MIU – Issue 162 – September 2024

ASIC’s priorities for the supervision of market intermediaries in 2024–25

This year, ASIC will undertake a wide range of key projects and regulatory activities to deliver on our strategic priorities, as outlined in our letter to market intermediaries.

In 2024–25, a new strategic priority, focused on driving consistency and transparency across markets and products, underscores our commitment to strengthening integrity across Australia’s markets.

We remain committed to the promotion of market cleanliness, market integrity and the protection of consumers and investors, irrespective of the changing shape of markets. These objectives are fundamental to maintaining trust in Australia’s financial system.

We encourage you to use these strategic priorities, projects and regulatory activities as a reference for your compliance, supervisory and risk management programs which support your business activities, and to prepare for your interactions with us.

Our Corporate Plan and strategic priorities are shaped by the opportunities and challenges of our external environment, including rapid technological transformation, cost of living pressures, climate change, an ageing population and evolving financial market dynamics.

• Read our letter to market intermediaries.

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ASIC expands operational resilience guidance for market participants

We have published a letter to market participants outlining technological and operational resilience guidance, clarifying how to identify critical business services and notification of a major event.

The guidance relates to the technological and operational resilience requirements detailed in Chapters 8A and 8B of the ASIC Market Integrity Rules (Securities Markets) 2017 and ASIC Market Integrity Rules (Futures Markets) 2017.

We expect market participants to maintain a strong and continued focus on their technological and operational resilience, noting it is not a ‘set-and-forget’ process. Oversight and accountability for critical business services and business continuity will come from the highest levels within market participants.

We encourage market participants to carefully consider the guidance set out in the letter and in Regulatory Guides 265 and 266, making adjustments to critical business services arrangements and major event notification practices as required.

We will consult with industry on incorporating this guidance into Regulatory Guides 265, 266 and 172 when they’re next updated.

• See news item.

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ASIC receives new powers under financial market infrastructure reforms

ASIC welcomes the new Australian financial market infrastructure (FMI) laws, which introduce new powers essential to ensuring a stable and efficient Australian financial system.

The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 strengthens the existing regulatory regime, ensuring ASIC and the Reserve Bank of Australia (RBA) have strong and dependable powers to monitor, manage and respond to risks related to FMIs.

We will now plan and implement the new FMI regulatory regime and update our website with further publications and information, including the development of updated regulatory guidance to assist industry to comply with the enhanced regulatory framework for FMIs.

• Read the media release.

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Share sale fraud: Exercise increased vigilance when verifying client information

Market intermediaries should exercise increased vigilance when verifying and managing clients’ personal information, following a recent rise in reports of share sale fraud affecting Australian investors and Australian financial services licensees.

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

As a priority, we recommend market intermediaries review their account opening and customer due diligence controls and practices to identify potential vulnerabilities and opportunities to strengthen controls. We will be engaging with industry further on this topic.

We refer market intermediaries to our Information Sheet 237 Protecting against share sale fraud (INFO 237) to help you mitigate the risks to your business and clients.

If market intermediaries suspect that a person (or their agent) is not who they claim to be, they must submit a suspicious matter report to AUSTRAC and, where relevant, reference ‘share sale fraud’ within the report.

Client support

When market intermediaries become aware that a client is a victim of identify theft or share sale fraud, they should:

• act quickly to protect any assets under their control
• communicate clearly and swiftly with the client, and
• refer the client to local police and the Identity theft page on our Moneysmart website. The following resources may also be helpful:
  • IDCare (Australia and New Zealand’s national identity and cyber support service)
  • National Anti-Scam Centre.

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Changes to OTC derivative transaction reporting and clearing rules

We’ve finalised changes to the ASIC Derivative Transaction Rules (Reporting) 2024 (2024 Reporting Rules) and the ASIC Derivative Transaction Rules (Clearing) 2015 (Clearing Rules). We’ve also made a package of instruments to support the changes, published guidance and will take a measured approach to compliance with the 2024 Reporting Rules until March 2025.

Commencing 21 October 2024, the 2024 Reporting Rules will align with international reporting standards, consolidate transitional provisions and exemptions and ensure that reporting requirements are fit for purpose.

ASIC Derivative Transaction Rules (Reporting and Clearing) Amendment Instrument 2024/416 (the Amendment Instrument) implements the proposed changes set out in Consultation Paper 375 Proposed changes to the ASIC Derivative Transaction Rules (Reporting) 2024: Third consultation (CP 375) and other updates. From 21 October 2024, the Amendment Instrument makes changes to simplify and align the exclusion of exchange traded derivatives in the 2024 Reporting Rules and the Clearing Rules, and make other minor amendments.

Commencing 20 October 2025, the Amendment Instrument makes further changes to the 2024 Reporting Rules to:

• substitute ‘nexus derivative’ transactions as the scope test for foreign entities and simplify the scope of foreign central counterparties’ reporting requirements, and
• remove the alternative reporting provisions.

We have also published guidance on the 2024 Reporting Rules:

• Revised Regulatory Guide 251 Derivative transaction reporting (RG 251), effective from 21 October 2024
• Schedule 1 technical guidance
• Reporting Entity Guidance and Minimum TR Validation Guidance
• Worked examples.

We recognise that the 2024 Reporting Rules are a significant overhaul of prior ASIC reporting rules requirements, including that ISO 20022 is specified as the technical standard for reporting.

Since making the 2024 Reporting Rules in December 2022, we have been considering ongoing international developments and dependencies ahead of the publication of our guidance in September 2024. Also, we are aware that revised reporting requirements in other jurisdictions will take effect on or around the same time as ASIC. Therefore, we will take a measured approach to compliance until March 2025 for reporting entities that make reasonable efforts to comply with the 2024 Reporting Rules.

