Market Integrity Update - Issue 99 - November 2018

Issue 99, November 2018

High-frequency trading review reinforces strength of Australian market structure

Our latest review of high-frequency trading has revealed it has reduced over the past three years but still retains a substantial footprint across our markets.

Report 597 High-frequency trading in Australian equities and the Australian-US dollar cross rate was the result of our 2018 review, building on our 2015 analysis of equity and futures markets, which assessed the impact of high-frequency trading on our equity and foreign exchange markets.

Our analysis showed that the presence of high-frequency trading has reduced over the past three years.

The overall level of high-frequency trading in Australia’s equity markets has fallen from a high of 33% in late 2015, to a low of 25% in March 2018. Pockets of growth do exist but are confined to the lower volume small-cap market where high-frequency trading continues to expand over a much lower base.

The report also finds substantial high-frequency trading activity in the Australian-US dollar cross rate. High-frequency trading of the Australian dollar peaked at 35% in early 2013 but has since fallen and now fluctuates at around 25%.

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Recognising the human impact of misconduct in finance

ASIC Chair, James Shipton, highlighted our long-standing recognition of the devastating impact of financial misconduct at the Senate Economics Legislation Committee in Canberra last month.

James stated the Royal Commission has reinforced that the financial industry has abandoned its core role of being custodians of other people’s money, and that misconduct has a real and enduring impact across the community, including on more financially vulnerable consumers.

The Royal Commission’s Interim Report observed that ‘important deterrents to [market] misconduct are … missing’. Those missing market deterrents are:

  1. the absence of meaningful competitive pressures
  2. the absence of a fear of failure or collapse of the institution
  3. the absence of a fear of failure of individual financial transactions.

Our role as a regulator is to counter these deterrents, through rigorous and frequent enforcement and other regulatory tools, and we’ll continue to do so to ensure a fair, strong and efficient financial system for all Australians.

James’ full speech is available on our website. 

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Market Liaison Meeting

Market stakeholders are invited to attend the next Market Liaison Meeting on 27 November 2018 in Sydney and Melbourne. These free quarterly meetings provide insights into the Market Integrity Group’s strategic priorities and how we’re tracking against them.

The meeting will include updates on:

  • close and continuous monitoring
  • our foreign exchange (FX) program
  • allocations in equity raisings
  • our corporate governance taskforce
  • crypto assets
  • our high-frequency trading report.

A live broadcast of the event will be held across our Sydney and Melbourne locations. Please indicate your location when registering.

We held a market liaison meeting in Perth on 13 November 2018.

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Your updated AFCA membership details are required

All members of the Australian Financial Complaints Authority (AFCA) holding a financial services or credit licence are reminded to notify us of their AFCA membership details by 30 November 2018.

Credit licensees must also notify us of the AFCA membership details of their authorised credit representatives (who are AFCA members). This includes all former Financial Ombudsman Scheme (FOS) and Credit and Investments Ombudsman (CIO) members who have now joined AFCA.

Firms must lodge form FS20 Change of details for an Australian financial services licence, through our online services.

Late fees will apply if AFCA details are not updated by 30 November 2018.

AFCA will deal with complaints about financial firms including banks, credit providers, insurance companies and brokers, financial advisers, stockbrokers, managed investment schemes and superannuation trustees.

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Market integrity report published

We’ve published our latest report on market integrity, highlighting some of the activities the Market Integrity Group undertook between 1 January 2018 and 30 June 2018.

The Market Integrity Group is responsible for ensuring Australia’s financial markets are fair and efficient. We do this by setting standards and educating stakeholders, pursuing behavioural change and taking enforcement action to deter market misconduct.

Report 599 highlights some of our key activities during the first half of 2018 in areas such as exchange traded products, market licensing regime, market integrity rules, investor warnings, retail OTC derivatives, financial benchmarks misconduct, continuous disclosure and binary options.

We’re driving the integrity, confidence and innovation of Australian markets so firms can thrive and investors can participate with confidence.

We’ll continue to focus on the following existing and emerging risks during the remainder of the financial year:

  • conduct
  • technology risk and resilience
  • effective capital markets.

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Wholesale FX onsite reviews underway

We’ve commenced our onsite reviews into the management of conflicts of interest and confidential information in wholesale foreign exchange (FX) businesses in Australia. The onsite reviews are an opportunity to review the conduct and operational practices of several firms.

These reviews form part of a broader strategic program of work on wholesale FX markets, which includes reviews of last look practices, margins and mark-ups, high-frequency trading, and close monitoring of the implementation of commitments made in previous court enforceable undertakings by several firms.

The reviews of conflicts of interest and confidential information involve meetings, reviewing books and records, and ‘walk-throughs’ of systems and processes to test against the expectations outlined in Report 525 Promoting better behaviour: Spot FX (REP 525). REP 525 identifies behavioural drivers of conduct and describes good practice principles for managing these drivers to more effectively prevent, detect and respond to inappropriate conduct.

The reviews will also test against the Corporations Act 2001, the Australian Securities and Investments Commission Act 2001, the FX Global Code and the FICC Markets Standards Board Statements of Good Practice.

We’re undertaking the reviews in stages throughout the 2018–19 financial year.

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Changes to submitting capital and client money forms

We’re developing a new process for market participants and retail over-the-counter (OTC) derivatives providers to meet their risk-based capital and client money reconciliation reporting requirements using the ASIC Regulatory Portal (Portal).

From 1 July 2019, we expect the Portal may be used to submit forms for the following:

The Portal will offer a more efficient way for these entities to meet their obligations, including the ability to:

  • pre-populate forms using information that has been previously      supplied
  • track the status of forms
  • search previously submitted forms in the one place.

We expect to launch a pilot phase for selected entities in early 2019. We’ll provide further information about these changes and how they affect you in the new year.

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Last updated: 30/03/2021 09:22