ASX Limited has paid a penalty of $1,050,000 following an ASIC investigation into its compliance with the Market Integrity Rules. This is the first time ASIC has issued an infringement notice to a market operator.
ASIC issued the notice because ASIC has reasonable grounds to believe that ASX breached the rule requiring pre-trade transparency on 8,417 occasions between 4 April 2019 and 22 December 2022. The rule requires ASX to make certain information about orders available on its trading system. ASX failed to make that information available about orders for certain equity market products as a result of an incorrect system configuration.
Pre-Trade information is important because it assists with price formation, aids liquidity, enables investors to assess investment opportunities and value listed companies.
ASIC Chair Joe Longo said, “Confidence in Australia’s market operators is fundamental to fair and efficient markets. This action demonstrates that ASIC will hold market operators to the highest standards.”
This issue arose out of a failure by ASX to correctly configure certain order functionality on its trading system. ASIC considers ASX’s conduct was serious. The incorrect system configuration went undetected until drawn to ASX’s attention by a market participant. On at least two occasions before 22 December 2022, ASX could have, but did not, identify the issue.
In determining penalty, ASIC found that the consequences of the incorrect system configuration and ASX’s failure to detect and escalate for remediation was an aggravating factor.
ASIC also found there was no evidence of other losses suffered as a result of the conduct, but the damage to public confidence in the operation of the market is such that the consequences of the conduct are an aggravating factor in the determination of penalty.
“Technology and operational resilience for market operators is a strategic enforcement priority. ASIC will continue to take action to ensure that market operators and market participants have robust systems, controls and technological infrastructure in place to support Australia’s capital markets,” Mr Longo said.
ASIC found that the circumstances giving rise to the system configuration issue were indicative of carelessness rather than recklessness or intentional misconduct. Once aware, ASX took immediate steps to remedy the issue and notify ASIC.
Compliance with the infringement notice is not an admission of guilt or liability and by doing so, ASX is not taken to have contravened subsection 798H(1) of the Corporations Act.
This outcome is separate to ASIC’s investigation in relation to the ASX CHESS Replacement Program. That investigation is ongoing.
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Background
Market Integrity Rule 6.1.2 requires market operators to make certain information such as the volume and price of orders available on its trading system. There are limited exemptions to this rule, including where the consideration for the transaction is $200,000 or more for Tier 3 equity market products known as a block trade.
ASX makes pre-trade information available for equity market products on its trading system known as TradeMatch. ASX also operates the trading system known as ASX Centre Point, which accepts anonymous orders that do not require pre-trade transparency if they meet one or more of the exceptions to the rule.
ASIC found that due to incorrect system configuration, the consideration for block trade exemptions was set to $0 instead of $200,000 for some Tier 3 equity products. As a result, 8,417 orders placed between 4 April 2019 and 22 December 2022 were not pre-trade transparent when they should have been. Further, 165 trades occurred in purported reliance on the exception between 11 July 2022 and 22 December 2022.