If ASIC identifies deliberate or systemic breaches, or a failure to make all reasonable endeavours to come into compliance, we will take regulatory action.

• For more information visit our derivative transaction reporting and 2024 Rules webpages.

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ASIC enforcement actions

Our 2024 enforcement priorities send a clear compliance and deterrence message to the entities we regulate. Over August and September, our enforcement actions include:

Macquarie Bank fined a record $4.995 million for serious market gatekeeper failure

Following an ASIC investigation, the Markets Disciplinary Panel (MDP) has fined Macquarie Bank Limited (Macquarie) a record $4.995 million for failing to prevent suspicious orders being placed on the electricity futures market. This is the highest penalty ever imposed by the MDP.

On 50 occasions, from January to September 2022, Macquarie breached market integrity rules by permitting three of its clients to place suspicious orders.

Each order displayed characteristics of an intention to ‘mark the close’, meaning each order was placed within the last minute of market close, impacting the daily settlement price in a direction which may be favourable to the client’s existing interest in that contract.

MDP found Macquarie should have suspected each of the 50 orders were submitted with the intention of creating a false or misleading appearance in the market.

Macquarie has complied with the Infringement Notice and paid the fine.

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

• Read the media release.

ASIC sues ASX for alleged misleading statements

We have commenced proceedings in the Federal Court against Australia’s largest market operator, ASX Limited, for allegedly making misleading statements related to its Clearing House Electronic Subregister System (CHESS) replacement project.

We allege statements made in ASX announcements on 10 February 2022 that the project remained ‘on-track for go-live’ in April 2023 and was ‘progressing well’ were misleading.

We allege these statements implied the project was tracking to ASX’s announced project plan and was on track to meet future milestones, including ‘go-live’ in April 2023. We allege those representations were misleading and deceptive because, at the time of the announcements, the project was not tracking to plan and ASX did not have any reasonable basis to imply the project was on track to meet future milestones.

Our Chair Joe Longo said, ‘ASX’s statements go to the heart of trust in the integrity of our markets. We believe this was a collective failure by the ASX Board and senior executives at the time.

We are yet to determine the penalty we will seek for ASX’s alleged contraventions.

• Read the media release.

CLSA pays penalty for providing incorrect regulatory data

CLSA Australia Pty Limited has paid a penalty of $144,300 to comply with an infringement notice given by the Markets Disciplinary Panel (MDP) for failing to provide correct regulatory data to the relevant market operator.

The MDP also had reasonable grounds to believe that CLSA failed to give post trade confirmations to its clients and immediately report off-market transactions.

Providing accurate regulatory data is a core obligation of market participants as that data is used by ASIC to carry out its mandated function of supervising and ensuring the integrity of the market. It enables us to detect market misconduct and analyse market structure and trends. CLSA inadvertently distorted the data provided to the market operator, potentially hindering our market surveillance capabilities.

The MDP considered that from 23 September 2022 to 3 February 2023, CLSA contravened Rule 7.4.2(1) and Rule 7.4.2(2) by incorrectly tagging orders as agency instead of principal on 9,243 occasions and trade reports on 27 occasions. By tagging orders and trade reports as agency instead of principal, CLSA represented that they were conducted on behalf of its clients when in fact they were conducted on CLSA’s own behalf, thus giving incorrect information about the origin of those orders and trades.

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

• Read the media release.

ASIC wins case against Kraken crypto exchange operator for DDO failure

The Federal Court has ruled Bit Trade Pty Ltd, the operator of the Kraken crypto exchange in Australia, failed to comply with design and distribution obligations when offering a margin trading product to Australian customers.

Since 5 October 2021, Bit Trade’s ‘margin extension’ product has been available to customers trading on the Kraken exchange without a target market determination, as required by law. As a result, Bit Trade contravened section 994B(2) of the Corporations Act each time it made the product available to a customer.

The product provided for margin extensions to be made and repaid in either digital assets (e.g. Bitcoin) or national currencies (e.g. US dollars). Our case alleged that the obligation to repay a digital asset or national currency was a deferred debt and, accordingly, that the product was a credit facility.

In handing down his judgment Justice Nicholas found the obligation to repay a digital asset was not an obligation to repay money and was therefore not a deferred debt.

However, his Honour agreed with us that a margin extension in a national currency created a deferred debt which meant that the product was a credit facility.

• Read the media release.

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AOP system annual review and notification reminder

We’re reminding trading participants who operate automated order processing (AOP) systems of their obligation to have an appropriately qualified person undertake an annual review of relevant documentation, to comply with Part 5.6 of the ASIC Market Integrity Rules (Securities Markets) 2017.

When referring to relevant documentation, we also remind trading participants that to maintain ongoing compliance, system testing and change management is a key function of the operation of all AOP systems.

AOP system annual notifications should be submitted through the ASIC Regulatory Portal by 15 November 2024.

The ASIC Regulatory Portal allows you to:

• confirm details for existing AOP systems
• update details for existing AOP systems
• indicate if an AOP system has been decommissioned, and
• download, sign and attach a pre-filled notification document containing:
• the full legal name of the trading participant
• the name and version number of the AOP system or systems to which the notification relates.

Contact your ASIC Intermediary Supervisor if you have any questions about lodging your AOP system annual notification through the ASIC Regulatory Portal.

• For more information, see Regulatory Guide 241 Electronic trading (RG 241) at RG 241.182–RG 241.195.

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