MIU – Issue 161 – July 2024

Australians can be confident in the integrity of our equity markets: ASIC report 

ASIC’s latest market cleanliness report has shown Australia’s equity markets continue to operate with a high level of integrity and remain consistently among the cleanest in the world. 

The report, Report 786 Equity market cleanliness snapshot report (REP 786) found in the five-year period up to 30 April 2024, there were two periods of temporary deterioration in market cleanliness – the first during the COVID-19 pandemic when global markets experienced high market volatility and trading, and again in late 2023 as corporate activity increased. In both instances ASIC acted quickly to address the harmful conduct. 

Our regulatory interventions to address the deteriorations included targeting ‘pump and dump’ activity, intervening on chat rooms, reviewing ‘finfluencer’ activity and undertaking targeted reviews where we observed leaks ahead of market announcements. 

To protect market integrity, ASIC uses a combination of real-time trade surveillance data, award winning analytical tools and human expertise to seek out and identify potential misconduct. All entities—including listed companies, investors, bankers, brokers and other advisers—have a key role to play to support market cleanliness, and should be pursuing fair and appropriate outcomes for all participants in equity markets.  

• Read the media release.

Back to top

ASIC enforcement actions

Our 2024 enforcement priorities send a clear compliance message to the entities we regulate. In the month of July our enforcement actions include: 

• Charges laid in Telegram ‘pump and dump’ conspiracy following ASIC investigation 

Following our investigation, four people have been criminally charged for their alleged involvement in a coordinated scheme to pump up prices in Australian shares before dumping them at inflated prices. 

We allege that in an organised operation the defendants formed a private group on the Telegram app where they discussed and selected penny stocks to announce to the public Telegram group named the ‘ASX Pump and Dump Group’. 

The defendants have also been charged with dealing with the proceeds of crime relating to the money they each obtained from the ‘pump and dump’ activity. 

The matter is being prosecuted by the Commonwealth Director of Public Prosecutions after a referral from ASIC in December 2022. 

The matter was adjourned to 30 July 2024 in the Downing Centre Local Court for a detention application to be made for each of the defendants. 

• Read the media release.   

• ASIC sues COFCO International Australia Pty Ltd and COFCO Resources SA for futures market manipulation 

ASIC has launched civil penalty proceedings in the Federal Court against COFCO International Australia Pty Ltd and COFCO Resources SA alleging the companies manipulated the ASX 24 market for Eastern Australia Wheat futures January 2023 (WMF3) contracts.   

We allege COFCO manipulated contracts on 34 occasions between 17 January 2022 and 3 March 2022, placing orders shortly before the close of the day session of ASX 24 for the improper purpose of affecting the daily settlement price for the WMF3 contract. This conduct is commonly referred to as ‘marking the close’.  

We allege these orders had the effect of:  

• causing the price for WMF3 contracts to not reflect the forces of genuine supply and demand in an open, informed and efficient market, and   
• creating artificial prices for WMF3 contracts on ASX 24.  

ASIC is committed to responding to market manipulation in energy and commodities markets.  

We are seeking declarations and pecuniary penalties against both COFCO International Australia Pty Ltd and COFCO Resources SA. 

The matter will be listed for a case management hearing on a date to be fixed by the court.   

• Read the media release.

Back to top

ASIC review triggers surrender of undisclosed commissions to thousands of retail investors

An online trading provider has surrendered over $423,000 in undisclosed foreign exchange (FX) commissions it received to thousands of retail clients following an ASIC review.  

During ASIC’s review of the online trading provider’s fee disclosure, the provider detected that it had failed to disclose in its Financial Services Guide the commissions that it received from its FX exchange provider over a two-year period, as required under the Corporations Act 2001. The provider self-reported the breach to ASIC. 

ASIC supervised the provider’s remediation of the breach and surrender of the undisclosed commissions to affected retail clients at the end of June 2024.  

The online trading provider cooperated with ASIC throughout the review and its remediation of affected clients. 

In Report 778 Review of online trading providers (REP 778), published in December 2023, ASIC highlighted its observations from its surveillance of online trading providers in 2022–23 and clarified its regulatory expectations.  

