MIU - Issue 146 - March 2023

Former Tesla director sentenced for insider trading

Former Tesla Motors Australia Pty Ltd (Tesla Australia) director, Kurt Schlosser, was sentenced after pleading guilty to two counts of insider trading.

Mr Schlosser was sentenced to two years and six months imprisonment, to be released immediately upon entering into a recognisance, on the condition that he be of good behaviour for two years and six months. 

In his role as country director of Tesla Australia, Mr Schlosser was informed of a confidential, in-principle agreement to be entered into by Tesla Inc in the United States of America. The agreement related to the supply of lithium to Tesla Inc by Piedmont Lithium Ltd (Piedmont), a company that was listed on the ASX at the time.

Mr Schlosser then purchased 86,478 shares in Piedmont and communicated that inside information to another person in circumstances where it was likely that person would also acquire Piedmont shares. Mr Schlosser, shortly after the announcement was made public, sold the shares for a profit of $28,883.53.

An order was also made by consent for Mr Schlosser to forfeit the profit of $28,883.53 to the Commonwealth.

As a result of his conviction, Mr Schlosser is also automatically disqualified from managing corporations for five years.

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Further regulatory response on CHESS replacement and ASX’s program capabilities

We’ve taken further action to ensure that ASX adequately responds to the findings and recommendations of the ASX CHESS Replacement Application Delivery Review by Accenture (the external review) and that all necessary steps are undertaken by ASX to uplift any gaps and deficiencies identified in relation to the ASX Group’s portfolio, program and project management frameworks.

We’ve issued notices to ASX Limited (ASX), ASX Clear Pty Ltd (ASX Clear) and ASX Settlement Pty Ltd (ASX Settlement) (the ASX licensees) under sections 794B and 823B of the Corporations Act 2001 (the Act). These notices require the ASX licensees to produce two special reports covering:

  • how the ASX licensees will respond to the findings and recommendations of the external review (the External Review Special Report)
  • the ASX licensees’ current portfolio, program and project management frameworks and an assessment of those frameworks against internationally recognised standards (PPPM Special Report).

These special reports will be audited by Ernst & Young. The External Review Special Report is due to ASIC on 30 June 2023. The associated audit report is due to ASIC on 31 July 2023. The PPPM Special Report is due to ASIC on 29 September 2023 and the associated audit report on 31 October 2023.

This action follows and supplements the section 823B notices issued to ASX Clear and ASX Settlement on 15 December 2022 to produce a special report on current CHESS and the ASIC–RBA joint letter of expectations issued to the boards of ASX, ASX Clear and ASX Settlement on 17 November 2022.

We expect that, taking into account any confidential commercial and security information, versions of the External Review Special Report and PPPM Special Report will be made publicly available.

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Third industry consultation on market resilience welcomed

We welcome ASX’s latest industry consultation on improving market resilience.

ASX has released its third consultation paper in response to Report 708 ASIC’s expectations for industry in responding to a market outage (REP 708). This final consultation, which closes on 14 April 2023, provides information and seeks stakeholder feedback on:

  • enhancements to ASX platform test strategy
  • simulation testing with market participants
  • market operators’ interconnectedness
  • improvements to BCP strategy
  • customer test environments.

We encourage participants to engage with ASX’s third consultation paper and to carefully consider the industry testing proposals.

Market participants’ progress against REP 708 expectations

Market participants are continuing to make good progress towards meeting our expectations in REP 708 and implementing solutions to improve the resiliency of the market. A recent survey of a sample of participants (representing about 90% of equity market trading) shows they all meet our expectations or are progressing the necessary changes.

There remains some reliance by participants on the capabilities provided by third-party vendors and enhancements being implemented by ASX. We anticipate changes such as new order and trade download services proposed by ASX will assist participants in responding to a market outage.

This work coincides with other important changes in the industry, including Cboe’s technology upgrade and the implementation of new market integrity rules (which came into effect on 10 March 2023).

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Responding to recent market volatility

In periods of heightened market volatility, like we’re currently experiencing, we remind market intermediaries of the importance of maintaining robust monitoring and supervision controls.

In times of stress, we see some of the worst market conduct. As gatekeepers to Australian markets, market intermediaries have an important role in reducing this kind of activity. Through the early detection and deterrence of misconduct, they promote confidence in the integrity of markets and provide financial services that are efficient, honest and fair.

Market intermediaries should, for example:

  • monitor client and house positions, the build-up of risk and signs of distress
  • protect client money and be vigilant around any changes to payment arrangements
  • be well prepared for margin calls
  • consider advice provided to clients and how this may be impacted by the changing market conditions
  • consider system capacity issues and the robustness of IT systems, including of third parties and other dependencies
  • monitor client trading activity that may have the effect of manipulating prices
  • monitor the use of trading algorithms to avoid aberrant trading or contributing to market movements
  • monitor the build-up of short positions, ensuring that short positions are covered and that they are appropriately reported.

It’s also important that trade surveillance teams are vigilant, responsive, and equipped to manage the high volume of activity and larger number of trade alerts. As a proactive step, market intermediaries should check that their trade surveillance alerts are fit for purpose and operating as intended.

If you see suspicious activity, report it quickly to ASIC or AUSTRAC. If we contact you about concerning conduct, we expect you to act immediately. You can also contact our Market Surveillance team directly at markets@asic.gov.au or through your Intermediary Supervisor.

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Vigilance when verifying and managing customers’ personal information

Market intermediaries should exercise increased vigilance when verifying and managing customers’ personal information, following further recent cyberattacks.

There is a risk that stolen information may be used to commit identity theft and fraud, with digital client on-boarding and changes to customer account details. This may include holder identification numbers, payment instructions and communication channels (e.g. email addresses, postal addresses and phone numbers). 

Market operators and participants are also reminded that new market integrity rules (MIRs) came into effect on 10 March 2023, aimed at strengthening their technological and operational resilience. We intend to start engaging with market operators and participants on their compliance with the new MIRs.

Protection against fraud

Information Sheet 237 Protecting against share sale fraud includes tips on how to protect against share sale fraud, such as the use of two-factor authentication to verify a client’s identity and comparing the geographic location of an IP address with the address of a prospective client.

Market intermediaries can support customers to limit their risk of fraud by directing them to reputable sources such as the Australian Cyber Security Centre (ACSC), Moneysmart and the Office of the Australian Information Commissioner

If you suspect that a person (or their agent) is not who they claim to be, you must submit a suspicious matter report to AUSTRAC.  

We also remind market intermediaries of the importance of regularly checking their cyber security defences, including managing risk throughout their technological supply chain. The ACSC provides practical guidance on improving cyber security, as well as the ability to subscribe to alerts about recent online threats and how they can be managed.

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Last updated: 27/03/2023 01:44