Following the spectacular demise of brokers such as Opes and Tricom, the Federal Government has moved to take away the supervision of market activities from the Australian Securities Exchange (ASX). On 24 August 2009, the Federal Government announced significant proposed changes to the supervision of Australia's financial markets and earlier this month released draft regulations and a consultation paper relating to the proposed reforms.
Currently, Australian financial markets operate under a co-regulatory framework with market operators, such as the ASX, holding responsibility for the supervision of their market participants whilst the Australian Securities and Investments Commission (ASIC) is responsible for ensuring market operators meet statutory obligations as a market licensee.
The proposed changes will apply to all domestic market operators, including operators of derivative markets and include the following:
- ASIC will take over the supervision of trading and conduct on domestic licensed markets. Market operators, such as the ASX, will remain responsible for the supervision and enforcement of their own operating rules governing the day-to-day administration of their markets.
- ASIC will have authority to make rules with regards to market licensees, participants and financial products traded on a licensed financial market. These rules will govern the behaviour of participants and the integrity of the market generally and include issues such as participant conduct, general trading matters and transparency matters. Indeed, a new rule called a 'market integrity rule' will be made by ASIC, the contravention of which by market operators or participants will lead to the imposition of a civil penalty.
- The 'market integrity rule' will require compliance by both licensed market operators and participants. A maximum civil penalty for a breach of the market integrity rule of $1 million will apply for individuals and
- $5 million for companies. It is also proposed that a committee of industry experts be established to determine breaches of market integrity rules and the appropriate penalties to apply.
- The introduction of an infringement notice regime as an alternative to civil proceedings for breaches of market integrity rules. Possible sanctions may include penalties of up to $800,000 for individuals or $4 million for companies, requirements that the relevant person undertake or institute remedial measures including educational programs or compliance improvements, public censure and suspension for up to six months from performing certain financial services in relation to a licensed market and/or acquisition of profits.
The government proposes introducing legislation to give effect to the proposals in Parliament in the 2010 Autumn sittings with the intention that ASIC take over responsibility for market supervision by the third quarter of 2010.
It certainly appears that the reforms will go a long way in addressing what is at least perceived to be a conflict of interest arising out of the ASX's role as a market participant and a quasi-regulator. However, questions remain as to the exact roles and responsibilities that ASIC and the ASX will have. Presumably, the ASX will continue to have responsibility for admitting entities onto the ASX and supervising matters such as operational and financial resources, with ASIC being responsible for monitoring trading activities, although it is unclear how this will work in practice. It will also be interesting to see how the government will deal with the appropriate resourcing of ASIC and cost recovery issues (although the introduction of a levy on market operators and/or market participants has been suggested).
It would appear that ASIC's powers will be quite extensive under the proposed reforms, especially since it is intended that ASIC will have the ability to create tailored rules which apply to particular circumstances (if it considers such rules to be necessary). The example of this given by the government is that a need may arise in regard to the different levels of transparency which are required for different transactions, clients or markets.
Comments are being sought by 24 December 2009.