Reports of suspicious activity in FICC markets
ASIC is committed to ensuring that Australia’s financial markets are fair and efficient. Fixed income, currencies and commodities (FICC) markets are global, complex and rapidly evolving. Misconduct in these markets can occur due to relatively low transparency, a high proportion of over-the-counter trading, the use of multiple trading platforms and data sources, and reliance on benchmarks (such as BBSW) for pricing and valuation.
Market intermediaries who observe suspicious activity in FICC markets can lodge a suspicious activity report with ASIC. This is in the interests of all market intermediaries as these reports provide a valuable source of market intelligence which may inform our investigations into misconduct and disorderly trading practices in FICC markets. This helps to ensure that FICC markets operate with fairness and high levels of integrity.
This information sheet (INFO 265) gives guidance to market intermediaries about reporting suspicious activity in FICC markets (FICC SARs) and how these reports can be lodged with ASIC. This information sheet covers:
Market intermediaries, in the ordinary course of their client and proprietary trading activities, may become aware of suspicious activity in FICC markets.
Types of suspicious activity include:
- unusual trading activity in financial products
- questionable management and execution of client orders
- inappropriate sharing of confidential information
- transactions inconsistent with previous behaviour or profile
- transactions that make no economic sense.
If you become aware of suspicious activity and you think there is sufficient reason to conduct a preliminary independent investigation, you should lodge a FICC SAR on the ASIC Regulatory Portal using the relevant form. It is important that we receive these reports promptly and without delay. You do not need to conduct an internal investigation of the suspicious activity to gather information or form a view on whether there is a potential breach of the law before lodging your report.
In your report include as much information as you know about the transaction or order. This includes details of the products, markets, the identity of any individuals or organisations, and the time period of the suspicious activity.
Information provided in a FICC SAR will be treated as confidential, consistent with Regulatory Guide 103 Confidentiality and release of information (RG 103). Our immunity policy is also applicable for certain contraventions of the Corporations Act 2001, which includes market manipulation, insider trading and dishonest conduct in the course of carrying on a financial services business. Information Sheet 238 Whistleblower rights and protections (INFO 238) and Information Sheet 239 How ASIC handles whistleblower reports (INFO 239) provide information for whistleblowers.
The following are examples of suspicious activity that would warrant reporting to ASIC.
Unusual trading pattern in a financial product
A market intermediary observes that a client has been submitting a large volume of buy and sell orders in currency futures in short and regular intervals over a number of trading days. Most of the buy orders are submitted at the prevailing best bid price and then quickly cancelled. The market intermediary is concerned that the orders are artificially influencing trading activity in currency futures for short periods of time.
Unexplained material price movement in a correlated financial product
A market intermediary trades bonds on an electronic trading platform. The market intermediary responds to a request for quote relating to a corporate bond but is unsuccessful. The electronic trading platform shows that the transaction was executed with another market intermediary.
Later that day, the market intermediary observes increased trading activity and material movements in the exchange for physical spread for the corporate bond. The market intermediary also notices that the static data relating to the corporate bond issue size has increased. The market intermediary suspects that the trading activity is associated with an unannounced bond launch or tap and is concerned there has been a lack of disclosure.
Questionable management of client order
A market intermediary is a client of a dealer and submits a stop-loss sell order for AUD/USD at a certain level. The market intermediary is informed by the dealer that the stop-loss order has been executed. The order was filled at a lower rate after taking mark-up. The dealer has not disclosed to the market intermediary that the all-in price for executing a stop-loss was subject to a mark-up. The market intermediary is concerned that other clients may also be adversely impacted by the dealer’s conduct.
Questionable execution of client order
A market intermediary is a client of a dealer and submits a stop-loss sell order for AUD/USD at a certain level. The market intermediary is informed by the dealer that the stop-loss order has been executed. The order was filled at a materially lower rate than typically expected under normal market conditions. The market intermediary suspects that the lower rate obtained was due to poor execution by the dealer.
Unusual client activity
A market intermediary receives a client order to sell their holdings of a corporate bond. The client has been a long-term holder of the bond and typically employs a buy and hold strategy. The market intermediary purchases the corporate bond from the client and then on-sells it to another client.
A few days later, there is a public announcement by the issuer of the corporate bond of significant upcoming issuance and the price of the outstanding corporate bond moves materially lower. The market intermediary suspects that the selling client may have had access to material non-public information and is concerned that the buying client may have suffered harm in the process.
A market intermediary receives a request from a client to undertake a spot sale and forward purchase of a commodity. The client requests that the selling price for the spot transaction is based on a lower price than the market. The client does not provide a reason for undertaking this transaction. The market intermediary is concerned that this transaction has no obvious economic purpose and may be a historical rate rollover, which is not permitted on non-FX transactions.
Market intermediaries have an obligation under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 to lodge ‘suspicious matter reports’ (SMRs) with AUSTRAC.
Where a market intermediary lodges an SMR with AUSTRAC in relation to potential market misconduct offences (e.g. insider trading, market manipulation), a FICC SAR about the same matter does not need to be lodged with ASIC.
Market intermediaries should lodge FICC SARs on the ASIC Regulatory Portal using the relevant form.
Where can I get more information?
Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law on that topic, and it is not a substitute for professional advice. Omission of any matter on this information sheet will not relieve a company or its officers from any penalty incurred by failing to comply with the statutory obligations of the Corporations Act 2001.
You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases you must take into account your particular circumstances when determining how the law applies to you.
This is Information Sheet 265 (INFO 265), updated May 2022. Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.