EXPLANATORY STATEMENT for
ASIC Market Integrity Rules (Securities Markets) Class Waiver 2018/311
Prepared by the Australian Securities and Investments Commission
ASIC Market Integrity Rules (Securities Markets) 2017
The Australian Securities and Investments Commission (ASIC) makes ASIC Market Integrity Rules (Securities Markets) Class Waiver 2018/311 (the instrument) under subrule 1.2.1(1) and Rule 1.2.3 of the ASIC Market Integrity Rules (Securities Markets) 2017 (the Rules).
Under subrule 1.2.1(1) of the Rules, ASIC may relieve any person or class of persons from the obligation to comply with a provision of the Rules either generally or in a particular case or category, and either unconditionally or subject to such conditions as ASIC thinks fit.
Under Rule 1.2.3 of the Rules, ASIC may specify the period or specific event during which any relief from an obligation to comply with a provision of the Competition Rules may apply.
Unless the contrary intention appears, capitalised terms in this Explanatory Statement have the same meaning as in the Rules.
1. Background
As part of its supervisory responsibilities, ASIC reviewed the 14 market integrity rule books in force in late 2016 and identified the need to consolidate certain market integrity rule books which covered substantively similar existing obligations across like domestic licensed markets.
In Consultation Paper 277 Proposals to consolidate the ASIC market integrity rules (CP 277), ASIC proposed to consolidate the Pre-Commencement Market Integrity Rules to create a single set of market integrity rules for the ASX, Chi-X IR Plus, NSX and SSX Markets.
Following public consultation, ASIC made the Rules in November 2017. Generally, the Rules maintain the substance of the regulatory regime embodied in market integrity rules (the Pre-Commencement Market Integrity Rules) applicable prior to the commencement of the Rules, including the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011 (Competition Rules). The Rules will repeal the Pre-Commencement Market Integrity Rules on 7 May 2018.
Upon the repeal of the Pre-Commencement Market Integrity Rules, ASIC Waivers made under the Pre-Commencement Market Integrity Rules will also be repealed, including ASIC Class Waiver [CW 13/680].
[CW 13/680] relieves a Market Participant from the prohibition under subrule 4.1.1(1) of the Competition Rules from entering into a transaction unless the transaction is entered into by matching of a Pre-Trade Transparent Order on an Order Book or other exception applies. The relief applies in circumstances where the Market Participant enters into a transaction:
(a) as an ‘ETF Special Trade’;
(b) as a “Crossing of a Derivative/Cash Combination”;
(c) as a result of a “Derived Order” relating to a component leg of a Derivative/Cash Combination or a Cash Only Combination that is traded as a Tailor-Made Combination;
(d) as part of a “contingent equity transaction” (until 4 May 2020);
(e) as an “Exchange-Traded Fund Special Trade”; or
(f) a Trade with Price Improvement where the Best Available Bid and Best Available Offer does not include PureMatch data.
Subrule 4.1.1(1) of the Competition Rules corresponds to subrule 6.1.1(1) of the Rules.
In Report 547 Response to submissions on CP 277 Proposals to consolidate the ASIC market integrity rules (REP 457) ASIC announced that as part of its project to consolidate the market integrity rules it would remake existing individual and class waivers under the Rules before 7 May 2018.
Rule 6.1.1 of the Rules
Subrule 6.1.1(1) of the Rules provides that, subject to subrule 6.1.1(2), a Relevant Participant must not enter into a transaction unless the transaction is entered into by matching of a Pre-Trade Transparent Order on an Order Book. Subrule 6.1.1(1) reflects the importance of pre-trade transparency to the price formation process and fair and efficient markets.
Subrule 6.1.1(2) of the Rules provides that a Relevant Participant is not required to comply with subrule 6.1.1(1) in relation to:
(a) Block Trades;
(b) Large Portfolio Trades;
(c) a Trade with Price Improvement;
(d) a Permitted Trade during the Post-Trading Hours Period;
(e) a Permitted Trade during the Pre-Trading Hours Period; and
(f) Out of Hours Trades.
The exceptions in subrule 6.1.1(2) of the Rules preserve the substance of a number of existing exceptions to pre-trade transparency that were available to Participants of ASX immediately prior to 31 October 2011 (when ASIC made the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011 (the Competition Rules)), and apply these exceptions consistently across Markets.
2. Purpose of the class rule waiver
The purpose of this instrument is to provide conditional class waiver relief from Rule 6.1.1 that is consistent with the relief given from the Competition Rules in [CW 13/680] that will be repealed on 7 May 2018 upon the repeal of the Pre-Commencement Market Integrity Rules.
3. Operation of the instrument
Name of legislative instrument
Section 1 of the instrument provides that the name of the instrument is the ASIC Market Integrity Rules (Securities Markets) Class Waiver 2018/311.
Commencement
Section 2 of the instrument provides that the instrument commences on the day after the instrument is registered on the Federal Register of Legislation.
Authority
Section 3 of the instrument provides that the instrument is made under subrule 1.2.1(1) and Rule 1.2.3 of the Rules.