The report identified a range of regulatory interventions ASIC has made, including court actions, stop orders and infringement notices, in relation to: 

• high-risk offers 
• misleading or deceptive statements, including in the promotion and disclosure of zero or low-cost offers to consumers which were not true to label 
• inadequate supervision of representatives 
• use of digital engagement practices, such as gamification and influencer marketing, and 
• holding client assets and money. 

Back to top

CFD issuers warned to cease ‘margin discounts’ for retail clients

We are concerned that some contracts for difference (CFD) issuers may be offering ‘margin discounts’ to retail clients with opposing long and short contracts in contravention of ASIC’s product intervention order.  

CFD issuers must cease engaging in these ‘margin discount’ practices and carefully consider their reportable situation reporting obligations and remediate affected retail clients for any losses (and any other related fees and costs).  

We are currently investigating ‘margin discount’ practices. Civil and criminal penalties apply to contraventions of the CFD PIO. 

A CFD issuer must not issue a CFD to a retail client except in accordance with the conditions set out in ASIC Corporations (Product Intervention Order – Contracts for Difference) Instrument 2020/986 (CFD PIO), including that the terms of the CFD: 

• require the retail client to provide the initial margin required under section 7(2). Depending on the underlying asset for the CFD, the required initial margin is between 3.33% and 50% of the notional value of the CFD.   
• provide for margin close out protection, where the ‘aggregate close out protection amount’ is calculated by reference to the aggregate initial margin required for open CFDs of the client’s CFD trading account (see section 7(3) and (4) of the CFD PIO).   

A CFD issuer is not permitted to net off the notional values of opposing long and short CFD positions of a retail client’s CFD trading account when calculating the initial margin a retail client is required to provide or the aggregate close out protection amount. 

The offer of margin discounts to retail clients in contravention of the CFD PIO may result in significant harm to retail clients by:  

• building excessively leveraged CFD positions;  
• incurring increased overnight funding costs;  
• being denied margin close out protection where the client has incurred significant losses on open CFDs;   
• incurring sudden and significantly increased margin requirements when one of the opposing CFD positions is closed and the effect of the margin discount or netting is removed.

Back to top

ASIC consultation: Cash equity clearing and settlement services rules

We have released a consultation paper on proposed rules to facilitate competitive outcomes in cash equity clearing and settlement (CS) services provided by ASX Group. It is the first time ASIC is exercising its new powers under the competition in clearing and settlement (CS) reforms. 

The consultation seeks feedback on our proposals to: 

• implement the 2017 Council of Financial Regulators’ Regulatory expectations for conduct in operating cash equity clearing and settlement services in Australia (Regulatory Expectations) as enforceable obligations, and 
• impose additional requirements in several key areas, including technical interoperability, management of intragroup conflicts of interest and external assurances on pricing and barriers to competition. 

The proposed rules are intended to support the long-term interests of the Australian cash equities market by delivering efficient outcomes for investors that are consistent with those expected in a competitive environment, by: 

• ensuring ASX remains responsive to users’ evolving needs, including in relation to its governance framework, and 
• providing access to its cash equity CS services on a transparent and non-discriminatory basis with terms and conditions, including pricing, that are fair and reasonable. 

• Read the news item. 

Back to top

CFR consultation: Reassessing the case for central clearing of bonds and repos in Australia 

There have been considerable changes in the size and structure of the Australian bond and repo markets in recent years. Analysis by the Reserve Bank of Australia (RBA) indicates that the potential benefits of central clearing in these markets has increased, and the case for central clearing may be stronger than previously assessed. 

The Council of Financial Regulators (CFR) is seeking feedback from stakeholders on any costs and benefits that may accrue from the introduction of a central counterparty in the Australian bond and repo markets. 

The CFR is also seeking feedback on whether there are any aspects of the bond and repo markets that in your view are not functioning efficiently, for example, any potential benefits from enhanced transparency in bond and repo markets to reduce information asymmetry and improve price and liquidity discovery. 

Written submissions to the consultation paper close on 4 September 2024. 

For more information, see the CFR consultation page.

Back to top