The passage of the Corporations Amendment (Crowd-sourced Funding) Act 2017 (Cth) introduced amendments to the Australian market licensing regime and the clearing and settlement licensing regime (discussed here). In light of these legislative amendments, the Australian Securities and Investments Commission (ASIC) has released Consultation Paper 293 (CP 293) and a draft regulatory guide which together propose significant changes to how Australian market licences and exemptions from Australian market licensing requirements are granted. This consultation paper is relevant for, amongst others, operators of markets, operators of market-like venues (ie, those that facilitate the trading of financial products on the basis of an exclusion or exemption from the Corporations Act 2001 (Cth)) and crowd-sourced funding platforms seeking to offer secondary trading. Comments on the consultation paper are due by 31 August 2017.
CP 293 notes that there have been recent changes and developments in markets which include, a proliferation of alternative market venues (ie, growth in organised trading in non-exchange listed products), increased complexity in market venue technology and use of social media to create new forms of market-like venues. This has led ASIC to propose a new two tier approach to market licensing in light of the legislative amendments.
Market licences for tier 1 venues will be used to facilitate oversight of traditional markets and significant non-exchanges (for example, ASIC nominated the ASX, ASX-24 and Chi-X as being tier 1 venues) . CP 293 proposes introducing a “second tier” of market licences specifically targeted at specialised and emerging market venues. The second tier of market licence is designed to facilitate reduced regulatory oversight and a reduced regulatory burden for lower risk financial markets. Determining whether a market is a tier 1 or tier 2 venue will require a risk-based approach, rather than imposing prescriptive requirements.
Under the new proposed regulatory guide, ASIC would only grant exemptions from the Australian market licence regime in rare and exceptional circumstances once the second tier of market licence is introduced. Tier 2 venues will need to comply with a subset of core licence obligations but will continue to be exempt from other licence obligations (ie, ASIC proposes that tier 2 licensees be required to have rules that support the interaction of users on their platform but will not be required to maintain operating procedures such as monitoring listed entities for compliance). CP 293 also proposes:
- updating licensee obligations to supervise participant conduct (which has not been updated since market supervision obligations were transferred to ASIC in 2010);
- amending regulatory guidance regarding adequate financial and human resources, use of outsourcing arrangements and listing principles; and
- clarifying when the Minister must suspend or revoke a licence or exemption and how a change of control in a market operator would be assessed by ASIC.
ASIC also seeks views on the operation of the secondary market for CSF shares. Topics for consultation raised by ASIC include whether there should be relief provided from on-sale prospectus requirements under the Corporations Act (where investors seek to sell CSF shares within 12 months of the issue) and what disclosure requirements which will facilitate informed trading on the secondary market for CSF shares.