Recent amendments to ASIC’s Market Integrity Rules for both the ASX and Chi-X markets introduce new reporting obligations in relation to suspicious activity and short sale tagging. Market participants will need to ensure that they have appropriate policies and systems in place to ensure compliance with the new obligations prior to their commencement in January 2013 (for suspicious activity) and March 2014 (for short sales).
ASIC’s Market Integrity Rules for both ASX and Chi-X markets have been amended to introduce new obligations to report “suspicious activity” and to specify the amount of a sell order that is a short sale.
Suspicious activity reporting obligations
ASX and Chi-X market participants will be required to notify ASIC as soon as practicable (which ASIC expects will be within 3 business days) where it has reasonable grounds to suspect certain “reportable matters” relating mainly to insider trading and price fixing, namely that:
- a person has placed an order or entered into a transaction on the market in relation to a financial product while in possession of inside information
This applies whether or not the market participant is aware of the identity of the insider or all of the details of the order or transaction.
- a transaction or order transmitted to a trading platform has or is likely to have the effect of:
- creating or maintaining an artificial price for trading in financial products;
- creating (or causing the creation of) a false or misleading appearance of active trading in financial products; or
- creating (or causing the creation of) a false or misleading appearance with respect to the market for, or the price for trading in, financial products
This applies whether or not the market participant is aware of the intention of any party to the transaction or order or all of the details of the transaction or order.
Market participants will need to develop policies for identifying potential reportable matters, escalating such matters to compliance staff, determining whether there is in fact a reportable matter and notifying ASIC appropriately, with guidance from ASIC in Regulatory Guide 238 Suspicious activity reporting (RG 238) which explains the operation of the new rules.
While the stated commencement date of the rules is 1 November 2012, ASIC has announced that it will waive the obligation to comply with the rules until 20 January 2013 to allow for the adoption of systems and processes.
Short sale tagging obligations
These amendments relate to the method of reporting and do not change the existing obligation to report short sale transactions.
ASX and Chi-X market participants will be required to:
- for on order book transactions, specify the number of products in the sell order that are short when the order is placed; and
- for off order book transactions, specify the number of products that are short in the trade report to the market operator.
ASIC has stated that if a market participant has more than one trading account, the position of each account will be relevant to whether a sale is reported short or long and the overall position of the market participant is not relevant to the individual sales that are reported.
The new obligations will commence on 10 March 2014.
ASIC has also released Information Sheet 158 Short sale tagging (INFO 158) to assist market participants in complying with their obligations.
See ASIC’s media release, dated 16 July 2012.