Market Integrity Update - Issue 88 - November 2017
Issue 88, November 2017
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- Retail client adviser accreditation renewals
- Market liaison meeting
- Self-reporting breaches to ASIC
- ASIC welcomes ASX BBSW guidelines
- ASIC suspends AFS licence of MJ Wren & Co
- Update on margin call requirements for ASX 24 participants
- AOP reporting reminder
Retail client adviser accreditation renewals
Existing retail client adviser accreditations are due to expire on 30 November, unless your accreditation is renewed. If your firm has representatives that provide advice to retail clients on options, futures or warrants, you should submit an online application in MECS to renew their accreditation within the renewal period – which ends on 23 November.
Any accredited adviser you do not list in the application for renewal during this period will cease to be an accredited adviser from 30 November.
You will have already received an email from your ASIC relationship manager about how the renewal process will work, including guidance on the online application. If you have any questions, please contact your relationship manager.
If we are satisfied with your application, we will renew the accreditation for the nominated advisers and send you notice through MECS detailing each accredited adviser. For any new applications for accreditation you submit after you have submitted your renewal application, we will confirm accreditation of your advisers through MECS.
Accredited advisers will not be required to sit examinations as part of the renewal process. However, we remind you that your representatives are adequately trained and competent.
Market liaison meeting
ASIC's market stakeholders are invited to attend the next Market Liaison Meeting on 30 November 2017. These quarterly meetings provide insights into the Market Integrity Group's strategic priorities and how we are tracking against them.
The meeting will include updates on our reviews of the capital market integrity rules, retail OTC derivatives, sell-side research and allocations of capital raisings
A live broadcast of the event will be held across our Sydney and Melbourne locations.
Self-reporting breaches to ASIC
We remind you that you must report breaches or likely breaches under the ASIC market integrity rules and section 912D of the Corporations Act.
Your obligations under the Corporations Act
If you are an Australian financial services (AFS) licensee who has become aware of a significant breach (or likely significant breach), we expect you to:
- consider the circumstances and impact of that breach (or likely breach)
- decide if the breach is significant (and, if so, report it to ASIC), and
- document this process.
Written notification of the breach must be made to us as soon as practicable and within 10 days of becoming aware of the breach or likely breach. For more information on when and how a breach should be reported, see Regulatory Guide 78.
If you decide a breach or likely breach is not significant, the breach must still be addressed. Keeping a breach register will facilitate action being taken to identify and deal with all likely or certain breaches (significant or not).
If you act promptly and appropriately to report a significant breach, we will work with you to make sure compliance issues are resolved. See Information Sheet 172 for the benefits of cooperating with ASIC.
Failure to report a significant breach is a criminal offence and can have serious consequences. If you fail to report a breach you can also expect greater scrutiny and possible enforcement action for the failure to report.
Your obligations under the ASIC market integrity rules
You are also encouraged to report possible breaches of the ASIC market integrity rules, even if they are not significant.
Significant breaches may be referred to the Markets Disciplinary Panel (MDP). If the alleged breach is established, the MDP may consider your conduct after the breach occurred to determine the appropriate penalty: see Regulatory Guide 216.
Self-reporting of the breach may be considered a mitigating factor by the MDP – while failure to report may be considered an aggravating factor. If you self-report a possible breach that is not required to be reported under the Corporations Act, the self-report must be provided as soon as practicable to be considered a mitigating factor by the MDP.
Self-reporting will not be compliant with section 912D or consistent with Regulatory Guide 216 if you make a self-report to a market operator without providing a written report to ASIC.
ASIC welcomes ASX BBSW guidelines
Over recent years, there have been concerns about low trading volumes during the bank bill swap (BBSW) rate set window – which is the time of day the BBSW is measured. In response to these concerns, changes to the BBSW methodology have allowed the benchmark to be calculated directly from a wider set of market transactions. ASX, the administrator of the BBSW, has consulted market participants on this new methodology with the support of ASIC and the Reserve Bank of Australia.
The ASX BBSW guidelines are an important part of the new BBSW methodology – providing guidance on the trading of bank bills during the rate set window. They also set out how trades should be reported to ASX to support the timely calculation and publication of the BBSW.
We expect all bank bill market participants – including the banks that issue the bank bills, as well as the participants that buy them – to adhere to the ASX BBSW guidelines and support the new BBSW methodology. The rate set window should be the most liquid part of the day in the bank bills market, and market participants are likely to get the best outcomes for their institutions and their clients by trading during this period.
The guidelines will help support the integrity of the BBSW – as the market makes the transition to the new BBSW methodology – by preventing trading in bank bills for the purpose of influencing the level at which the BBSW is set or maintained.
Together with the recently introduced bill to implement financial benchmark reform – and ASIC’s proposed financial benchmarks rules – we are confident that the ASX BBSW guidelines will meet the requirements under Australia’s proposed financial benchmark regulatory regime, including the proposed ASIC rules.
ASIC suspends AFS licence of MJ Wren & Co
We have suspended the Australian financial services (AFS) licence of MJ Wren & Co Pty Ltd until 16 October 2018.
MJ Wren is a Sydney-based trading participant of the financial market operated by ASX Limited.
MJ Wren ceased providing financial services in May 2017 after we found it had failed to comply with the risk-based capital requirements set out in the ASIC market integrity rules.
We may suspend or cancel an AFS licence if the licensee ceases to carry on the financial services business: section 915B of the Corporations Act. We acted to suspend MJ Wren’s AFS licence for 12 months to ensure that MJ Wren takes the necessary steps to meet the obligations of an AFS licensee before recommencing its financial services business.
MJ Wren has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC's decision.
Update on margin call requirements for ASX 24 participants
ASX 24 trading participants are subject to various obligations to call margins from their clients. Margin calls can be satisfied by the participant accepting either cash or ‘approved securities’ from their clients: see Rule 7.1.1 of the ASIC Market Integrity Rules (ASX 24 Market) 2010.
Trading participants that are clearing participants also have obligations under the operating rules of ASX Clear (Futures) to post margins. ASX Clear (Futures) publishes a list of securities, collateral and other property that it will accept as margin.
Inconsistencies between Rule 7.1.1 and the ASX Clear (Futures) list have led to confusion for trading participants that are also clearing participants. For example, US Treasury Bills are not included under Rule 7.1.1 but do appear in the current list published by ASX Clear (Futures).
To help cut through the confusion, we have issued relief (which commenced on 5 October 2017) that allows trading participants to rely on the list of accepted collateral published by ASX Clear (Futures) to meet their obligations under Chapter 7 of the ASIC Market Integrity Rules (ASX 24).
Class Rule Waiver [CW 17/740] relieves trading participants from the obligations under Rules 7.2.2(4), 7.2.5, 7.2.6 and 7.2.8, to the extent that they apply the definition of 'approved securities' in Rule 7.1.1. The relief also introduces a new term, 'approved collateral', which refers to securities or other collateral or property accepted by ASX Clear (Futures) under the clearing rules.
AOP reporting reminder
If you operate an automated order processing (AOP) system we remind you that you are required to notify ASIC of certain information within 10 business days of the AOP annual review date.
The AOP annual review date is 1 November each calendar year. This means that the notification must be submitted to us by Wednesday, 15 November 2017. For more information see Regulatory Guide 241 and Rule 5.6.8B of the ASIC market integrity rules for the ASX, Chi-X and SSX markets.
We encourage you to provide this notification using Form M62 which is available on the MECS portal. The form includes instructions on how to complete and lodge the notification using MECS. Submitting the form using MECS will allow you to manage and retain a record of your interactions with ASIC.