Market Integrity Update - Issue 65 - October 2015

Edition 65, October 2015

ASIC market integrity report

Film In FolderASIC has released a three minute video summarising significant market integrity outcomes achieved through its supervisory, surveillance and enforcement activities from January to December 2015. Statistics and additional information are included in an accompanying webpage.

During the period, key activities included:

  • 100+ matters under investigation at any one time
  • 11 significant enforcement outcomes
  • 18,388 trading alerts
  • 102 market surveillance inquiries
  • 164 industry meetings
  • 25 compliance surveillances, and
  • 14 risk-based assessments.

Market intermediaries are encouraged to circulate the video and webpage to their staff to increase awareness of ASIC's actions and ongoing areas of focus.

This is the first time that this report has been released in the new format. Previously it was issued as a text report. The change is part of ASIC's efforts to increase the accessibility of its publications. Feedback about the new format is welcome (and can be sent to

Moratorium on IPOs of VIEs

Hand ShakeASIC and the licensed listing exchanges (ASX, NSX and APX) have agreed to adopt a moratorium on initial public offerings (IPOs) of companies with variable interest entity (VIE) structures.

This follows an initial review of VIE structures, their use in international markets, and proposed changes to Chinese laws in this area. This review highlighted concerns about the legal status of VIEs in China and the enforceability of key contractual arrangements by foreign investors.

VIE structures are used by some Chinese-based businesses who are raising capital overseas. VIE structures attempt to mimic ownership of the Chinese operating company through a series of complex contractual arrangements, rather than through a more traditional subsidiary structure. This means that the foreign listed company does not hold shares in the underlying Chinese operating company. Instead it enters into various contracts with the Chinese operating company and its Chinese owners with the aim of passing the economic benefits of the business to foreign investors. These arrangements rely heavily on the Chinese owners performing their contractual obligations.

This decision by ASIC and the ASX, NSX and APX is an example of the importance of proactive administration by the exchanges of well-crafted listing standards. This is particularly important in times of significant change to our equity markets as a result of global trends in capital raising.

Marketing of IPOs to retail investors

Prospectus Graphs PenThe marketing of IPOs can play an influential role in the decisions of retail investors. ASIC has noticed an increase in the number of companies making statements to the public about an offer or intended offer of IPO securities in the lead up to the issue of a prospectus or while an offer is still open. These types of statements may contravene the prohibition on advertising and publicity of offers of securities in section 734 of the Corporations Act 2001 (Corporations Act).

This has become an area of focus for ASIC and we will continue to perform targeted reviews of advertising material connected with IPOs. Our focus on marketing extends to the manner in which brokers and promoters sell securities to retail investors. In recent times we have targeted certain offers and used our compulsory information gathering powers to review selling methods employed by brokers.

Some examples of action we have taken on this issue include:

  • Issuing a stop order to prevent any further advertising by a company about the offer of its securities before a prospectus was lodged. We did this after becoming aware that the company published promotional material on a popular online social network seeking expressions of interest for a proposed IPO. Read the media release (refer: 15-025MR).
  • Requiring an issuer to make a public retraction of advertising material that was sent to members of a popular online investor forum. The advertising material was not consistent with information contained in the issuer's prospectus. We required the retraction to be sent to all the individuals that had received the original advertising material.

Bring your daughters to work day

Bring Your Daughters To Work DayIn October, ASIC's Perth office hosted 'Bring your daughters to work day'. This international initiative has been running for more than twenty years with the aim of improving women's workforce participation. ASIC decided to trial this event after concluding that girls may benefit from the opportunity to explore careers in regulation and financial services at an age when they are less influenced by gender stereotypes.

On the day, twenty-nine girls ranging from four to eighteen years old attended ASIC with their mums and dads. After introductions, the girls were organised into three groups (8 and under, 9 to 12, and 13+) to participate in organised activities.

Accompanied by their parents, the junior set cut and pasted collages of 'wants' versus 'needs'. This was followed by interactive activities using the MoneySmart teaching resources.

Those in the middle group explored concepts such as career and financial independence by brainstorming different job options and who these might suit. They also completed a resume building exercise.

Older girls took part in a trading simulation (open outcry setting). Each girl was given $1,850 and 100 shares in five different companies. Over four trading days (of three minutes each) they bought and sold their securities, factoring periodic news events into their decisions.

After the formal part of the program had concluded, girls were given an opportunity to tour the office. Before leaving, each girl received a MoneySmart showbag, complete with pen, magnet and educational literature.

'Bring your daughters to work day' is one of a growing number of diversity initiatives at ASIC.

MECS – Tip of the month

Market Entity Compliance PortalAutomated order processing (AOP) reporting

Market participants that operate an AOP are required to notify ASIC of certain information within 10 business days of each AOP Annual Review Date (1 November). The notification is due on or before Friday 13 November 2015. For further information, see Rule 5.6.8B of the ASIC market integrity rules for the ASX, Chi-X and APX markets.

