ASIC MARKET INTEGRITY RULES (CHI-X AUSTRALIA MARKET) AMENDMENT 2017 (NO. 1)
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
Enabling Legislation
The Australian Securities and Investments Commission (ASIC) makes the ASIC Market Integrity Rules (Chi-X Australia Market) Amendment 2017 (No. 1) (the Amending Instrument) under subsection 798G(1) of the Corporations Act 2001 (the Act). The Amending Instrument amends the ASIC Market Integrity Rules (Chi-X Australia Market) 2011 (the ASIC Market Integrity Rules (Chi-X)).
Subsection 798G(1) of the Act provides that ASIC may, by legislative instrument, make rules that deal with:
(a) the activities or conduct of licensed markets;
(b) the activities or conduct of persons in relation to licensed markets; and
(c) the activities or conduct of persons in relation to financial products traded on licensed markets.
Subsection 798G(1) of the Act was inserted by Schedule 1 of the Corporations Amendment (Financial Market Supervision) Act 2010.
Capitalised terms in this Explanatory Statement refer to defined terms in the ASIC Market Integrity Rules (Chi-X).
Background and rationale
On 29 April 2011, ASIC made the ASIC Market Integrity Rules (Chi-X). The rules commenced on 5 May 2011.
The ASIC Market Integrity Rules (Chi-X) apply to:
(a) the activities or conduct of the Chi-X Market;
(b) the activities or conduct of persons in relation for the Chi-X Market; and
(c) the activities or conduct of persons in relation to Financial Products traded on the Chi-X Market.
The purpose of the Amending Instrument is to amend the ASIC Market Integrity Rules (Chi-X) to apply to a new class of financial product which Chi-X Australia Pty Ltd (Chi-X Australia) intends to admit to quotation on the Chi-X Market as a Cash Market Product—Transferable Custody Receipts (TraCRs).
The Amending Instrument achieves this aim by:
- substituting the definition of “Investment Product” in Rule 1.4.3 for a definition that is extended to include an “Investment Product (Transferable Custody Receipt)”; and
- inserting definitions for “Foreign Quoted Shares” and “Investment Product (Transferable Custody Receipt)”.
These amendments will have the effect that the provisions of the ASIC Market Integrity Rules (Chi-X) that apply to activities or conduct in relation to other Investment Products quoted on the Chi-X Market (currently warrants and exchange traded funds) will apply in the same manner in relation to TraCRs.
Details of the Amending Instrument are contained in Attachment A.
Consultation
ASIC publicly consulted on the proposed amendments made by the Amending Instrument in a Market Integrity Update published by ASIC in September 2016.
Chi-X Australia supported the proposed amendments. We did not receive any other substantive feedback on the proposals.
We have taken the results of the consultation process into account in preparing the Amending Instrument, and we have decided to proceed as proposed.
Penalties
Subsection 798G(1) of the Act provides that market integrity rules are legislative instruments for the purposes of the Legislative Instruments Act 2003.
Subsection 798G(2) of the Act provides that market integrity rules may include a penalty amount for a rule. A penalty amount must not exceed $1,000,000. The penalty amount set out below a Rule is the penalty amount for that Rule.
The Amending Instrument does not amend any penalty amount for any Rule.
Commencement of the Amending Instrument
The Amending Instrument will commence on the day after the day it is registered on the Federal Register of Legislative Instruments.
Statement of Compatibility with Human Rights
A Statement of Compatibility with Human Rights is included in this Explanatory Statement at Attachment B.
Regulation Impact Statement
A Regulation Impact Statement is not required for the Amending Instrument because it will have a minor regulatory impact.
ATTACHMENT A
Paragraph 1 – Name of legislative instrument
This paragraph provides that the title of the Amending Instrument is the ASIC Market Integrity Rules (Chi-X Australia Market) Amendment 2017 (No.1).
Paragraph 2 – Commencement
This paragraph provides that the Amending Instrument commences on the day after it is registered on the Federal Register of Legislative Instruments.
