Australian regulator outlines market integrity rules for technological and operational resilience

Maria Nikolova

The new rules will apply to futures and securities market operators of the ASX, ASX 24, Chi-X, NSX and SSX, and to participants of those markets.

The Australian Securities & Investments Commission (ASIC) has released a consultation paper outlining proposals for new market integrity rules for securities and futures market operators and participants that promote technological and operational resilience of their critical systems.

The regulator notes that failures of critical systems can have a severe impact on market integrity. For instance, there have been more errors with participants’ systems and processes that result in worse price outcomes for clients; client money are put at risk. The regulator has also noticed settlement failures, and anomalous, and in some cases manipulative, orders impacting the integrity of the market.

The multi-market environment for Australian listed securities creates interdependencies between market participants and market operators. The ASX equity market outage that occurred in September 2016 (ASX outage) created a ripple effect that affected the operation of the Chi-X market and participants’ access to Chi-X, as well as the operation of crossing systems. It also caused considerable uncertainty among market users, stifling trading volumes on the day and impacting trading revenues across the market.

There have been a number of other incidents that have impacted the operation of ASX or ASX 24 markets and their customers. In June 2018, for example, accidental activation of the gas fire suppression system damaged some customers’ hardware and their ability to trade.

Outsourcing and off-shoring of critical systems is becoming more prevalent. They provide the potential for efficiencies and better systems and services, and they can free up capacity for an entity to stay focused on its core business. However, they can introduce additional risks that need to be managed.

Cyber risk also continues to be a key concern across the financial market, with cyber attacks increasing in frequency and sophistication. The protection of data—in particular sensitive, confidential or personal data—is critical for the sound operation of the market and to facilitate investor trust and confidence in the market. There have been many instances in Australia and abroad of confidential client information being compromised.

Whereas the provisions in the Corporations Act are broad and core system and operational risk management expectations are implied in those obligations, ASIC believes it is important to have more specific expectations for market operators and market participants given the critical role they play in the market. The regulator considers that formalised baseline obligations are needed to ensure that market operators’ and participants’ systems and controls are adequate for their operations, to protect clients and to maintain the integrity of the market.

The proposed rules apply to:

  • (a) futures and securities market operators of ASX, ASX 24, Chi-X, NSX and SSX; and
  • (b) participants of those markets.

The proposed rules require that:

  • (a) robust arrangements are implemented and maintained to ensure the resilience, reliability, integrity and security of critical systems;
  • (b) change management arrangements are identified and implemented;
  • (c) outsourcing arrangements are implemented and managed;
  • (d) incidents are efficiently identified and rectified and, where appropriate, reported to ASIC in a timely and comprehensive manner;
  • (e) robust arrangements are implemented for business continuity management, data security, backup and disaster recovery;
  • (f) access to the services of market operators is provided on reasonable commercial terms and on a non-discriminatory basis; and
  • (g) market operators have trading controls to prevent the entry of trading messages to ensure a fair, orderly and transparent market.

These new and specific obligations for market operators and market participants will also:

  • (a) ensure consistency in approach between market operators and market participants in meeting their general obligations;
  • (b) provide credible deterrence for poor technology, operational governance and controls;
  • (c) facilitate our supervision of Australian financial markets; and
  • (d) better align the Australian framework with international peers.

Market operators and market participants will be required to conduct a review of their existing arrangements to determine whether any additional arrangements need to be put in place to ensure compliance with the proposed rules. ASIC understands that it may take time to implement the necessary arrangements and so the regulator proposes to give market operators and market participants a six-month transitional period from the date the proposed rules are made.

Let’s note that, under s798H(1) of the Corporations Act, operators of licensed markets and participants in those markets are required to comply with the market integrity rules for that market, breaches of which may result in penalties of up to $1 million per breach. A breach of the market integrity rules may be dealt with by ASIC on an administrative basis or civil proceedings.

The regulator accepts opinions on the Consultation Paper before August 9, 2019.

Read this next

Digital Assets

DappRadar report: NFTs volume below $1 billion for the first time since June 2021

DappRadar’s July 2022 industry report found that blockchain games and their NFTs remain resilient amid a crypto winter accentuated by the debacle of Terra.

Digital Assets

Blockchain.com registers to operate crypto business in Italy

Blockchain.com had registered as a digital asset provider in Italy, following in the tracks of rivals who joined a special registry with brokerage regulator Organismo degli Agenti e dei Mediatori (OAM).

Digital Assets

Binance rolls out crypto card in Argentina with 8% cashback

Binance is launching its crypto debit card in Argentina, the first country in Latin America to have the product thanks to a partnership with Mastercard.

Digital Assets

Greece sends BTC-e operator Alexander Vinnik to US

Alexander Vinnik, an alleged Russian hacker accused of laundering $4 billion of criminal proceeds through BTC-e, has been extradited from Greece to the United States.

Retail FX

Saxo Bank reports weakest FX volume in 6 months

As many traders were away on annual summer leave, currency markets saw a relatively quiet period in July. Within that context, Copenhagen-based Saxo Bank has reported its monthly metrics, which showed a renewed decline month-over-month.

Market News

The Week Ahead: 5 August from David Madden, Market Analyst at Equiti Group

It has been an interesting week and despite a lot of negative news, equity markets enjoyed a positive run. US House Speaker, Nancy Pelosi, defied the warnings from the Chinese government and carried out a visit to Taiwan. The Beijing authorities moved military hardware close to the self-governed island to flex its muscles. Stock markets came under a little pressure as a result and risk-off assets like the Japanese yen and gold found themselves in high demand.

Opinion

Alina Strogonova of Muvon Payments: How Can Fintech Optimise Payments

Financial services in their conventional form are obsolete, according to fintech startups. New-age finance is constantly redesigning electronic money transactions and testing innovative solutions.

Digital Assets

No need for CFDs: BitMEX introduces leveraged FX perpetual swaps

Previously retail FX trading was mostly possible via CFDs (contract for difference). BitMEX’s FX perps allow both retail users and institutional traders to access FX markets through an exchange-traded contract.

Digital Assets

BEQUANT launches index measuring dollar against crypto

“Our research team has worked hard to quantify and capture the latest economic story into the broader crypto market.”

<