ASIC Class Rule Waiver [17-0370]

Administered by Department of the Treasury

Legislation au F2017L00494 Rules Not in force Legislative Instrument

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EXPLANATORY STATEMENT for
ASIC CLASS RULE WAIVER [CW 17/0370]

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

The Australian Securities and Investments Commission (ASIC) makes ASIC Class Rule Waiver 17/0370 (this instrument) under subrule 1.2.1(1) of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011 (the Competition Rules). Under subrule 1.2.1(1), ASIC may relieve any person or class of persons from the obligation to comply with a provision of the Competition Rules. Under Rule 1.2.3 ASIC may specifiy the period during which any relief from an obligation to comply with a provision of the Rules may apply.

This instrument amends ASIC Class Rule Waiver 13/680 and is a continuance of ASIC Class Rule Waiver 15/0384.

Background

On 4 May 2015, ASIC Class Rule Waiver [CW 15/0384] amended ASIC Class Rule Waiver [CW 13/680], providing 12 months relief to Participants of the Market operated by ASX Limited (ACN 008 624 691) (ASX) from subrule 4.1.1(1) of the Competition Rules. Subrule 4.1.1(1) of the Competition Rules provides that, subject to certain exceptions in subrule 4.1.1(2), a Participant must not enter into a Transaction unless the Transaction is entered into by matching of a Pre-Trade Transparent Order (being an Order for which information such as price and volume is made available before execution) on an Order Book. Relief was granted where a Participant enters into a Transaction in an Equity Market Product that is part of a Contingent Equity Transaction (CET).

A Participant that enters into a CET may breach subrule 4.1.1(1) without the relief granted by ASIC Class Rule Waiver [CW 15/0384].

On 29 April 2016, ASIC Class Rule Waiver [CW 16/0352] extended the relief under ASIC Class Rule Waiver [CW 15/0384] by another 12 months to midnight 4 May 2017.

Reasons for granting the original Class Rule waiver

The Waiver was originally granted in order to:

a) facilitate CETs being entered into at a net price, which contributes to the efficiency of the broader market as it enables participants to effectively hedge their options transactions; and

b) allow post-trade transparency of the OTC equity component of the CET, as that transaction will be reported automatically by ASX.

In granting the Waiver, ASIC concluded that because the number of CETs was expected to be relatively low (ASX did not, and still does not, expect CETs to exceed 5% of total FlexClear transactions), their introduction would be unlikely to have an adverse impact on fairness, efficiency of the market, liquidity or price formation.

Furthermore, it was expected that the number of CETs would be low, so the overall effect on pre-trade transparency would be negligible.

Following the granting of the Waiver, an uptake of CETs would have facilitated an assessment of their impact on the market. However, as there have been no CETs to date such an assessment remains unfeasible.

2. Purpose of the instrument

This Class Rule Waiver varies [CW 13-680] by extending, for a further 12 months, the relief for a Particpant from the pre-trade transparency obligation in subrule 4.1.1(1) of the Competition Rules. The current Waiver expires on 4 May 2017 and was originally granted to monitor the impact of CETs on the lit market with regard to price formation and the fairness, efficiency and liquidity of the market. No CETs have been transacted since this waiver was originally granted and no data is available to facilitate an assessment on market impact.

A 12 month extension of the Waiver will result in an expiration date of 4 May 2018. ASIC currently anticipates that an assessment of the market impact of this product can be undertaken during this period.

The extension will enable a Participant to enter into a Transaction in an Equity Market Product that is part of a CET, without being required to comply with subrule 4.4.1(1).

3. Operation of the instrument

The instrument substitues the expiration date stated in paragraph 7C of [CW 13/680] of "4 May 2017", with "4 May 2018", thereby extending the waiver by 12 months.

4. Consultation

ASIC did not formally consult on this Class Rule Waiver as, since the relief was granted, no CETs have been traded and the circumstances have not changed since the granting of the original Class Rule Waiver 15/0384.

