NSX Limited and Australian Securities and Investments Commission

[2023] AATA 3548

NSX Limited and Australian Securities and Investments Commission [2023] AATA 3548 (24 October 2023)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2021/5082

Re:NSX Limited

APPLICANT

AndAustralian Securities and Investments Commission

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:24 October 2023

Place:Sydney

For the reasons given in this document the Tribunal DIRECTS:

1.The matter be listed for a conciliation on a date convenient to the Tribunal and the parties.

.................................SGD......................................

Deputy President Bernard J McCabe

Catchwords

Specific and significant conflicts – potential conflicts – competition – market operator

Legislation

Administrative Appeals Tribunal Act 1975 (Cth)
Corporations Act 2001 (Cth)

Corporations Regulations 2001 (Cth)

REASONS FOR DECISION

Deputy President Bernard J McCabe

24 October 2023

1. These reasons explain orders I make following an interlocutory hearing. The factual findings and legal reasoning on the questions before me in the interlocutory hearing were provided to the parties on 27 July 2023 along with an invitation to make submissions on the orders I should make. The parties were unable to agree on appropriate orders and I have now had the opportunity to consider their written and oral submissions.

   Background

2. The applicant in these proceedings, NSX Limited (NSX), is licensed to operate a financial markets business under Part 7.2 of the Corporations Act 2001 (Cth). NSX is listed on the Australian Stock Exchange, which is conducted by ASX Limited (ASXL) under ASXL’s own licence to operate a financial markets business. It follows that NSX is subject to the listing rules which apply to participants in that market. Under those rules, ASXL has a range of powers which include the power to require a participant to disclose sensitive information in defined circumstances. NSX says that is problematic in circumstances where ASXL is also a commercial rival of NSX.

3. The regulatory regime in Part 7.2 anticipates the possibility of conflicts between the commercial interests of the market operator and its obligation to operate the market in accordance with its obligations as licensee. Section 792A(1)(c) includes a general obligation requiring the market operator (in this case, ASXL) to have adequate arrangements for handling conflicts. Section 798E authorises the enactment of regulations which empower the Australian Securities and Investments Commission (ASIC) to step in and make decisions under the operating rules in place of the market operator in the event of a conflict or potential conflict.

4. Regulation 7.2.16 of the Corporations Regulations 2001 (Cth) instructs ASIC on its role. That provision is triggered in the event of “specific and significant conflicts, or potential conflicts that would be specific and significant” between

   (a)the commercial interests of ASXL and a competitor and

   (b)the need for ASXL to ensure the market is operated in accordance with obligations set out in s 792A(1) of the Corporations Act.

5. NSX asked ASIC to intervene and make decisions under Regulation 7.2.16. A delegate of ASIC concluded ASIC did not have to consider whether it was appropriate to take action under the provision because the delegate was not satisfied NSX’s circumstances gave rise to a “specific and significant conflict” (or potential conflict that would be significant and specific) within the meaning of Regulation 7.2.16(1). It follows that NSX’s application for ASIC to take action under Regulation 7.2.16 foundered at the first hurdle. Undaunted, NSX sought review in the Tribunal.

6. When the review proceedings commenced, NSX saw an advantage in asking the Tribunal to decide two preliminary questions:

   Question one: Does the applicant operate a business with which [ASXL] is in competition?

   Question two: If the answer to Q1 is “yes”, are there any specific and significant conflicts, or potential conflicts that would be specific and significant, between (a) the commercial interests of ASXL in dealing with the applicant; and (b) the need for ASXL to ensure that the market operated by it operates in the way mentioned in paragraph 792A(1)(a) of the Corporations Act…; and (c) if “yes” what are these conflicts or potential conflicts?

7. Parties often claim that resolving a discrete single issue at an early stage will result in substantial savings or more expeditious resolution of the review. Experienced case managers are usually wary of such claims. Notwithstanding my usual reticence, I agreed to engage with the two questions formulated between the parties as a preliminary matter. An interlocutory hearing was listed in July where I heard evidence and argument. As it happens, ASIC effectively conceded the first question should be answered in the affirmative because it accepted NSX and ASXL were technically in competition in two if not three of the areas which NSX had identified as areas of rivalry. Most of the evidence and my subsequent reasons for decision focused on the second question.