Interpretation
Section 4 of the instrument provides that, unless the contrary intention appears, capitalised terms have the same meaning as in the Rules.
Waivers from subrule 6.1.1(1)
Subsection 5(1) of the instrument provides that a Participant of the ASX Market does not have to comply with subrule 6.1.1(1) of the Rules in the case where the Participant enters into a transaction:
(a) as an “ETF Special Trade” in accordance with rule [3310] of the operating rules of the ASX Market as in force at the date of the instrument (ASX Operating Rules); or
(b) as a “Crossing of a Derivative/Cash Combination” in accordance with rule [4060] of the ASX Operating Rules; or
(c) as a result of a “Derived Order”, within the meaning of the ASX Operating Rules, relating to a component leg of a Derivative/Cash Combination or a Cash Only Combination that is traded as a Tailor-Made Combination in accordance with rule [4111] of the ASX Operating Rules and Procedure 4111 of the procedures to the ASX Operating Rules; or
(d) as part of a “contingent equity transaction” in accordance with Procedure 3002 of the procedures to the ASX Operating Rules.
Subsection 5(2) of the instrument provides that a Participant of the Chi-X Market does not have to comply with subrule 6.1.1(1) of the Rules in the case where the Participant enters into a transaction as an “Exchange-Traded Fund Special Trade” in accordance with rule 14.36 of the operating rules of the Chi-X Market as in force at the date of the instrument.
Subsection 5(3) of the instrument provides that a Market Participant does not have to comply with subrule 6.1.1(1) of the Rules in the case where the Market Participant enters into a transaction in an Equity Market Product or CGS Depository Interest other than by matching of Orders on an Order Book and that transaction would be a Trade With Price Improvement if Orders on the Order Book maintained by or on behalf of ASX and known as “PureMatch” were disregarded in calculating the Best Available Bid, Best Available Offer or Best Mid-Point (as applicable).
Expiry
Section 6 of the instrument provides that the relief in paragraph 5(1)(d) of the instrument applies until 4 May 2020.
4. Consultation
The instrument is part of a wider project to consolidate the market integrity rules. ASIC consulted extensively with market operators, market participants and industry bodies before making the Rules and the instrument.
The consultation period for Consultation Paper 277 Proposals to consolidate the ASIC market integrity rules (CP 277) occurred between 24 January 2017 and 7 March 2017. ASIC held over 25 meetings with stakeholders during and following that period. In addition, ASIC consulted ASIC’s Market Advisory Panel on the proposals. ASIC received five non-confidential submissions and six confidential submissions to CP 277 from a broad range of stakeholders including from market participants, market operators and industry associations.
The Office of Best Practice Regulation has assessed the proposals implemented by the Rules and the instrument as having a minor impact on business, community organisations or individuals and confirmed that no further analysis, in the form of a Regulatory Impact Statement is required (OBPR ID 22449).
5. Documents incorporated by reference
The instrument incorporates by reference the ASX Operating Rules and the ASX Operating Rules Procedures, as in force on the day the instrument is made. These rules and procedures govern the manner in which the trading platform and relevant trading services are provided by the ASX. The ASX Operating Rules and the ASX Operating Rules Procedures may be obtained through ASX’s website at asx.com.au/regulation.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
ASIC Market Integrity Rules (Securities Markets) Class Waiver 2018/311
ASIC Market Integrity Rules (Securities Markets) Class Waiver 2018/311 (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 the legislative instrument
The Australian Securities and Investments Commission (ASIC) makes this Legislative Instrument under subrule 1.2.1(1) and Rule 1.2.3 of the ASIC Market Integrity Rules (Securities Markets) 2017 (the 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 Rules. Under Rule 1.2.3, ASIC may specify the period or specific event during which any relief from an obligation to comply with a provision of the Rules may apply.
The purpose of this instrument is to provide class waiver relief from subrule 6.1.1(1) of the Rules that is consistent with the relief given in ASIC Class Rule Waiver [CW 13/680] from the corresponding subrule 4.1.1(1) of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011 that will be repealed on 7 May 2018.
The instrument relieves a Market Participant from the prohibition under subrule 6.1.1(1) of the Rules from entering into a transaction unless the transaction is entered into by matching of a Pre-Trade Transparent Order on an Order Book or other exception applies. The relief applies in circumstances where the Market Participant enters into a transaction:
(a) as an ‘ETF Special Trade’;
(b) as a “Crossing of a Derivative/Cash Combination”;
(c) as a result of a “Derived Order” relating to a component leg of a Derivative/Cash Combination or a Cash Only Combination that is traded as a Tailor-Made Combination;
(d) as part of a “contingent equity transaction” (until 4 May 2020);
(e) as an “Exchange-Traded Fund Special Trade”; or
(f) a Trade with Price Improvement where the Best Available Bid and Best Available Offer does not include PureMatch data.
Human rights implications
The instrument does not engage any of the applicable rights or freedoms.
Conclusion
This instrument is compatible with human rights as it does not raise any human rights issues.
Australian Securities and Investments Commission