MIU - Issue 140 - August 2022
ASIC has released Report 735 Retail investor research capturing retail investor motivations, attitudes and behaviours in the period following the onset of the COVID-19 pandemic.
The research surveyed 1,053 Australian retail investors aged 18 and over who had directly traded in securities, derivatives or cryptocurrencies at least once since March 2020. Conducted in November 2021, the survey results provide a point-in-time snapshot of investor behaviour during a period of increased activity in retail markets. More than half (51%) who started investing during or after March 2020 were aged between 18 to 34 years.
Despite changes to economic conditions since the research was conducted, retail market activity has generally remained elevated this year compared to pre-pandemic levels. With so many new investors active in financial markets, the research builds on our understanding of retail investors and helps us consider where our regulatory efforts are warranted.
Crypto-assets: Of the 1,053 retail investors surveyed, 44% reported holding cryptocurrency, making it the second most common product type held after Australian shares at 73%. A quarter of surveyed investors who held cryptocurrency indicated that cryptocurrency was the only investment they held.
We are concerned about the number of people surveyed who reported investing in unregulated, volatile crypto-asset products. According to the survey, only 20% of cryptocurrency owners considered their investment approach to be ‘risk-taking’.
We are also concerned that there are limited protections for crypto-asset investments given they have become increasingly mainstream and are heavily advertised and promoted.
Digitalisation and socialisation of trading: The research shows that investors are using a range of online trading platforms that offer easy access to a range of products. Many investors are also using digital channels and social media platforms to source information on investing. Since March 2020, investors sought/received information about investing from Google searches (34%) and social media and networking platforms (41% collectively, with YouTube the most used social media source).
Pleasingly, 80% of investors agreed with the statement ‘I do research before making an investment decision’ and 72% agreed that ‘I only invest as much as I’m prepared to lose’. However, half of those surveyed admitted they have invested in things because they didn't want to miss out.
The research has been informing our work in the retail sector, including changing practices in retail product design and distribution, investor protection strategies and crypto-assets.
- Read the media release
ASIC and the Reserve Bank of Australia (RBA) (the regulators) acknowledge the recent announcement by ASX of the further delay to the Clearing House Electronic Sub-register System (CHESS) replacement project. The regulators welcome the appointment of Accenture to provide an independent review of the new CHESS application software. This review is expected to assist ASX to confidently determine a new go-live date and will form part of ASX’s replanning process.
It is now time for a careful and independent review of ASX’s and Digital Asset’s work to date on the CHESS replacement and the work needed to complete the project. It is critical that ASX and the market have a high degree of confidence and certainty in a new go-live date. Industry has mobilised significant resources to date and will need to continue to invest to ensure a successful and safe launch of the CHESS replacement.
Despite the delay, the regulators expect ASX to replace CHESS as soon as this can be safely achieved by ASX and users of CHESS. CHESS is a critical clearing and settlement (CS) system for the Australian cash equity market. A stable and reliable CHESS replacement will be important to maintain investor confidence in Australian financial markets and the stability of the financial system.
The regulators continue to closely monitor ASX’s compliance with its CS facility licence obligations, including the additional licence conditions imposed in November 2021. These additional conditions required an independent expert to be appointed as approved by ASIC to assess whether ASX’s assurance program for the replacement of CHESS is fit for purpose, identifying any shortfalls, and reporting regularly to ASIC.
Accenture’s review will form part of ASX’s assurance program and will be considered by the independent expert.
At a minimum, the regulators’ expectations are that the new system must meet requirements that CHESS meets today for system availability, resilience, recoverability, performance and security. ASIC and the RBA will continue to closely supervise ASX’s CHESS replacement program.
We expect ASX to continue to invest in and maintain the current CHESS system so that it continues to service the market reliably until the CHESS replacement can go live.
- Read the media release
Updated guidance on technological and operational resilience, payment for order flow and other recent rule amendments
We’ve updated some of our ASIC regulatory guides to include new or revised guidance (to reflect recent rule amendments), as well as changes relating to other consultations in recent years.
The following regulatory guides have been updated:
- Regulatory Guide 265 Guidance on ASIC market integrity rules for participants of securities markets (RG 265)
- Regulatory Guide 266 Guidance on ASIC market integrity rules for participants of futures markets (RG 266)
- Regulatory Guide 241 Electronic Trading (RG 241)
- Regulatory Guide 172 Financial markets: Domestic and overseas operators (RG 172).
The changes we’ve made relate to:
- prohibition on payment for order flow (RG 265 and RG 172)
- technological and operational resilience (RG 241, RG 265, RG 266 and RG 172)
- repeal of the accredited derivatives adviser regime (RG 265)
- waivers now required to be made as legislative instruments (RG 265, RG 266 and RG 172)
- new good fame and character requirement for futures market participants and market operators (RG 266 and RG 172)
- suspicious activity reporting obligations for futures market participants (RG 266)
- trade confirmations for non-retail clients and regulatory data reporting (RG 265)
- the new breach reporting regime under section 912AA (RG 265, RG 266)
- the commencement of the Capital Rules 2021 (RG 241, RG 265 and RG 266)
- the move from MECS to ASIC regulatory portal for lodgement of forms (RG 241, RG 265, RG 266 and RG 172)
- other minor changes to update the RGs.
Our recent assessment of Yieldbroker as a market operator revealed that while Yieldbroker is compliant with their market licence obligations, they would benefit from strengthening their procedures and processes in some areas.
We assessed the markets operated by Yieldbroker under their Australian market licence. Our assessment focused on Yieldbroker’s compliance with their obligations to have sufficient resources (including financial, technological and human resources) to operate the market properly. Our assessment was limited to the sufficiency of Yieldbroker’s resources in four areas of its operational and technological resilience:
- governance and risk management
- technology strategy
- continuity management
- cyber resilience.
We found Yieldbroker’s arrangements in these four areas were generally adequate, although our assessment has identified opportunities for improvement. We have communicated these opportunities for improvement in a findings and recommendations letter to Yieldbroker.
Our recommended opportunities for improvement included:
- Technology strategy and change management arrangements: Project risks, issues and decisions; ongoing monitoring and/or external independent review; and enhanced oversight, input and strategic direction from the board.
- Continuity management: Expanded range of testing scenarios and improved version control for documents.
- Cyber resilience: Enhanced board reporting and engagement, additional resourcing to address key person risks, and the creation of a centralised threat register.
Don George Evans, of Inglewood, Western Australia, has entered a guilty plea to one count of conspiring to manipulate the price of shares in Quantum Resources Limited.
ASIC alleged that on 16 November 2015, Mr Evans conspired with former Quantum director Avrohom Mordechai Kimelman and Benjamin Heath Cooper to manipulate Quantum shares by creating an artificial price for those shares.
Quantum is now known as Nova Minerals Limited.
Mr Evans entered his plea on 3 August 2022 before the Stirling Gardens Magistrates’ Court in Western Australia.
At the time of Mr Evans’s offence, the charge of conspiring to commit market manipulation contrary to section 1041A of the Corporations Act 2001 carried a maximum penalty of 10 years’ imprisonment.
The matter is being prosecuted by the Commonwealth Director of Public Prosecutions. It has been adjourned to the Supreme Court of Western Australia on 31 January 2023 for sentencing. Avrohom Mordechai Kimelman has already been sentenced (see 21-297MR) and Benjamin Heath Cooper will be sentenced in Western Australia later this year (see 22-140MR).
- Read the media release