The suspicious activity reporting rule has a stated commencement date of 1 November 2012, but consistent with ASIC’s commitment to provide industry with a six-month implementation period to allow it to adapt systems and processes, ASIC will waive the obligation to comply with the rule until 20 January 2013.

The obligation will require participants of the ASX and Chi-X markets to notify ASIC when they become aware, in the course of their business activities and in the course of complying with existing obligations, of certain suspicious trading activity.

Senior Executive Leader of Market & Participant Supervision, Greg Yanco, said, ‘ASIC expects that the rule will result in an increased number of useful reports by market participants of potential misconduct. ASIC also expects that these reports may be received at an earlier stage than currently which will, in turn, facilitate early identification by ASIC of possible misconduct’.

The short sale tagging obligation will commence on 1 March 2014 and will require market participants to specify, at the time an order is placed, the quantity of a sell order that is a short sale. For on order book transactions, this will require specification of the number of products that are short at the time the order is placed into the market. For off order book transactions, the number of products that are short will need to be provided in the trade report provided to a market operator.

To assist market operators better understand the operation of the rules and how to comply with them, ASIC has released Regulatory Guide 238 Suspicious activity reporting (RG 238) and Information Sheet 158 Short sale tagging (INFO 158).

Mr Yanco said that the rules bring the Australian market in line with international best practice and reinforce ASIC’s strategic priority of maintaining fair and efficient financial markets.

Specifically in relation to suspicious activity reporting, he said, ‘Experiences from regulators in comparable jurisdictions like the UK, Europe, Canada and the US suggest that supervision of insider trading and market manipulation is greatly enhanced by a robust suspicious activity reporting regime’.

While participants will need to make changes to existing processes and procedures, ASIC’s understanding, based on industry consultation, is that the effect on participant systems will be manageable, given the long lead time being provided. ASIC will work with market participants to facilitate a smooth implementation.

17 July 2012

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These rules are modeled closely on the market integrity rules for capital for the ASX market, to ensure a level playing field for the two equities markets.

Participants who are market participants of both ASX and Chi-X markets can satisfy the capital rules for both markets with one amount of capital, and need report to ASIC under one set of rules only. These rules were proposed in Consultation Paper 161 Proposed ASIC market integrity rules for capital and related requirements: ASX, ASX 24 and Chi-X markets (CP 161).

The rules amend the existing ASIC market integrity rules for the Chi-X market by inserting two new chapters for capital and capital reporting. ASIC Market Integrity Rules (Chi-X Australia Market) Amendment 2011 (No. 1) has amended the pre-existing ASIC Market Integrity Rules (Chi-X Australia Market) 2011.

ASIC has also released an amended Regulatory Guide 226 Guidance on ASIC market integrity rules for capital and related requirements: ASX, ASX 24 and Chi-X markets (RG 226), providing guidance on the operation of the capital rules for the Chi-X market, as well as the capital rules for the ASX and ASX 24 (futures) markets.

Background
On 1 August last year, ASIC took over general supervision of trading on Australian domestic licensed financial markets. As part of that supervisory role, ASIC has made market integrity rules for the ASX, ASX 24 and Chi-X markets.

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ASIC has introduced a new regulatory framework to facilitate competition in market services and new entrant Chi-X was granted a licence on 4 May 2011 to commence operations, once conditions were met. ASIC’s technology and people are ready for multimarket supervision.

ASIC has engaged extensively with industry on the application of the competition market integrity rules, through workshops and through newsletters. Chi-X has provided confirmation from their independent expert that the systems and market data connections of Chi-X and market participants have been tested and are operationally ready.

ASIC is satisfied that industry is ready for competition on the basis that Chi-X commences with a soft launch period, trading no more than eight securities for at least six days, (two completed settlement cycles), in the beginning of November. ASIC will monitor the soft launch and will continue its dialogue with Chi-X.

ASIC will continue to work with market operators Chi-X and ASX, as well as the broader industry, to ensure a smooth and orderly transition to a multimarket environment to maintain fair and efficient markets. 

Background
On 31 March 2010, the Australian Government announced its support for competition between exchange markets for trading in listed products in Australia and its in-principle support for granting an Australian market licence to Chi-X.

On 4 May 2011, the Government granted a licence to Chi-X to operate an Australian financial market. The licence has pre-conditions that had to be satisfied before Chi-X commences operation.

Chi-X can only start operating once it is adequately resourced, its compensation fund is in place, and it has taken, together with the participants, all necessary and reasonable steps to test the technology and the readiness of its market.

An independent expert has to confirm the adequacy of the testing and verify that participants have attested that they are operationally ready.

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