FAQ A1 Is there additional guidance that can be provided by ASIC in relation to the regulatory data requirements?

Rule 5A.2.1 of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011 (ASIC Market Integrity Rules (Competition)) requires a participant to provide to a market operator the regulatory data set out in Rule 5A.2.3 of the ASIC Market Integrity Rules (Competition). The purpose of this guidance is to provide further clarity about the regulatory data requirements in Rule 5A.2.3.

Some guidance is also provided in Part G of Regulatory Guide 223 Guidance on ASIC Market Integrity Rules for Competition in Exchange Markets (RG 223) in relation to these requirements. RG 223.275 explains the products to which Part 5A applies.

Execution venue (item 1 of the table in Rule 5A.2.3)

Item 1 of the table in Rule 5A.2.3 applies to trade reports (i.e. off-order book transactions) made to a market operator, and requires a participant to provide a code identifying the 'execution venue' where the transaction the subject of the trade report was executed. Participants are not required to provide execution venue information for orders transmitted to an order book of a licensed market (i.e. entities licensed under s795B(1) of the Corporations Act 2001 (Corporations Act), including the markets operated by ASX Limited and Chi-X Australia Pty Ltd).

The execution venue referred to in item 1 is the market, crossing system or other facility on which the transaction the subject of the trade report was executed.

RG 223 provides information regarding the identification codes that must be used by participants (see RG 223.288). Where the venue does not have an ISO 10383 market identifier code (MIC), a 'crossing system ID' assigned by ASIC is used. We publish a list of the crossing system IDs on our website.

Example 1

A participant sends a trade report to a market operator for a transaction executed on its internal crossing system.

In this scenario, Part 5A.2 requires a participant to provide in the trade report the crossing system ID allocated by ASIC to the internal crossing system. We publish a list of the crossing system IDs on our website.

Example 2

A participant sends an order to a licensed market operator for execution on one or more of the market operator's trading platforms.

In this scenario a participant is not required to provide an execution venue identification code in the order sent to the market operator. A code for execution venue is only required on a trade report and is not required for transactions executed on a trading platform on a licensed market.

Capacity of participant (item 2 of the table in Rule 5A.2.3)

Item 2 of the table in Rule 5A.2.3 requires a participant to provide for each order, and each side (buy/sell) of a transaction, a notation as to whether the participant is acting as principal or as agent for a client, or as both principal and agent.

As explained at RG 223.292, ‘principal’ has the meaning given by Rule 1.4.3 and includes a participant acting on behalf of a related body corporate in relation to the order or transaction.

The option 'both principal and agent' should be used where an order is attributable partly as principal and partly as agent for a client.

A participant that uses its principal account to hedge its position in relation to a swap transaction is trading as principal for the purposes of item 2. Participants should therefore identify a hedging transaction or order as a 'principal' order or transaction.

This is the case whether a participant is hedging a swap transaction entered into between the participant and a client of the participant, or hedging a swap transaction entered into between a related body corporate of the participant and a client of the participant.

Origin of order or transaction (item 3 of the table in Rule 5A.2.3)

Item 3 of the table in Rule 5A.2.3 requires a participant to provide for each order, and each side (buy/sell) of a transaction on which the participant acts as agent for a client, a unique notation, code or number used by the participant to identify the person on whose instructions the order is submitted or transaction was executed. RG 223 provides a list of potential 'identifiers' that may be used by participants (RG 223.299).

As outlined in RG 223, the information must be provided to the extent that it is able to be determined by the participant, taking all reasonable steps. Participants should, as far as reasonably possible, identify the ultimate 'originator' of the relevant order or transaction. ASIC understands, however, that it may not always be practical or reasonable to determine the ultimate 'originator' of an order or transaction. In this case, a participant should provide an identifier for the party as close to the originator as possible.

Participants must take all reasonable steps to ensure consistency in the use of the identifiers. Although a number of different types of identifiers might be used by a participant, orders or transactions originating from the same source should have the same 'identifier'.

Where a participant offers 'one-off' trade services (for example, selling for a shareholder who is not an existing client without requiring the shareholder to open a share trading account), where possible, a unique identifier for that shareholder should be provided.