This notification can be completed using Form M62 which is available on the Market Entity Compliance System (MECS).

The form includes instructions on how to complete and lodge the notification using MECS. Submitting the form using MECS enables market participants to manage and retain a record of their interactions with ASIC.

Gavel LargeEnforcement outcomes

Man jailed for market manipulation

On 25 September 2015, Nigel Derek Heath was convicted and sentenced to two years and three months imprisonment after pleading guilty to two market manipulation charges. The successful enforcement outcome follows an ASIC investigation into trading by Mr Heath in shares and contracts for difference (CFDs) in four resource companies between 16 February 2012 and 11 October 2013.

Between 16 February 2012 and 19 August 2013 Mr Heath carried out 138 transactions involving financial products relating to Petsec Energy Limited (PSA) that had the effect of artificially increasing the price for trading in PSA shares on ASX. While the average value of the 138 transactions was $496, each transaction increased the PSA share price by between 4% and 11.5%, and increased the value of Mr Heath's shareholding in PSA by between $15,878 and $46,928.

Between 2 July 2012 and 11 October 2013 Mr Heath also caused 30 simultaneous buy and sell transactions involving shares and CFDs relating to PSA, Leyshon Resources Limited, Malagasy Minerals Limited and Orca Energy Ltd. These transactions had the effect of artificially increasing the price for trading in those shares on the ASX. These trades, commonly referred to as 'matched trades', caused an increase to the price of shares traded on ASX of between 3.1% and 6.9%.

In sentencing Mr Heath, Judge King SC referred to the need to have a free and open market, uncontaminated by conduct of the nature carried out by Mr Heath. 'His conduct distorted the market and increased the value of his own portfolio and free equity in his CFD trading accounts.' Judge King SC said.

MDP-imageMDP outcomes

DJ Carmichael pays $300,000 infringement notice penalty

D J Carmichael Pty Limited (DJ Carmichael) has paid a penalty of $300,000 to comply with an infringement notice issued by the Markets Disciplinary Panel (MDP).

The penalty was for entering bids and dealing in a product for a client where DJ Carmichael intended to create a false or misleading appearance with respect to the price of that product, in contravention of Rule 5.7.1(b)(i) of the ASIC Market Integrity Rules (ASX Market) 2010.

In determining this matter and the appropriate pecuniary penalty to be applied, the MDP noted (among other factors):

  • Rule 5.7.1(b)(i) is aimed at upholding market integrity (i.e. that markets remain fair and efficient). Protecting against market misconduct and promoting the disclosure of important market-related information is designed to ensure that investors can be confident in making sound investment decisions. The overall objective is an active market that facilitates the capital formation important to national economic growth and prosperity.
  • In the context of domestically-licensed financial markets the concept of market integrity is to be read in light of the objective in section 760A(c) of the Corporations Act – 'to promote fair, orderly and transparent markets for financial products'. Fair, orderly and transparent means a level playing field (free from misconduct and synonymous with investor protection) characterised by sound ethical values and judgement where regular bids, offers and sales (past and real-time) can be seen and reflect genuine supply and demand (i.e. prices represent all publicly-available information).
  • Making bids and dealing in a product absent the intent to take a genuine or bona fide position in the market for that product, is significant for the reason that the resultant trading data creates a false and misleading appearance of supply, demand and/or liquidity and ultimately price or market valuation. Among other things, trading data is used by investors in making informed decisions by being able to assess supply, demand and/or liquidity and ultimately price or market valuation. False and misleading trading data thereby distorts a market and has the potential to undermine investor or public confidence that financial markets are level playing fields and that prices reflect all available information. Accordingly, for these reasons, a breach of Rule 5.7.1(b)(i) is of a very serious nature.

Important regulatory information

Pursuant to regulation 7.2A.15(4)(b)(i)–(ii) of the Corporations Regulations 2001, DJ Carmichael has complied with the infringement notice. Such compliance is not an admission of guilt or liability, and DJ Carmichael is not taken to have contravened section 798H(1) of the Corporations Act.

Hand With MicStories from the beat

The majority of market integrity outcomes ASIC achieves are not publicised in the media, but this does not detract from their importance. Every day, ASIC officers work to ensure our markets are fair and efficient. These are their stories.

ASIC recently reviewed meeting materials prepared by a company which was seeking to rely on obtaining member approval for a transaction that would have an impact on the control of the company. The meeting materials stated that two cornerstone investors were not associated, despite them having acted together in negotiating and then entering into a joint agreement with the company under which they both received shares.

ASIC sought and successfully obtained amended disclosure from the company that confirmed that the investors were in fact associates for the purposes of the transaction. This change meant that investors would be able to understand the true state of play in relation to the company, which is particularly important when control of the company will change as a result of a transaction.


Last updated: 30/03/2021 09:22