Market Integrity Update - Issue 113 - March 2020

Issue 113, March 2020

Steps taken to ensure Australian equity markets remain resilient

In a statement released this week, the Council of Financial Regulators reinforced the resilience of Australia’s financial system and its ability to deal with the effects of the COVID-19 pandemic. To assist in maintaining this resilience, we’ve issued directions (under the ASIC Market Integrity Rules (Securities Markets) 2017) to large equity market participants requiring them to limit the number of trades executed each day.

Australian equity markets have seen record trading volumes and exponential increases in the number of trades executed in the last two weeks. If this trend continued, the processing and risk management capabilities of market infrastructure and participants may have become strained.

All market participants should take proactive steps to ensure they can process client trades and support the resilience of the Australian equity markets. Please review your average order and trade sizes and take steps to reduce excessive volumes of very small orders and trades.

We expect all market participants to remain vigilant and closely monitor their processing and risk management capabilities, especially if they’re are operating under business continuity arrangements.

We do not expect these directions to affect the ability of retail consumers to trade.

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Response to COVID-19 and market volatility

We’re working closely with market participants, investment banks, industry associations and market operators to ensure they’re responding effectively to the COVID-19 pandemic.

We expect all Australian financial services licensees to have business continuity plans in place to deal with major events. To ensure they can continue to effectively service their customers, we’re in discussions with licensees to assess their plans. This includes monitoring the implementation of their business continuity plans and alternative working arrangements.

These changes may result in licensees operating in different ways and from different locations. This can raise challenges from both a client service, and compliance and supervision, perspective. We remind licensees of the importance of maintaining robust monitoring and supervision controls to ensure they provide financial services efficiently, honestly and fairly.

With the increased level of market volatility, we also remind licensees to ensure they’re appropriately monitoring risk-taking and financial exposure. This includes:

  • being well prepared for margin calls
  • closely monitoring client positions and the build-up of risk
  • protecting client money
  • considering system capacity issues
  • closely monitoring the use of trading algorithms to avoid aberrant trading, or the contribution to or perpetuation of market movements
  • closely monitoring arrangements to ensure that any short positions are covered.

We’ll continue to actively engage with licensees to understand any issues or pressures they’re facing. Licensees facing challenges affecting their ability to provide financial services (in accordance with their authorisations) should contact their ASIC Intermediary Supervisor.

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Guidelines for meeting upcoming AGM and financial reporting requirements


Annual general meetings

The COVID-19 pandemic may temporarily impact on companies’ ability to hold an annual general meeting (AGM). This issue is most immediately relevant for listed and unlisted public companies with 31 December balance dates that are required to hold an AGM by 31 May 2020. For these entities, we:

  • confirm we’ll take no action if the AGMs are postponed for two months; that is, until the end of July
  • support using appropriate technology to hold AGMs.

We caution entities against holding an AGM while there are Government restrictions on large gatherings, unless the entity can provide members with a reasonable opportunity to participate in the meeting.

Financial reporting obligations

We’re closely monitoring developments that may affect financial reporting, talking to market participants and auditors, and considering possible impacts and responses. At present, there appear to be no indications of any significant issues for entities in meeting their full-year and half-year financial reporting obligations at 31 December 2019. 

Entities with 31 March or 30 June balance dates

We’ll carefully monitor how market conditions and COVID-19 are affecting financial reporting and AGM obligations for these entities and may update this guidance if needed.

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Extending relief to Futures Markets participants from aggregate loss limits

We’ve extended relief from the aggregate loss limit requirements in the ASIC Market Integrity Rules (Futures Markets) 2017 for two more years.

ASIC Class Rule Waiver [CW 17-0251] was originally issued after it became clear that participants wouldn’t be able to comply with certain aggregate loss limit requirements in Rule 2.2.1(1) once the new ASX 24 trading platform went live on 20 March 2017. The waiver was conditional on a participant implementing appropriate processes to monitor the aggregate loss limits on each of its client and house accounts.

[CW 17-0251] was remade as ASIC Market Integrity Rules (Futures Markets) Class Waiver 2018/313 following consolidation of the market integrity rules in 2017.

ASIC Market Integrity Rules (Futures Markets) Class Waiver Amendment Instrument 2020/229 extends the relief in Class Waiver 2018/313 and will give participants the certainty they need – allowing us to consider how to best implement the protections in Rule 2.2.1(1).

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Unconscionable conduct case win against OTC derivatives issuer AGM Markets

AGM Markets Pty Ltd (AGM), OT Markets Pty Ltd (OT) and Ozifin Tech Pty Ltd (Ozifin) (the companies) have been found by the Federal Court to have engaged in systemic unconscionable conduct while providing over-the-counter (OTC) derivatives to retail investors in Australia.

