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Monday 16 July 2012

12-162MR New rules on suspicious activity reporting and short sale tagging

ASIC has made new market integrity rules for suspicious activity reporting and short sale tagging requirements which will apply for the Australian Securities Exchange (ASX) and Chi-X markets.

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.

Background

In 2009-10, ASIC spoke to domestic and international market operators, market participants and industry associations to better understand market and technology developments and ways to improve market supervision.

In November 2010, ASIC consulted on proposals for suspicious activity reporting in Consultation Paper 145 Australian equity market structure: Proposals (CP 145). The final rule provides the clarity that was sought by industry in submissions and ongoing discussions with key stakeholders, including AFMA, SAA and AUSTRAC.

The new requirements regarding short sale tagging were first foreshadowed in Report 237 Response to submissions on CP 145 Australian equity market structure: Proposals (REP 237). They were prompted by experience during the GFC, and consistent with industry feedback, we have ensured that industry has sufficient time to implement the required system changes.

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Last updated: 12/07/2012 12:00