However, if it is not reasonably possible to identify the person who initiates a one-off order or transaction, a participant may use a single unique account identifier for multiple 'one-off' client orders. In this case, it is preferable that the unique identifier for the account indicates that the origin of the orders is not from a single source. For example, the unique identifier 'multiple clients account' is preferable to the use of the actual account number.

Table 17 in RG 223.305 sets out some specific examples of origin of order information associated with common types of order flow. Each of the examples in table 17 identify the 'originator' of the order for the purposes of Part 5A.2, and also set out appropriate identifiers if the ultimate originator of an order or transaction cannot be ascertained. Some additional examples relating to origin of order requirements are provided below.

Example 1

A participant provides a superannuation fund with an order entry platform that sends orders to the participant's trading system. The order entry platform is also accessible to superannuation fund members. The superannuation fund is the client of the participant, not the superannuation fund members. Superannuation fund members submit orders to the platform, and they are sent through the platform into the participant's trading system.

In this scenario, a unique identifier for the superannuation fund member that entered the orders into the platform is required. However, if a participant cannot determine the identity of the member after taking all reasonable steps to do so, a unique identifier for the superannuation fund may be provided.

Figure 1

Figure 1

Example 2

Building on the scenario in Example 1, an adviser to the superannuation fund member is authorised to trade in securities on behalf of the member and has direct access to the superannuation fund platform. This adviser (instead of a superannuation fund member) is making the trading decisions on behalf of the member, and directly enters orders into the superannuation fund platform.

In this scenario, a unique identifier for the adviser who traded on behalf of the member is required because the order originated from the adviser. However, if a participant cannot determine the identity of the adviser, after taking all reasonable steps to do so, a unique identifier for the superannuation fund may be provided.

Figure 2

Figure 2

 

Example 3

Building on the scenario in Example 1, an adviser to the superannuation fund member trades in securities on behalf of the member, following instructions from the member to enter into the relevant trades. The superannuation fund member (instead of the adviser) is making the trading decisions. The adviser directly enters orders into the superannuation fund platform.

In this scenario, a unique identifier for the superannuation fund member is required, because the order originated from the member and not the adviser. However, if a participant cannot determine the identity of the member, after taking all reasonable steps to do so, the unique identifier for the adviser may be provided. If the identity of the adviser is also not reasonably able to be determined the participant may provide the unique identifier for the superannuation fund.

Figure 3

Figure 3

Intermediary ID (item 4 of the table in Rule 5A.2.3)

Item 4 of the table in Rule 5A.2.3 requires a participant to provide for each order and each side (buy/sell) of a transaction, on which:

(a) the participant acts as agent for an automated order processing (AOP) client that is an Australian financial services (AFS) licence holder, and

(b) the participant has an arrangement with the AFS licence holder under which the AFS licence holder submits trading messages into the participant’s trading system as intermediary for its own clients,

the AFS licence number of the AFS licence holder.

To comply with item 4 of the table in Rule 5A.2.3, participants must provide the AFS licence number for each order placed by, or transaction executed for, AFS licence holders, including AFS licence holders who are not participants but who facilitate trading of securities on licensed markets for their clients through an arrangement with a participant. These 'intermediaries' are also known as 'securities dealers', 'indirect market participants', 'white label brokers' or 'shadow brokers'.

The 'arrangement with a participant' referred to in item 4(b) includes, for example, an arrangement where a participant provides an AFS licence holder (indirect market participant) with a platform under which the AFS licence holder may enter orders on behalf of its clients into the participant's trading system. The participant may provide a website containing the AFS licence holder's branding, however, the AFS licence holder's clients will have a share trading agreement with the participant, who provides execution services for those clients. In this scenario, item 4(b) requires a participant to provide the AFS licence number of the AFS licence holder in the intermediary ID field.

The obligation under Rule 5A.2.3 requires a participant to identify all intermediaries that have AFS licences and that submit orders into a participant's trading system. Therefore, participants must provide an intermediary identifier for 'indirect market participants' with whom a participant has an arrangement, and for other participants with whom there is such an arrangement.

The requirement does not extend to providing AFS licence numbers of AFS licence holders that make investment decisions over pooled funds, such as those acting in the capacity of fund managers.

