ASIC seeks better identification of market abuse and short sales
Australian Securities and Investment Commission (ASIC) has constructed new
market integrity rules for suspicious activity reporting and short-sale tagging
requirements, which will apply for the Australian Securities Exchange (ASX) and
new rules for identifying potential market abuse are due to commence on 1 November 2012, with short-sale reporting requirements applicable from 1 March
ASIC provides the industry with a six-month implementation period to allow it to adapt
systems and processes, the regulator will waive the obligation to comply with the
suspicious activity reporting rule until 20 July 2013.
new rule will be implemented as a response to the lack of obligation, under
existing market integrity rules, for market participants to report suspicious
activity. In practice, gaps
and limitations with the current reporting mechanisms can restrict the flow of
useful information to ASIC which, if provided, would help to better
supervise the market and identify particular market activities.
“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 of possible misconduct,” said Greg Yanco, senior executive leader of
market and participant supervision, ASIC.
The short sale tagging obligation 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 order book transactions, this will require
detailing the number of instruments 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 made
available to a market operator.
Based on industry consultation, ASIC said the
effect on participant systems will be manageable, given the long lead time
rule for suspicious activity has been implemented as a response to
consultations held by ASIC, which began in November 2010. The rule provides the
clarity that was sought by the industry in submissions and ongoing discussions with
new requirements regarding short sale tagging were prompted by experience
during the global financial crisis, according to ASIC. At this time, the uncertainty surrounding
the actual level of short-selling activity in Australian securities resulted in rumour and
speculation in the marketplace, which caused increasing pressure on listed
The current regulations are not conducive to the
reporting of algorithmic trading (which constitutes some 60–70% of orders
generated on the market), therefore the overall objective of government action
is to create a framework that facilitates the reporting of these trades to
ASIC is currently undergoing consultation on market
structure reforms, which focuses on extreme price movements,
enhanced data for market supervision and pre-trade transparency.
Reporting by Sophie Pallier