Australia – ASIC Market Integrity Rules – Consolidation And Refinements.

 

17 February, 2017

 

ASIC is proposing to consolidate its market integrity rules to achieve greater consistency across the markets.  At the same time it proposes to amend some of the rules. 

 

What you need to do

 

The consolidation process is relatively straightforward.  In due course we would expect market participants to update their terms of business to recognise the consolidation.  Compliance procedures will also need to be updated to reflect any changes implemented following consultation (for example, rules governing block trades and management structure).  Submissions in response to the Consultation Paper are due 7 March 2017.

 

Background

 

Currently ASIC has published separate market integrity rules for each of the licensed markets, in addition to a general rule book covering competition between markets (ie, ASX and Chi-X).  ASIC proposes to consolidate the market integrity rules and has released Consultation Paper 277: Proposals to consolidate the ASIC market integrity rules seeking industry's views on those proposals.

 

It also proposes amendments to certain rules, including rules relating to block trades, management structure and trading as principal.

 

Overview of proposal
 

Consolidation proposal

 

The market integrity rules will be consolidated into four consolidated rule books, as follows

 

1. ASIC Market Integrity Rules (Securities Markets) – covering ASX, Chi-X, IR Plus (formerly known as SIM VSE), NSXA, SSX (formerly known as APX) and competition between securities markets;
2. ASIC Market Integrity Rules (Futures Markets) – covering ASX 24, FEX and competition between futures markets;
3. ASIC Market Integrity Rules (Securities Markets – Capital) – covering capital requirements for ASX, Chi-X, SSX and NSXA; and
4. ASIC Market Integrity Rules (Futures Markets – Capital) – covering capital requirements for ASX 24 and FEX.

 

Only the ASIC Market Integrity Rules (IMB Market) 2010 rule book would be excluded from the consolidation.

 

Amendment proposals

 

In CP 277, ASIC proposes changes to the following rules:

 

• Responsible executives and management structures:  The requirement to notify ASIC of significant changes to management structure will be removed.  Market participants will still need to maintain adequate supervision and compliance arrangements under the rules, and pursuant to licence conditions.  ASIC proposes to update ASIC Regulatory Guides 214 and 224 to provide further guidance as to its expectations around management supervision arrangements for market participants.
• Dealing "as principal" for certain trustees:  Currently, where a market participant deals for a related body corporate which is a trustee of a trust, and where the related body corporate has an interest in the trust, the market participant must treat the related body corporate "as principal".  This has implications for client order priority rules, disclosures to clients and the charging of commission on trades where the market participant is on the other side "as principal".  ASIC has proposed carving out from the "as principal" test a trustee which has a beneficial interest in the trust of less than 5%, and where that interest was acquired in lieu of fees for administering the trust.  
• Block trades and large portfolio trades:  ASIC proposes to amend the definition of "block trade" to clarify that a market participant may only aggregate orders on one side of the trade (ie. orders may not be aggregated on both sides).  It is also proposed to amend the definition of a "large portfolio trade" to clarify that it may only be executed as an off market crossing with a single party on each side of the transaction.  ASIC is also seeking industry views on the potential benefits and risks of allowing aggregation of client and principal orders on the same side of a block trade (rather than merely aggregation of client orders).
• Derivative market contracts and wholesale client disclosure:  Rule 3.4.1 of the APX, ASX and Chi-X rule books require a market participant to give a client a confirmation regarding each market transaction entered into on the client's instructions.  An exception to this rule for wholesale clients is Rule 3.4.3(1)(b) (ASX) and (Chi-X), which allows a notification containing certain information to be provided instead.  It is proposed that these rules be made applicable to all securities markets.
• Record keeping by market licensees:  ASIC has stated that it considers the market operators' current obligations to keep records demonstrating compliance with the rules to be insufficiently clear, and as such, proposes to introduce rules explicitly requiring market operators to keep records demonstrating compliance with the market integrity rules and Part 7.2 of the Corporations Act, for a period of at least seven years after the relevant record is made.

 

For further information, please contact:

 

Jonathan Gordon, Partner, Ashurst
jonathan.gordon@ashurst.com