At the time of issuance of the original waiver, discussions were held with ASX acting on behalf of Participants who potentially would use CETs. ASX advised that these Participants were supportive of a new ASX clearing service of which CETs are an important part.

This legislative instrument is compatible with human rights as it does not raise any human rights issues.

Overview

The Australian Securities and Investments Commission (ASIC) has introduced the ASIC Class Rule Waiver 17/0370 under the Corporations Act 2001. This waiver, enacted to address the need for monitoring the market impact of Contingent Equity Transactions (CETs) on the lit market, extends for another 12 months the relief granted to participants from the pre-trade transparency obligation in subrule 4.1.1(1) of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011. Originally granted in 2015, the waiver was initially intended to facilitate the entry of CETs at a net price, which supports market efficiency, and to allow post-trade transparency of the over-the-counter equity component of CETs. With no CETs transacted since the waiver was granted, ASIC has determined that an additional period is necessary to assess the potential market impact of these transactions. The extension of the waiver aims to provide sufficient time for an evaluation of CETs' effects on price formation and market fairness, efficiency, and liquidity.

Scope and Application

The ASIC Class Rule Waiver [CW 17/0370] applies to participants of the Market operated by ASX Limited, a key player in the Australian securities market, and grants them a 12-month extension of relief from the pre-trade transparency obligation under the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011. This waiver is particularly relevant to transactions involving Contingent Equity Transactions (CET), which allow participants to enter into transactions in Equity Market Products without needing to match a Pre-Trade Transparent Order on an Order Book. This waiver extends the relief originally granted by ASIC Class Rule Waiver [CW 15/0384], which itself was a modification of ASIC Class Rule Waiver [CW 13/680]. The relief applies specifically to the Australian securities market, overseen by ASIC, and does not extend beyond the boundaries of Australia. The waiver was introduced to facilitate more efficient market operations and to allow for post-trade transparency of OTC equity components of CETs. While the waiver is intended to have minimal impact on market transparency and efficiency, it remains in effect due to the absence of CETs since the initial waiver was granted, thereby preventing any meaningful assessment of its market impact.

Key Provisions

The primary operative sections of ASIC Class Rule Waiver 17/0370 (CW 17/0370) are sections that amend the expiration date of the previous waiver (CW 13/680) and extend the relief granted to participants of the Australian Securities Exchange (ASX) market (section 3). The waiver extends the relief for participants from the pre-trade transparency obligation in subrule 4.1.1(1) of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011 (Competition Rules). This waiver permits participants to enter into a transaction in an Equity Market Product that is part of a Contingent Equity Transaction (CET), without complying with the specified subrule. The relief was initially granted to monitor the impact of CETs on the market, and the extension seeks to allow for further assessment over an additional 12-month period. ASIC Class Rule Waiver 17/0370 imposes obligations on participants of the ASX market who wish to engage in CETs. The waiver allows these participants to bypass the pre-trade transparency requirement in subrule 4.1.1(1) of the Competition Rules for a specified period. This means that, during the waiver period, participants can enter into CETs without the need to match pre-trade transparent orders on an order book, as would normally be required. The waiver also requires that no CETs have been transacted since the original waiver was granted, and that the market conditions and circumstances remain unchanged since that time. There are no specific offences, penalties, or consequences outlined in the explanatory statement for breaching the provisions of ASIC Class Rule Waiver 17/0370. However, it is implied that any breach of the waiver's terms or the underlying Competition Rules may result in enforcement actions by the Australian Securities and Investments Commission (ASIC). The penalties for breaches of the Competition Rules are determined on a case-by-case basis and can include both civil and criminal penalties, depending on the severity and intent of the breach. ASIC has the authority to impose financial penalties, publicise contraventions, and pursue legal action against individuals or entities that breach the rules. The maximum penalties for breaches of the Competition Rules can include substantial fines for both individuals and corporations, as well as potential imprisonment for serious or repeat offences.

Area of Law: Financial Regulation
Instrument: Regulation
Concepts: Regulatory Standards; Transitional Provisions; Enforcement Powers

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.

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