Market Integrity Update - Issue 106 - July 2019

Issue 106, July 2019

Computer hacker jailed for insider trading

Those who trade with inside information are reminded of the serious consequences of their actions, following the imprisonment of IT consultant Steven Oakes for unauthorised access to data and insider trading.

Mr Oakes was sentenced to three years imprisonment—to be released after 18 months on the condition that he is of good behaviour for 18 months—after pleading guilty to a total of 11 charges for insider trading, unauthorised access to data with the intention to commit a serious offence (insider trading), and the alteration of electronic devices required by ASIC.

Between January 2012 and February 2016, Mr Oakes gained unauthorised access to inside information from the private computer network of a Melbourne-based financial publisher, Port Phillip Publishing (PPP), with the intention of using the information to engage in insider trading. Mr Oakes used this inside information on 70 occasions to buy shares in 52 different companies, before the reports with the buy recommendations were published. He made profits from selling the shares soon after publication of the reports.

During our investigation, Mr Oakes also failed to immediately provide requested electronic devices to our Officers, producing them later once he had deleted relevant data.

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Consulting on rules for technological and operational resilience

We welcome your feedback on our proposed new market integrity rules for securities and futures market operators and participants.

Consultation Paper 314 Market integrity rules for technological and operational resilience seeks feedback on our proposals to address the increasingly automated and interconnected nature of our markets.

The proposals address the following areas of critical systems arrangements:

  • change management in relation to critical systems
  • outsourcing of critical systems
  • risk management, and data and cyber security
  • incident management and business continuity planning
  • governance and resourcing
  • fair access to markets and trading controls.

The proposals are consistent with international standards and clarify and strengthen existing obligations for market operators and market participants.

We welcome your feedback before 9 August 2019.

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First Australian Benchmark Administrator Licence granted

We granted the first Australian Benchmark Administrator Licence (licence) to ASX Benchmarks Pty Ltd (part of the ASX Group) on 1 July 2019. The licence relates to the administration of the Australian Bank Bill Swap Rate (BBSW), a significant short-term financial benchmark.

The licence was the first to be granted following amendments in 2018 to the Corporations Act 2001, to implement a regime for the regulation of financial benchmarks and reflect their need to be robust and reliable.

The regulation of financial benchmarks supports market integrity and investor confidence.

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Estimated industry funding levies for 2018–19 released

We’ve released our estimated industry sector levies for 2018–19, and details on how we allocated our regulatory costs in 2017–18, in our Cost Recovery Implementation Statement (CRIS). 

The CRIS is a key disclosure and accountability measure incorporated into the Industry Funding Model. The final CRIS includes details on some of the key issues that arose out of the submissions received during consultation in March 2019.

The indicative levies published in the final CRIS aim to help industry better plan for the actual levy which will not be billed until January 2020. The indicative levies are a guide and the amounts are likely to change when our actual regulatory costs are known and published in December 2019, and the actual business activity metrics for each subsector are provided by regulated entities.

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Crossing system compliance reviews

Our recent reviews of market participants who operate crossing systems (crossing system operators) have identified areas for improvement.

The ASIC Market Integrity Rules (Securities Markets) 2017 (the Rules) improve the transparency and integrity of crossing systems and fairness in the way they deal with client orders.

We conducted 10 reviews and found that while crossing system operators are generally meeting their obligations under the Rules, weaknesses were identified with:

  • how fair treatment of all users of crossing systems is assured
  • how order flows from third-party crossing systems and aggregators are monitored
  • the steps taken to prevent market misconduct
  • policies and procedures for monitoring activity on crossing systems and recording results of monitoring.

Crossing system operators should refer to Regulatory Guide 265 Guidance on ASIC market integrity rules for participants of securities markets for guidance on our expectations regarding monitoring obligations under the Rules.

Several recommendations were made to the crossing system operators we reviewed, with a view to strengthening compliance arrangements for their crossing systems. These included:

  • enhanced policies and procedures
  • an expanded suite of pre-trade controls to prevent market misconduct
  • clearer disclosure of order flows
  • improved frameworks for monitoring order priority.

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Conditional relief ending soon for OTC derivative transactions reporting

Conditional relief from the use of one of the standard identifiers when reporting over-the-counter (OTC) derivative transactions ends on 30 September 2019.

This includes using standard identifiers to identify your counterparty and, if applicable, your broker or clearing member, in relation to non-reporting counterparties that are:

  • incorporated or formed in Australia, or
  • a branch located in Australia.

Otherwise, the relief applies to transactions with other non-reporting counterparties until 31 March 2020.

The acceptable identifiers are:

  • Legal Entity Identifier (LEI)
  • if no LEI, an international business entity identifier issued by Avox Limited (AVID)
  • if no AVID is available, a Business Identifier Code (BIC).

The relief requires reporting entities to make reasonable efforts (including documenting procedures) to:

  • request that your counterparty and, if applicable, your broker and clearing member obtain one of the standard identifiers and provide it to you
  • obtain one of the standard identifiers on behalf of these parties.

We can request reporting entities relying on this relief to show us how they comply with the condition.

Reporting entities are advised to consider their reporting requirements under Rule 2.2.2(1) of the ASIC Derivative Transaction Rules (Reporting) 2013. Entities must ensure that their reporting is complete, accurate and current, including one of the standard identifiers above. Failure to do so is a breach of your obligations.

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Last updated: 22/07/2020 09:46