The companies used account managers, often located offshore, to engage with Australian investors, resulting in losses of over $30 million.

The Court found:

  • the companies engaged in unconscionable conduct in the circumstances of 21 specific investors
  • the companies engaged in a system of conduct or pattern of behaviour that was in all circumstances unconscionable
  • the account managers engaged on behalf of the companies:
  • provided personal advice
  • provided personal advice that was not in their clients’ best interests
  • made representations that were false, misleading or deceptive about the risks of investing in derivatives and depositing client funds into their trading accounts, as well as the profits clients were likely to generate from their trading.

A further hearing on penalty and relief will be held on a date to be determined.

We previously cancelled AGM’s Australian financial services (AFS) licence and disqualified a former director of AGM for eight years in November 2018.

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Former investment analyst pleads guilty to insider trading

Mr Michael Ming Jinn Ho plead guilty to insider trading in securities of Big Un Limited (Big Un) and communicating inside information.

The charges relate to Mr Ho’s purchase and sale of Big Un shares and options between 18 July 2016 and 10 February 2018. Mr Ho and the associates he procured invested approximately $1.6 million in Big Un securities over this period.

Cooperating with our investigation, Mr Ho admitted to trading while in possession of inside information relating to Big Un and to one occasion of communicating inside information to an associate. The inside information was communicated to Mr Ho during a series of meetings and telephone conversations between Mr Ho and Big Un’s CEO, Richard Evertz, throughout 2016 and 2017.

Big Un was placed in trading halt and suspended from quotation in February 2018. It was removed from the official ASX list in August 2018 and is now in liquidation.

Mr Ho is scheduled to appear in the Downing Centre District Court for sentencing on 4 June 2020.

Our investigation concerning Big Un and its officers and executives continues.

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Former financial adviser pleads guilty to dishonest conduct

Mark Damion Kawecki plead guilty to two counts of dishonest conduct in relation to attempts to satisfy the minimum spread requirement for companies seeking admission to ASX. This is the first prosecution of its kind.

A company must meet the ‘minimum spread requirement’ (a minimum number of unrelated shareholders in the company) under the ASX Listing Rules before its shares can be quoted and traded on the ASX market. Attempts to satisfy the minimum spread requirement through artificial means is serious misconduct which interferes with the integrity of our markets. 

Mr Kawecki pled guilty to two counts of engaging in dishonest conduct, namely:

  1. Submission of applications for shares containing false information about the applicant’s address to the share registry for three entities seeking admission to the ASX official list between about 19 January 2015 and 23 December 2016.
  2. Submission of applications for shares and a table of applications for shares containing false or misleading information about the beneficial holder of shares to the share registry for a company seeking admission to the ASX official list and to a stockbroker assisting an entity’s re-admission onto the ASX official list between about 23 January 2015 and 9 July 2015.

Each offence carries a maximum penalty of 10 years’ imprisonment and/or a fine of up to 4,500 penalty units.

Mr Kawecki has been committed to the Melbourne County Court on the charges. The next hearing date is 18 August 2020.

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Updates to regulatory guide to reflect OTC derivative changes for Brexit

We’ve made minor amendments to Regulatory Guide 251 Derivative transaction reporting to reflect the withdrawal of the United Kingdom from the European Union on 31 January 2020 (Brexit).

The key changes reflect UK regulated markets being included as ‘regulated foreign markets’ for the purposes of the:

The effect of including UK regulated markets within the list of regulated foreign markets is that derivatives entered into on those financial markets will continue to be excluded from the reporting requirements in the Reporting Rules and Clearing Rules.

In our opinion, the market integrity and transparency of a UK regulated market is sufficiently equivalent to the requirements and supervision of an EU regulated market in the European Union.

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Postponed: ASIC Annual Forum and Annual Dinner

Due to the uncertain availability of international and interstate speakers and delegates and the evolving situation surrounding the COVID-19 pandemic, we’ve postponed the ASIC Annual Forum and Annual Dinner 2020.

We understand the difficulties some people may face in travelling to Sydney for this event and are committed to delivering a wide-ranging and high-quality event and program for all.

Next steps

We’re working to reschedule the Annual Forum and Annual Dinner and we’ll provide more information in the coming weeks.

Information for registered delegates

If you’ve registered to attend the Annual Forum and/or Annual Dinner, consider the following options:

  • If you’d like to carry forward your registration and attend the rescheduled Annual Forum and/or Annual Diner, we’ll honour your payment and ticket. In this instance, no further action is required, and no additional charges will apply.
  • If you’d like a full refund, please email asicannualforum2020@arinex.com.au and your money will be returned in full. Cancellation fees will be waived.

More information

Email asicannualforum2020@arinex.com.au for more information.

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Last updated: 17/06/2020 09:34