Market Integrity Update - Issue 87 - October 2017

Issue 87, October 2017

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Client money reporting rules finalised

MirsWe have released final ASIC Client Money Reporting Rules 2017 which will commence in April 2018, when the other client money reforms take effect. The reforms will prevent Australian financial services (AFS) licensees from withdrawing client money provided by retail derivative clients and using it for a wide range of purposes, including as the AFS licensee’s own working capital.

The rules will impose record-keeping, reconciliation and reporting obligations on AFS licensees that hold derivative retail client money, ensuring greater transparency around AFS licensees’ use of derivative retail client money. They will apply more formal and consistent standards across the derivatives sector and make sure any discrepancies in an AFS licensee’s client money account are notified to ASIC in a timely manner – allowing us to take appropriate action.

In making the final rules, we have carefully considered feedback received during consultation and made changes to address the issues raised. In particular, changes to the timing of the reconciliation requirements will give AFS licensees greater flexibility and make the client money rules easier to comply with.

We have also released an information sheet to help AFS licensees comply with their obligations under the client money rules.

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ASIC releases latest corporate plan

PlanOur vision is to allow markets to fund the economy and, in turn, economic growth. In doing so, ASIC contributes to the financial wellbeing of all Australians.

Our latest corporate plan outlines how we plan to achieve this vision by promoting investor and consumer trust and confidence and ensuring fair and efficient markets. It also takes a look at the long-term challenges to our vision and the risks that warrant attention in 2017–18.

The plan also:

  • highlights the need to keep building people’s financial capability to support them in planning for their future
  • outlines our vision of ‘what good looks like’ for the sectors we regulate.

ASIC Chairman Greg Medcraft said: ‘The financial sector continues to evolve, driven by demographic and structural change, globalisation and technological advancements. As always, changes may challenge trust and confidence and market integrity. However, if changes are well-managed, they can also enhance the financial wellbeing of all Australians.’

‘We will continue proactive surveillances to improve consumer outcomes and where we find misconduct we will take enforcement action.’

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OpenMarkets and Merrill Lynch pay penalties for breaching market integrity rules

OpenMarkets Australia pays $200,000 infringement notice penalty

Scales Of JusticeOpenMarkets Australia Limited (OpenMarkets) has paid a penalty of $200,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel (MDP) for breaching the market integrity rules.

Throughout 2015 and 2016, OpenMarkets failed to have appropriate filters in place for use of its automated order processing (AOP) system in relation to the ASX and Chi-X markets. This included appropriate filters to:

  • prevent trades that involved no change of beneficial ownership
  • reject the placement of sell orders which exceeded maximum order value limits
  • reject the placement of sell orders that were prohibited short sales
  • identify orders that were priced far away from the prevailing price in other markets.

The MDP also had reasonable grounds to believe OpenMarkets did not have appropriate organisational and technical resources in place to ensure orders submitted to the trading platform did not interfere with the efficiency and integrity of the market.

The MDP would have applied a penalty of $560,000 if OpenMarkets had not agreed to the imposition of conditions on their Australian financial services licence in December 2016 (read the media release). The conditions required OpenMarkets to engage an independent expert to review their systems, and were imposed to address our concerns with the financial services business carried on by OpenMarkets, including the use of its AOP system.

Compliance with the infringement notice is not an admission of guilt or liability, and OpenMarkets is not taken to have contravened subsection 798H(1) of the Corporations Act 2001 (Corporations Act).

Merrill Lynch (Australia) Futures pays $60,000 infringement notice penalty

Merrill Lynch (Australia) Futures Limited (MLAF) has paid a penalty of $60,000 to comply with an infringement notice given to it by the MDP.

The ASIC Market Integrity Rules (ASX 24 Market) 2010 require market participants to have prudent risk management procedures for their futures trading, including appropriate order limits and maximum price change limits.

The MDP found that, from October 2010 to June 2016, MLAF had inappropriate limits for a number of pathways to the ASX 24 Market. The limits were inappropriate because they were set at ASX 24 market default levels. For some of the pathways, the inappropriate default limits were set at both the downstream terminals level and at the upstream order system level.

While MLAF was careless in failing to identify the inappropriateness of the limits over a period of almost six years, the MDP noted that MLAF undertook a compliance review of its market limits on both its downstream terminals and upstream order systems in 2016 and promptly took steps to remedy the issue once they became aware of it.

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

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Industry funding estimated costs for 2017–18

ReloadEarlier this month we released our Cost Recovery Implementation Statement (CRIS). The CRIS sets out our estimated costs for ASIC's 2017-18 regulatory activities and is part of our commitment to transparency under industry funding.

As a result of laws passed in June, those who create the need for and benefit from ASIC’s regulation will bear the costs. These costs will be recovered by levies on our regulated entities.

Regulated entities have been categorised into 48 subsectors, including market participants, securities dealers, corporate advisers and OTC traders. 

The CRIS explains how ASIC's costs will be allocated between these subsectors, through either a flat or graduated levy.

The figures are indicative and may change when compared with ASIC's actual costs for the period.

We invite feedback on the CRIS. Submissions should be sent to by 5.00 pm 1 November 2017.

