The Australian Securities and Investment Commission (ASIC) has published its second report on the supervision of markets and participants.


ASIC assumed responsibility for market supervision and real-time surveillance of trading from ASX on 1 August 2010. ASIC also supervises compliance with market integrity rules, compliance with the Corporations Act 2001 and ensures that Australian financial services licence conditions are met by market participants.


ASIC Commissioner Shane Tregillis said, “ASIC is building investor confidence by ensuring Australian financial markets are efficient and fair. We are doing this through thorough surveillance of the market and by taking pre-emptive action to prevent possible market misconduct. We are increasing our engagement with industry and providing education and guidance to participants.


“However pre-emptive engagement will not replace deterrence and when we find serious market misconduct we are taking timely deterrence action. Market participants and operators are important gatekeepers and we expect them to have controls in place to ensure conduct in accordance with required standards and to demonstrate a culture of compliance,’ said Mr Tregillis.


Report 243 ASIC supervision of markets and participants: January to June 2011 (REP 243) identified that during the reporting period there were 23,494 trading alerts, with 121 matters requiring further consideration. Some 35 matters were referred for investigation. These matters involved potential insider trading (17), market manipulation (6), possible breaches of the market integrity rules (10) and of continuous disclosure obligations (2).


In addition to the 35 markets matters, a further eight participant matters were identified during ASIC’s participant surveillance visits and referred for investigation – three of which relate to supervision of representatives. Prevention of unauthorised trading and appropriate supervision of representatives are key themes addressed during our visits and ASIC expect participants to have appropriate controls and culture in place.


Matters concerning order management including problematic algorithms and orders for some exchange-traded funds (ETFs) have been identified in our work with participants. ASIC is continuing to work with market participants and their clients to reduce the risk of algorithms having a negative impact on market integrity and to ensure that orders from retail clients for ETFs are not priced significantly from their intrinsic value taking into account the value of the underlying reference asset. For example we have identified a number of instances where index ETFs have traded well away from the price of the underlying index.


Analysis of potential insider trading matters has identified some instances where corporate advisers have not had appropriate controls in place to ensure that there is restricted access to price sensitive information.


The time taken to commence investigations from misconduct identification has continued to fall with approximately 40% of all referrals progressing to investigation in under 30 days from identification of the misconduct.

 

The full report is available here