Disputes & Investigations

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Client Update: ASX market supervision report released

30 October 2009

In brief: The supervisory arm of the Australian Securities Exchange has this week released its 2009 annual report. Partner Miriam Stiel (view CV) looks at the activities that were undertaken in the past financial year and at the implications for the year ahead.

Markets supervision in Australia

The Australian Securities Exchange (the ASX) currently has a range of supervisory responsibilities that are carried out by its subsidiary ASX Market Services (ASXMS). These functions include:

  • supervising listed entities, market participants and trading activity in the equities and futures markets;
  • investigating potential breaches of the ASX rules and taking enforcement action; and
  • referring suspected market misconduct to the Australian Securities and Investments Commission (ASIC).

In an effort to heighten transparency and promote investor confidence in the integrity of the market, ASXMS has, for the first time, released an annual report detailing the supervisory activities undertaken in the 2009 financial year.

Increase in activities revealed

The report contains statistics revealing that economic and market conditions had a significant impact on ASXMS's 2009 monitoring, investigation and enforcement activities.

The decline in the market in the early part of the year saw a significant increase in suspected market manipulation activities, followed by a rapid increase in insider trading investigations as more capital raisings were undertaken. The number of cases of suspected non-compliance with the ASX rules doubled from the previous year, to more than 1000. While the majority of these did not result in any action being taken, more than 100 cases were referred to ASIC or to the ASX enforcement unit for further analysis. Seventy-nine investigations were carried out in relation to potential trading rule breaches and other suspected market misconduct.

On the enforcement side, 88 cases of suspected continuous disclosure breaches, market manipulation and insider trading were referred to ASIC for further action. Twenty-five cases were referred to the disciplinary tribunal. The tribunal reported a significant increase in the complexity and seriousness of matters involving allegations of market manipulation, unprofessional conduct and short selling during the year. The tribunal determined 21 matters, making findings of dishonesty, lack of probity and unprofessional conduct. Fines totalling more than $860,000 were imposed, reflecting the tribunal's approach of ensuring that penalties constitute real punishment, involving pain or loss.

What lies ahead

As previously reported, under proposed reforms announced in August, from the third quarter of 2010 ASIC will become responsible for both supervision and enforcement of market misconduct laws, although the ASX will retain responsibility for supervising listed entities and clearing, and operators of clearing and settlement facilities. ASXMS has committed to ensuring that market supervision continues at the same high rate of effectiveness pending the transfer.

Eighteen matters have already been referred to ASIC this year and the disciplinary tribunal has imposed a total of $1.625 million in fines. There is certainly no reason to expect that the high level of supervision and enforcement undertaken in 2009 will not continue in the coming year.

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