Find out more about industry funding and what you need to do to comply with your obligations

The final CRIS is expected to be published early-2018.

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Crowd-sourced funding update

Money JarOn 29 September 2017 the new legislation for crowd-sourced funding (CSF) commenced. The CSF regime will allow eligible unlisted public companies to make offers of fully paid ordinary shares to a large number of retail investors via the online platform of a licensed intermediary (CSF intermediary).

We have now commenced assessing applications from potential CSF intermediaries for an Australian financial services (AFS) licence with an authorisation to provide crowd-funding services. For more details, read the media release.

CSF intermediaries will play an important role in the primary CSF offer market, including providing services on both sides of the offer transaction. On the company side, the intermediary will publish and market the offer on its platform and undertake reasonable checks on the offering company and the disclosure in the offer document. On the investor side, the intermediary will handle application money, obtain risk acknowledgment from investors and assess whether the investor is eligible to invest within the $10,000 investor cap.

CSF intermediaries are authorised to provide services in the primary CSF offer market. Any CSF intermediary looking to provide a secondary market for shares issued under CSF offers, will typically require an Australian market licence.

We have now concluded our consultation on the introduction of a two-tiered market licence regime which proposes a second-tier market licence for specialised and emerging market models. The second-tier market licence will cover a range of non-exchange type platforms, including those offering a secondary market for shares issued under CSF offers: read the media release.

We have also published final guidance for companies and intermediaries to help them comply with their obligations under the new CSF regime. For more details, see Regulatory Guide 261 and Regulatory Guide 262.

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Day trader pleads guilty to market manipulation

Gavel IconA 31-year-old South Australian man has pleaded guilty in the District Court of South Australia to market manipulation charges following an ASIC investigation into his trading in contracts for difference (CFDs) and shares.

The CFD trading accounts used by Stefan Mark Boitcheff operated on a direct market access model, where the CFD issuer hedged its exposure to a client’s trading position by causing a direct and equivalent position to be taken in the underlying security on ASX. This can result in CFD trades having an immediate impact on the underlying shares being traded on ASX. The CFD issuer’s clients are then able to see the CFD positions translate to an actual buy or sell order in the underlying shares on the ASX.

Stefan Mark Boitcheff pleaded guilty to the following charges:

  • carrying out 117 transactions in CFDs relating to Anteo Diagnostics Limited (ADO) shares which created an artificial price for trading in ADO shares on the ASX; and
  • carrying out four transactions in CFDs relating to ADO and in the shares of ADO, that created a false or misleading appearance of active trading in ADO shares on the ASX.

Market manipulation offences under sections 1041A and 1041B of the Corporations Act each carry a maximum penalty of imprisonment for 10 years, or a fine of $765,000, or both.

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ASX-listed company pays penalty for continuous disclosure breach

ReportASX-listed company Sirtex Medical Limited (Sirtex) has paid an infringement notice penalty of $100,000 for an alleged failure to comply with its continuous disclosure obligations.

The infringement notice follows an investigation arising from an announcement on 9 December 2016 by Sirtex to ASX stating that projected dose sales growth was likely to be 4–6% for the first half of the financial year ending 30 June 2017, and 5–11% for the full year.

Sirtex had previously announced to ASX that it anticipated ‘double digit dose sales growth will continue’ for the 2017 financial year. Dose sales growth for the previous financial year, ended 30 June 2016, was 16.4%.

We alleged that, by 21 November 2016, Sirtex should have been aware the figures would be lower than the previous announcements that it anticipated 'double digit sales growth will continue.'

By failing to inform the ASX by 21 November 2016 of the lower projected dose sales growth, we alleged that Sirtex was in breach of its continuous disclosure obligations between 21 November 2016 and 8 December 2016.

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Sunsetting class orders relating to prime broking and holding client assets repealed

Hourglass2We have repealed three class orders relating to prime broking and the holding of client assets, which were due to expire (‘sunset’) on 1 October 2017. These were:

  • ASIC Class Order [CO 03/1110] Prime brokerage: Relief from holding client property on trust
  • ASIC Class Order [CO 03/1111] Prime brokerage: Relief from holding scheme property separately
  • ASIC Class Order [CO 03/1112] Relief from obligation to hold client money on trust.

To give potentially affected stakeholders enough time to consider making alternative arrangements, we have extended the operation of Class Orders [CO 03/1110] and [CO 03/1112] by 12 months to 30 September 2018.

The relevant instrument is the ASIC (Amendment, Repeal and Transitional) Instrument 2017/839.

We decided to repeal the class orders following public consultation in November 2016. We will shortly publish a feedback report on the submissions to proposals in Consultation Paper 273.

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Bring our daughters to work day

BodtwdFifty daughters of ASIC staff recently had the chance to spend a day in the life of an ASIC employee.

Bring Our Daughters to Work Day is a global diversity event aimed at encouraging more girls to consider careers in the financial services industry, where women are under-represented. It gives girls exposure to a range of professional experiences before they become influenced by gender stereotypes.

The daughters, aged 10–17, turned their hands to work life at ASIC, participating in a series of Python coding activities, search warrants, section 19 interviews and a stock market trading game.

Sydney is now the third ASIC location to run the event, following Perth and Brisbane.

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