Market Integrity Update - Issue 84 - July 2017
Issue 84, July 2017
- ASIC’s cost recovery framework finalised
- UBS pays $280,000 in infringement notice penalties
- ASIC commences consultation on proposed guidance for sell-side research
- Westpac pays $127,250 to comply with infringement notice penalty
- ASIC consults on new client money reporting rules
- IOSCO reports on wholesale misconduct
- Risk limit reminder
ASIC’s cost recovery framework finalised
This month ASX and Chi-X Australia, and their participants, will receive their final ASIC Market Supervision invoices for the quarter ended 30 June 2017.
From 1 July 2017, ASIC’s regulatory costs will be recovered from all industry sectors regulated by ASIC through annual levies. The first invoices for the 2017–18 financial year will be issued from January 2019.
Details about how the levies will be calculated can be found in Report 535 ASIC cost recovery arrangements: 2017-18.
Where possible we will work with participants to assist them in calculating their cost accrual as we move to annual invoicing.
UBS Securities pays $280,000 in infringement notice penalties
UBS Securities Australia Limited (UBS) has paid penalties totaling $280,000 to comply with two infringement notices given to it by the MDP.
The first infringement notice ($140,000) relates to the operation, use and monitoring of the UBS Price Improvement Network crossing system.
The second infringement notice ($140,000) relates to incorrect disclosures in crossing confirmations about execution venue and trading as principal, and the provision of incorrect regulatory data to market operators.
For more details about the conduct that led to the infringement notice penalties, read the media release.
For each infringement notice, 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 2001.
ASIC commences consultation on proposed guidance for sell-side research
We have released a consultation paper proposing guidance for Australian financial services (AFS) licensees that provide sell-side research. The proposed guidance is designed to help AFS licensees manage conflicts of interest and handle material, non-public information.
The integrity of sell-side research directly affects the integrity of financial markets, particularly during the capital raising process. Where material, non-public information is mishandled or conflicts involving research are not managed appropriately, AFS licensees are at risk of breaching financial services laws, including those covering insider trading and misleading and deceptive conduct.
Our proposals provide guidance on what AFS licensees should do to manage conflicts at each stage of a capital raising transaction. We also set out general guidelines for AFS licensees on the structure and funding of research teams and the identification and handling of material, non-public information.
We are seeking your feedback on proposals relating to:
- the identification and handling of material, non-public information
- the management of research conflicts during the capital raising process, including the preparation and production of investor education reports
- the structure and funding of research departments.
Submissions to Consultation Paper 290 Sell-side research are due by 31 August 2017.
Westpac pays $127,250 to comply with infringement notice penalty
Westpac Banking Corporation has paid an infringement notice penalty of $127,250 for an alleged breach of the ASIC Derivative Transaction (Reporting) Rules 2013 (derivative transaction reporting rules).
This is the first penalty paid under the derivative transaction reporting rules, which require counterparties to report derivative transaction and position information to derivative trade repositories.
During the period 2 October 2013 to 30 April 2015, Westpac failed to report information about 112,556 reportable transactions as required by the derivative transaction reporting rules. The infringement notice identifies 398 alleged contraventions of subrule 2.1.1(1) – one for each business day during the relevant period.
Westpac designed its derivative transaction reporting systems with the understanding that it captured all relevant transactions required to be reported under the rules. Westpac later became aware of a flaw that meant certain reportable transactions did not flow through to the derivative transaction reporting system.
Westpac reported the unreported transactions to the Depository Trust and Clearing Corporation (DTCC) between 1 January 2016 and 22 January 2016. However the transactions were submitted with the counterparty buyer/seller information inadvertently reversed.
Compliance with the infringement notice is not an admission of guilt or liability and Westpac is not taken to have contravened subrule 2.1.1(1).
ASIC consults on new client money reporting rules
We have begun consultation on proposed reporting rules for AFS licensees that hold derivative retail client money.
The proposals follow the passing of reforms designed to strengthen protection of client money provided by retail derivative clients. The reforms will remove an exception in the regime that allows AFS licensees to use client money for a wide range of purposes, including for working capital.
The proposed client money reporting rules will impose record keeping, reconciliation and reporting requirements on AFS licensees that hold derivative retail client money. The proposed rules will apply to all derivative retail client money received by an AFS licensee, unless the client money is for a derivative that is traded on a fully licensed domestic market, such as ASX 24.
The reforms also give ASIC the power to make new client money reporting rules to ensure greater transparency around AFS licensees’ receipt and use of derivative retail client money.
‘The client money rules will apply more formal and consistent standards across the derivatives sector and will ensure any discrepancies in an AFS licensee’s client money account are notified to ASIC in a timely manner and that ASIC is able to take appropriate action’, ASIC Commissioner Cathie Armour said.
Ms Armour said, ‘We look forward to continued engagement with industry as licensees now work through the application and detail of the rules.’
Submissions on Consultation Paper 291 are due by 8 August 2017.
The client money rules are proposed to commence on 4 April 2018.
IOSCO reports on wholesale misconduct
As part of international efforts to reduce the risk of misconduct in wholesale financial markets, the International Organization of Securities Commissions (IOSCO) recently conducted a review of regulatory approaches and tools that address market conduct.
The review highlights the core conduct expectations for individual market participants:
- honesty
- upholding market integrity
- conflicts management
- competence
- communication and confidentiality.
It is a timely reminder to market participants of the expectations that ASIC and the wider community have of them.
Conduct failings in wholesale markets may undermine trust and confidence in wholesale markets and, in turn, affect the ability of other markets to deliver products and services to meet retail customer (and wider economic) needs. Significant or widespread misconduct may also create systemic risks.
Because individual behaviour or the failure to supervise and control individuals has been behind many recent and past cases of misconduct in the wholesale marketplace, the focus of the report is on individual misconduct.
The report gives an overview of the features of wholesale markets that make them prone to conduct risk and looks at how market conduct is regulated. It also identifies specific tools that regulators around the world use to address individual misconduct.
Risk limit reminder
With the release of the new ASX 24 trading platform on 20 March 2017, it has come to our attention that not all ASX 24 market participants have entered prudent risk limits into the system.
We want to remind all ASX 24 market participants of their obligations under Rule 2.2.1 of the ASIC Market Integrity Rules (ASX 24 Market) 2010. You should also be aware that the roll out of the new system will not be considered a mitigating factor for non-compliance.
Failure to comply with Rule 2.2.1 of the ASIC Market Integrity Rules (ASX 24 Market) 2010 can attract a penalty of up to $1 million. If you are a participant of the ASX 24 market, you should review your records to make sure you have entered prudent risk limits into the new system.