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ASIC today released its annual assessment report of the ASX Group (ASX) licensees (REP 289).
The assessment covers the period 1 July 2010 to 1 November 2011 and pays attention to how ASX dealt with a number of specific issues, including:
- the sufficiency of ASX’s technological resources, in particular following the ASX market outage on 27 October 2011,
- the operation of ASX’s conflict handling arrangements, in particular the arrangements it has in place to manage entities with which it has a real or perceived conflict of interest, and any considerations arising from ASX’s new managing director and CEO’s board membership of another ASX-listed company, and
- ASX’s framework for admitting participants to its markets and clearing and settlement facilities.
The report sets out a number of areas for attention that ASX has agreed to address, working closely with ASIC. In some cases, ASX has already initiated steps to meet the agreed actions. While important, these issues did not cause ASIC to qualify the conclusion that ASX adequately met its obligations during the reporting period.
The agreed actions from this report deal with:
- Technology – following the ASX market outage on 27 October 2011, ASX conducted a wide review of its trading system support and testing framework. As a result of its findings, which we agree with, ASX will enhance arrangements in four key areas, including requiring its trading system vendor to establish an office in Australia to provide better support. ASX has also agreed to more regularly run ‘live’ testing of its back-up facilities to better ensure they are effective if needed.
- Conflict handling – attention was given to the adequacy of ASX’s conflict handling arrangements, with particular focus on the processes in place to manage entities with which ASX has an existing commercial or competitive relationship. We also considered arrangements in respect of ASX’s CEO, and his board membership of another ASX-listed company. We consider that ASX has arrangements in place that meet the standards required by the Corporations Act and that action should be taken to improve the market’s visibility of these arrangements. ASX has agreed to take action which will include better disclosure on its website of the nature of its conflicts and the arrangements it has in place to adequately manage them.
- Monitoring and enforcing compliance – attention was also given to ASX’s monitoring and enforcement of compliance with its operating rules, especially in the area of admitting participants to its markets. ASX has agreed to make a number of changes including implementing a more rigorous process for considering applications and communicating with the market about admission.
Background
ASX comprises two market licensees and four licensed clearing and settlement facilities - ASX Limited, ASX Clear Pty Limited (formerly known as Australian Clearing House Pty Limited), ASX Settlement Pty Limited (formerly known as ASX Settlement and Transfer Corporation Pty Limited), Australian Securities Exchange Limited (formerly known as Sydney Futures Exchange Limited), ASX Clear (Futures) Pty Limited (formerly known as SFE Clearing Corporation Pty Limited) and Austraclear Limited.
A financial market is defined as a facility through which offers to buy and sell financial products are regularly made. A clearing and settlement facility is defined as a facility that provides a regular mechanism for the parties to transactions relating to financial products to meet obligations to each other that arise from entering into transactions. Anyone who operates a financial market or clearing and settlement facility in Australia must obtain a licence to do so, or otherwise be exempted by the Minister.
ASIC is required to annually assess a financial market and clearing and settlement facility licensee’s compliance with its obligations under the Corporations Act 2001.
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