

Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets states that ‘Trades with Price Improvement’ are not in the ordinary course of trading and are not permitted for on-market buy-backs. The MDP considers that guidance to correctly reflect the law and prevailing market practice.

The MDP considers that UBS’s conduct was careless, as the traders who executed the trades didn’t know such trades were not in the ordinary course of trading. UBS’s internal training and controls were also deemed inadequate and ineffective.

UBS has subsequently adopted remedial measures including conducting further training for their traders, updating the equities desk manual and implementing trade monitoring enhancements.

Compliance with the infringement notice is not an admission of guilt or liability, and UBS is not taken to have contravened subsection 798H(1) of the Corporations Act.

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Changes to our senior leadership team

We’ve changed the structure of our senior leadership team, appointing additional Commissioners, a team of Executive Directors, and new Senior Executive Leaders.

Appointment of additional Commissioners

Since July 2018, we’ve welcomed four additional members to our Commission:

  • Deputy Chair Daniel Crennan
  • Deputy Chair Karen Chester
  • Danielle Press
  • Sean Hughes.

These appointments boost the experience and capability of our Commission in relation to financial markets and regulation, including superannuation. They’ll also contribute to the leadership necessary to support the Commission’s new strategic direction which will enhance its ability to detect and address misconduct in financial services and protect consumers. Peter Kell retired from his role as Deputy Chair on 6 December 2018.

Appointment of Executive Directors

To improve our effectiveness and efficiency as a regulator, we’ve introduced a group of Executive Directors responsible for our day-to-day operations and decision-making. Executive Directors will assume the management of our Senior Executive Leaders.

These changes will allow Commission to better:

  • engage with our regulated population
  • focus on strategic matters
  • provide oversight and governance to our teams.

The Executive Director of Markets is Greg Yanco and the Executive Director of Market Enforcement is Sharon Concisom.

Appointment of new Senior Executive Leaders

Our Senior Executive Leaders will continue to play an integral role at an operational level, leading the stakeholder teams and engaging with our regulated population, with a focus on delivering our strategic priorities. The new Senior Executive Leaders responsible for our work in Markets are:

  • Nathan Bourne – Market Infrastructure
  • Calissa Aldridge – Market Supervision.

When will the changes start?

The new structure officially started on 14 January 2019.

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Response to submissions on short selling consultation published

We’ve published Report 608 Response to submissions on CP 299 Short selling: Naked short selling relief, position reporting amendments and sunsetting class orders (REP 608).

REP 608 outlines our responses in relation to key feedback which we received from Consultation Paper 299 Short selling: Naked short selling relief, position reporting amendments and sunsetting class orders.

Following this consultation, we issued relief and modifications to the law in relation to short selling, including remaking other short selling instruments that were due to expire (sunset). These were implemented via the ASIC Corporations (Short Selling) Instrument 2018/745 (the Instrument) which took effect on 28 September 2018.

The Instrument includes the following new relief and modifications:

  • conditional class relief for eligible market makers to make naked short sales of exchange traded funds (ETFs) and managed funds, when making a market in those funds
  • relief for naked short sales by a seller during a deferred settlement trading period in certain circumstances
  • relief for naked short sales that may occur in the context of certain initial public offering sell downs by a saleco or ‘special purpose company’
  • an option for global firms to calculate their short positions at a ‘global end calendar time’.

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Last updated: 22/07/2020 09:46