An intermediary ID is not required when an order is received by a participant from an intermediary using non-AOP methods, such as telephone or email. This also applies when an AOP order is rerouted to the participant's designated trading representative who manually enters the order into the participant's trading system.

If there is more than one intermediary between a participant and a client, only the intermediary that is dealing directly with the participant is required to be identified.

Example 4

A participant provides a platform to an intermediary to enter orders into the participant's trading system. An adviser to the intermediary (who is an AFS licence holder) enters orders, on behalf of its clients, directly into the platform provided by the participant. The orders are then sent electronically to the participant's trading system.

In this scenario, the intermediary is facilitating trading for its clients in the same manner described above, and is an intermediary for the purposes of item 4 of the table in Rule 5A.2.3. In this scenario, item 4 requires the participant to provide the AFS licence number of the AFS licence holder in the intermediary ID field.

Figure 4

Figure 4

Directed wholesale indicator (item 5 of the table in Rule 5A.2.3)

Item 5 of the table in Rule 5A.2.3 requires a participant to provide for each side (buy and/or sell) of an order or transaction, on which:

(a) the participant acts as agent for an AOP client that is a wholesale client, and

(b) the participant has an arrangement with the wholesale client under which the wholesale client submits trading messages into the participant's system with non-discretionary execution and routing instructions,

a unique notation or code to indicate this.

Table 16 at RG 223.286 states that this data should be provided by either a 'Yes' or 'No' flag, with the default position as 'No'.

For the purposes of this rule, 'wholesale client' has the same meaning as s761G of the Corporations Act (see also table 6 in Section C of RG 223). In summary, table 6 states that a client is a wholesale client where any of the following apply:

(a) the price or value of the transaction is $500,000 or more

(b) the financial product or service is provided for use in connection with a business that is not a small business

(c) when not provided for use in connection with a business, a qualified accountant certifies that the client has net assets of at least $2.5 million, or a gross income for each of the last two financial years of at least $250,000 a year

(d) the client is a professional investor, or

(e) the client is a sophisticated investor with demonstrated experience in using financial services and investing in financial products.

A wholesale client submits 'non-discretionary execution and routing instructions' when a participant does not have any discretion over a wholesale client's choice of venue, attributes of an order, or when the order is transmitted to an execution venue (other than ensuring compliance with AOP obligations). In those cases, the directed wholesale indicator should be 'Yes'. When a participant has any discretion, even partial, over an order the order or transaction should be flagged 'No'.

The 'directed wholesale indicator' is not required for orders received by a participant from a wholesale client by non-AOP means, such as by telephone or email.

A participant must take all 'reasonable steps' to identify when orders received electronically from a wholesale client have non-discretionary execution and routing instructions.

Example 5

A wholesale client has direct access to a participant's trading system via AOP. The wholesale client places an instruction into its own algorithm to achieve volume-weighted average price (VWAP) over the trading day. As a result of the VWAP instruction, the wholesale client submits a number of 'child' orders throughout the trading day via AOP to the participant's trading system. Each 'child order' is submitted exactly as specified to the nominated trading venue.

In this scenario, the participant does not have any influence over the orders or instructions entered by the wholesale client. These orders or instructions should be flagged 'Yes'.

Example 6

The same wholesale client in Example 5 places an order into a participant's trading system that is processed by the participant's 'smart order router', but is subject to the wholesale client's standing instruction not to trade on a particular venue.

In this scenario, the wholesale client is not entirely in control of the entry and execution of the order. The participant's 'smart order router' exercises discretion to determine the best trading venue from the remaining allowable venues. As the participant has some control in managing the order or instruction, the order or instruction should be flagged 'No'.

Example 7

The same wholesale client in Example 5 places an order into a participant's trading system with the instruction that VWAP is to be achieved.

In this scenario, the wholesale client is not in control of the entry and execution of the order. The participant's VWAP algorithm and smart order router both exercise discretion to determine price, time, size and the venue for each of the 'child' orders submitted to the trading platform. As the participant is making the decisions regarding the order or instruction, the order or instruction should be flagged 'No'.

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Last updated: 27/03/2013 12:00