Paragraph 3 – Authority
This paragraph provides that the Amending Instrument is made under subsection 798G(1) of the Corporations Act 2001.
Paragraph 4 – Amendments
This paragraph provides that Schedule 1 to the Amending Instrument amends the ASIC Market Integrity Rules (Chi-X Australia Market) 2011.
Schedule 1 - Amendments
Item [1] Rule 1.4.3, after the definition of “Financial Product Advice”
Item [1] of Schedule 1 to the Amending Instrument inserts a new definition of “Foreign Quoted Shares”. “Foreign Quoted Shares”, in relation to an Investment Product (Transferable Custody Receipt), means shares of a foreign company that is listed on the New York Stock Exchange, NASDAQ Global Market or NASDAQ Global Select Market, where the shares are in a class of shares that is able to be traded on at least one of those financial markets.
Item [2] Rule 1.4.3, definition of “Investment Product”
Item [2] of Schedule 1 to the Amending Instrument omits the definition of “Investment Product” and substitutes it with a definition that replicates the omitted definition and extends the definition to include “Investment Product (Transferable Custody Receipt)”.
Item [3] Rule 1.4.3, after the definition of “Investment Product (MIS)”
Item [3] of Schedule 1 to the Amending Instrument inserts a new definition of “Investment Product (Transferable Custody Receipt)”. “Investment Product (Transferable Custody Receipt)” means units of beneficial ownership in Foreign Quoted Shares where the units:
(a) arise from a custodial and sub-custodial arrangement under which:
(i) a custodian holds, directly or indirectly, the Foreign Quoted Shares on behalf of, or in trust for, an AFSL holder that holds an AFSL that covers the provision of a custodial or depository service; and
(ii) the AFSL holder holds their equitable rights or interests in the Foreign Quoted Shares arising from the custodial arrangement mentioned in subparagraph (i) on behalf of, or in trust for, a person; and
(b) are issued without the involvement of the issuer of the Foreign Quoted Shares; and
(c) are able to be traded on the Chi-X Market.
ATTACHMENT B
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
ASIC Market Integrity Rules (Chi-X Australia Market) Amendment 2017 (No. 1)
ASIC Market Integrity Rules (Chi-X Australia Market) Amendment 2017 (No. 1) (the Instrument) is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
- Overview of this Instrument
- The Instrument is made under subsection 798G(1) of the Corporations Act 2001 (Corporations Act). The Instrument amends the ASIC Market Integrity Rules (Chi-X Australia Market) 2011 (ASIC Market Integrity Rules (Chi-X)) which apply to:
(a) the activities and conduct of a financial market operated by Chi-X Australia Pty Limited ACN 129 584 667 (Chi-X Australia);
(b) the activities or conduct of persons in relation to the Chi-X Market; and
(c) the activities or conduct of persons in relation to financial products traded on the Chi-X Market.
2. The purpose of the Instrument is to amend the ASIC Market Integrity Rules (Chi-X) to apply to a new class of financial product which Chi-X Australia Pty Ltd (Chi-X Australia) intends to admit to quotation on the Chi-X Market as a Cash Market Product—Transferable Custody Receipts (TraCRs).
3. The Instrument achieves this aim by:
(a) substituting the definition of “Investment Product” in Rule 1.4.3 for a definition that is extended to include an “Investment Product (Transferable Custody Receipt)”; and
(b) inserting definitions for “Foreign Quoted Shares” and “Investment Product (Transferable Custody Receipt)”.
4. These amendments will have the effect that the provisions of the ASIC Market Integrity Rules (Chi-X) that apply to activities or conduct in relation to other Investment Products quoted on the Chi-X Market (currently warrants and exchange traded funds) will apply in the same manner in relation to TraCRs.
