ASX Group gets nod of approval

The Australian Securities Exchange (ASX) Group has passed its annual assessment for 2009, but continues to address areas of concern, including its listing rule framework, disclosure, investor education and algorithmic trading.

The Australian Securities and Investments Commission (ASIC) stated that its annual market assessment revealed that in 2009 ASX Group licensees had adequate arrangements in place to supervise their markets and clearing and settlement facilities under the Corporations Act. However, there were several areas that ASIC would continue to work with the ASX group to resolve, including the push for better disclosure and information for retail investors, as well as concerns about algorithmic trading.

The report was for the period between 1 January 2009 and 31 December 2009, but also took into account ASX activities relevant to the ‘flash crash’ in the United States on 6 May 2010 — as well as the transfer of supervision to ASIC, which occurred on 1 August 2010. It did not take into account the proposed bid for ASX Limited by the Singapore Stock Exchange or ASIC’s consultation on the structure of Australia’s equity markets.

ASIC report noted that during 2009, the ASX Group continuously monitored and improved the performance of its supervisory activities, although there continued to be a number of issues that the ASX was working through with ASIC. These included a review of issuer listing and quotation, which ASIC stated was to ensure that the ASX group was well placed to “pre-emptively address market, operational and supervisory concerns that may arise”. The review involved an analysis of the ASX listing rule framework, which had particular focus on admission criteria for entities seeking to list.

Other issues for continuing review included disclosure around complex corporate structures, gearing ratios for particular sectors and the aptness of particular disclosure models for certain types of issuers; maximising the usefulness of the ASX website and the information available that would aid retail investors in investment decisions, particularly around contracts for difference, AQUA products, partly paid shares and other complex or novel products; supervision of the development of products for quotation, especially in light of the transfer of the supervising of trading activities from the ASX to ASIC; more robust assessment of the capital position of market participants; and asset-related disclosures for the mining and resources sectors.

The ASX was also reviewing trade cancellation policies and trading halts, considering the viability of introducing stock-specific circuit breakers — this was due in part to concerns about ‘momentum’ algorithmic trading that could result in trade errors on the ASX cash market, ASIC stated. Also in light of algorithmic trading, the ASX and ASIC were working closely to consider suitable models for electronic access to the market, processes for terminating the operation of certain algorithms, as well as education of retail investors, listed entities and other stakeholders. ASIC stated it was reviewing a number of these matters as part of ongoing efforts to ensure overall market integrity.