8. In my reasons for decision, I made a finding of fact that ASXL faced a significant and specific conflict (or potential conflict) arising out of NSX’s work on new technology that might revolutionise the way markets were conducted. I did not resolve whether there was a specific and significant conflict in relation to the rivalry in the market for issuers, and in relation to dealings with a foreign entity to provide market services which ASXL may have been interested in providing. I did not decide there was no significant and specific conflict in relation to those other matters, merely that more evidence would be required before a positive conclusion could safely be reached.

9. Having found there was a significant and specific conflict in at least one respect, I anticipated the parties would prefer me to remit the decision under review. In that event, I expected ASIC would quickly and actively engage with the question of what action (if any) was appropriate under Regulation 7.2.16(3)(b) and (c). I assumed the parties would, as part of the decision-making process, engage with each other on a pragmatic basis and consider whether action was appropriate having regard to the entirety of NSX’s circumstances. (I note the chief executive of NSX had indicated an openness at the interlocutory hearing to a flexible and pragmatic solution that provided NSX with assurance.)

10. ASIC responded by saying that, should I remit the matter, it would need to bring the matter back before a delegate. I was told that process of reconsideration would likely take months – a timeframe that is difficult to square with requirement in Regulation 7.2.16(3) that ASIC proceed to deal with the application “as soon as practicable after receiving” it. Moreover, I understand ASIC does not regard itself as being bound to engage with the potential conflict that might arise out of the competition between ASXL and NSX over the market for issuers and the arrangements with the foreign entity since I had not expressly found the conflict in relation to those issues was significant and specific. In fairness, ASIC’s counsel indicated ASIC’s delegate might have regard to those matters as they deliberated, but I was left with the clear impression ASIC intended to take a minimalist approach to the findings I made.

11. ASIC’s submissions as to the approach I should adopt tended to confirm an impression I formed from ASIC’s evidence and submissions during the interlocutory hearing – namely, that ASIC was most reluctant to find itself in a position where it would have to take any action under the regulation.

12. NSX argued against remitting the matter under s 42D of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) because of doubts over whether I could make directions in connection with the remittal. NSX says if I were minded to set aside the decision and remit it for reconsideration under s 43 of the AAT Act, it would be preferable if I made formal findings with respect to the other two areas of potential conflict. That is an unattractive option given I have already explained I would need further evidence before reaching a concluded view (one way or the other) on those other conflicts.

13. NSX said its preferred approach would be to retain the proceedings in the Tribunal without remitting the decision and have the parties participate in the short term in an alternative dispute resolution process in which they attempted to reach an acceptable outcome. There is an advantage in that approach: if the parties cannot agree, the Tribunal retains the ability to go on and hold a final hearing in which I address myself to the ultimate statutory question posed by Regulation 7.2.16. I am not functus officio and could revisit my observations about the facts if it became necessary to do so.

14. I agree the best alternative in the circumstances is to retain the proceedings in the Tribunal. ASIC’s preferred approach is too slow, and overly cautious, and remittal leaves too much to chance.

    Conclusion

15. The parties shall participate in an alternative dispute resolution process before an experienced member at a time that is convenient for the parties and the Tribunal – ideally, before the end of November. I will arrange for the registrar or member appointed to conduct the event to convene a preliminary discussion as soon as possible. I accept there might be some preparation time required so ASIC is able to turn its mind to what action might be appropriate, and submissions about options might usefully be filed in advance – but a discussion of the logistics should occur before the facilitator at the preliminary event.

I certify that the preceding 15 (fifteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

..................................SGD......................................

Associate

Dated: 24 October 2023

Date(s) of hearing:	4 October 2023
Counsel for the Applicant:	Nick Wood SC
Solicitors for the Applicant:	Helen Hodgins
Counsel for the Respondent:	Zoe Maud SC
Solicitors for the Respondent:	Robert Chiarella, Wei Peng Soh, Lisa Kee