B. Human rights implications
Article 17 of the International Covenant on Civil and Political Rights
5. The Instrument may engage the right to privacy and reputation in Article 17 of the International Covenant on Civil and Political Rights (“Article 17”). Article 17 prohibits unlawful or arbitrary interferences with a person's privacy, family, home (which the UN Human Rights Committee has interpreted as including a person’s workplace) and correspondence. It also prohibits unlawful attacks on a person’s reputation. It provides that persons have the right to the protection of the law against such interference or attacks. The UN Human Rights Committee has not defined ‘privacy’. The Commonwealth Attorney-General’s Department has provided guidance that privacy should be understood to comprise freedom from unwarranted and unreasonable intrusion into activities that society recognises as falling into the individual sphere of autonomy. To avoid being considered arbitrary, any interference with privacy must be in accordance with the provisions, aims and objectives of the ICCPR and should be reasonable in the particular circumstances.[1]
6. The Instrument has the effect of applying a range of obligations imposed on market participants in respect of other financial products able to be traded on the Chi-X Market to TraCRs. The obligations include obligations to notify ASIC about aspects of trading activity by individuals on the Chi-X Market, to keep records of trading activity on the Chi-X Market, and to provide trading data to ASIC to enable it to supervise the Chi-X Market as required by the Corporations Act. These obligations may engage the right to privacy and reputation in Article 17.
7. The records and notifications relating to TraCRs required by the ASIC Market Integrity Rules (Chi-X) as a result of the amendments in the Instrument may contain ‘personal information’ as defined in the Privacy Act 1988, being information or an opinion (including information or an opinion forming part of a database), whether true or not, and whether recorded in a material form or not, about an individual whose identity is apparent, or can reasonably be ascertained, from the information or opinion. This may be the case where the person to whom the record relates (e.g. an employee or representative of the market participant or a client) is an individual.
8. The Instrument is compatible with the rights recognised in Article 17 of the ICCPR by reason that any interference with a person's privacy or reputation resulting from compliance with rules affected by the Instrument will be lawful and not arbitrary. In particular:
(a) the Instrument is made in accordance with ASIC’s power to make market integrity rules dealing with the activities or conduct of persons in relation to licensed markets and in relation to financial products traded on licensed markets (see subsection 798G(1) of the Corporations Act), and with the consent of the Minister;
(b) the Instrument will assist ASIC to perform its function of supervising the Chi-X Market, the operator of which (Chi-X Australia) is licensed under subsection 795B(1) of the Act (see section 798F of the Act);
(c) the Instrument will further the objects of Chapter 7 of the Act, including promoting fair, orderly and transparent markets for financial products, including TraCRs (see paragraph 760A(c) of the Act);
(d) the Instrument will assist ASIC to perform its function of monitoring and promoting market integrity and consumer protection in relation to the Australian financial system (see paragraph 12A(2) of the Australian Securities and Investments Commission Act 2001 (the ASIC Act); and
(e) information relating to TraCRs required to be provided under the ASIC Market Integrity Rules (Chi-X) as a result of the amendments in the Instrument will be protected in accordance with ASIC’s legislative obligations under s127 of the ASIC Act and, to the extent the information is personal information, under the Privacy Act 1988.
C. Consultation
9. ASIC publicly consulted on the proposed amendments effected by this Instrument in a Market Integrity Update published by ASIC in September 2016.
10. Chi-X Australia supported the proposed amendments. We did not receive any other substantive feedback on the proposals. No human rights issues were raised.
D. Conclusion
11. If the Instrument were considered to limit the right in Article 17 of the ICCPR, ASIC considers that the Instrument is nevertheless compatible with that right. The right in Article 17 is not absolute. As noted, the right has implied limitations (‘unlawful’ and ‘arbitrary’) and may be subject to a permissible limitation where that limitation aims to achieve a legitimate objective, there is a rational connection between the limitation and the objective and the limitation is reasonable, necessary and proportionate.
Australian Securities and Investments Commission
[1] Australian Government Attorney-General’s Department : Privacy and Reputation http://www.ag.gov.au/Humanrightsandantidiscrimination/Humanrightsandthepublicsector/Humanrightsguidancesheets/Pages/Privacyandreputation.aspx