FAQ Notification of non-retail clients when trading as principal and/or if orders are crossed – frequently asked questions and additional information

FAQ B1 What are ASICs expectations for Rule 3.4.3 of the ASIC Market Integrity Rules (ASX Market) 2010 and ASIC Market Integrity Rules (Chi-X Australia Market) 2011?

Rule 3.4.1 of the ASIC Market Integrity Rules (ASX Market) 2010 (ASIC Market Integrity Rules (ASX)) and Rule 3.4.1 of the ASIC Market Integrity Rules (Chi-X Australia Market) 2011 (ASIC Market Integrity Rules (Chi-X)) require a market participant to provide confirmations to its clients in respect of each market transaction entered into on the client's instructions or on the client's managed discretionary account.

Rule 3.4.3(1) of, respectively, the ASIC Market Integrity Rules (ASX) and the ASIC Market Integrity Rules (Chi-X) provides an exception to the requirement to provide confirmations for a client that is not a retail client, if:

(a) the market participant has notified the client before entering a trading message on the client's behalf that market transactions effected by the client are subject to the:

  • directions, decisions and requirements of the market operator, the market integrity rules, the market operating rules, the clearing rules and where relevant, the settlement rules
  • customs and usages of the market, and
  • correction of errors and omissions, and

(b) with effect from 28 October 2014, the market participant notifies the client as soon as practicable if the:

  • market participant entered into the client's transaction as principal, and
  • client's transaction was executed as a crossing, the execution code for the execution venue for the crossing.

With effect from 28 October 2014, both the requirements in (a) and (b) apply. However, under Rule 3.4.3(2), a market participant does not have to give the notification in (b) to a client who has agreed not to receive such notifications.

The following questions and answers apply to the notification referred to in (b) above.

FAQ B1.1 When must a notification referred to in (b) be given?

Rule 3.4.3 states that a notification must be given by sending it ‘as soon as practicable‘.

We expect that notification would be provided to a client on the day on which the transaction is executed.

FAQ B1.2 When is a notification referred to in (b) not required to be provided to a client?

A market participant is not required to give notification of the information in (b) above to a non-retail client who has agreed not to receive such notifications: see Rule 3.4.3(2).

Accordingly, a non-retail client can decide it does not want to receive the information in (b) above, and opt-out of receiving it. A non-retail client cannot opt out of receiving the information in (a) above.

We encourage market participants to ensure their non-retail clients that seek to opt-out are aware of the consequences of opting-out, and require those clients to take active steps to opt-out. The inclusion of a standard opt-out clause in a client agreement, without more, would not necessarily mean that clients were aware of the consequences of opting out, or taking active steps to do so.

FAQ B1.3 What is an acceptable form for the notification in (b)?

Rule 3.4.3 is not prescriptive about the form of notification, and market participants may choose any method that provides effective notification to non-retail clients.

Forms of notification that may be suitable include:

  • real-time fill notifications such as a FIX message. FIX tag 29 (i.e. broker capacity) could be used to identify when the market participant acts as principal. FIX tag 30 (i.e. trading venue) could be used to identify the venue where the non-retail client’s order was matched or executed, or
  • an end of day report of relevant transactions.

FAQ B1.4 Can the information provided in the notification referred to in (b) be accumulated and price averaged?

Rule 3.4.3 specifies that the obligation to notify non-retail clients applies for each market transaction. Accordingly, the information provided in the notification to non-retail clients under (b) must be provided on a market transaction basis and cannot be accumulated or price averaged.

FAQ B1.5 What if a non-retail client’s order is matched with an order where the market participant is acting as both principal and as agent for a client?

When providing a notification to a non-retail client under (b), a market participant must notify the non-retail client if the market participant entered into the non-retail client’s market transaction as principal.

In some circumstances a non-retail client’s order is matched with ‘basket’ orders which represent similar instructions received from multiple sources, including where the market participant is acting as both principal and agent for a client.

When a market participant creates a ‘basket’ order, we expect that market participant to be able to identify if that ‘basket’ is comprised of orders which represent the market participant acting as:

  • agent for a client(s)
  • principal, or
  • both principal and as agent for a client(s).

In circumstances where a non-retail client’s order is matched with ‘basket’ orders, and those ‘baskets’ are comprised of orders where the market participant is acting as principal only, the notification provided to the non-retail client under (b) must disclose that the market participant entered into the non-retail client’s market transaction as principal.

In circumstances where a non-retail client’s order is matched with ‘basket’ orders, and those ‘baskets’ are comprised of orders where the market participant is acting as principal and as agent, we expect that the notification provided to the non-retail client under (b) discloses that the market participant entered into the non-retail client’s market transaction as both principal and as agent.

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Last updated: 23/03/2016 03:09