ASX Limited has paid a fine of $1,050,000 following an investigation by the Australian Securities and Investments Commission (ASIC) into its compliance with the Market Integrity Rules. This is the first time ASIC has issued an infringement notice to a market operator.
ASIC issued the notice because it has reasonable grounds to believe that ASX breached the rule requiring pre-trade transparency on 8,417 occasions between 4 April 2019 and 22 December 2022. The rule requires ASX to hold certain information about orders in its trading system. ASX has failed to make this information available about orders for some share market products as a result of a system misconfiguration.
Pre-trade information is important because it helps shape prices, helps with liquidity, allows investors to assess investment opportunities and the value of listed companies.
This issue arose from ASX’s failure to properly configure certain order functions in its trading system. ASIC considers ASX’s conduct to have been serious. The misconfiguration of the system was not detected until it was brought to the ASX’s attention by a market participant. At least twice before 22 December 2022, the ASX could, but had not, detected it.
In determining the penalty, the regulator found that the consequences of the system misconfiguration and ASX’s failure to detect and escalate for remediation was an aggravating factor.
ASIC also found that there was no evidence of other harm suffered as a result of the conduct, but the damage to public confidence in the functioning of the market is such that the consequences of the conduct are an aggravating factor in determining the penalty.
ASIC found that the circumstances giving rise to the system configuration issue were indicative of carelessness rather than recklessness or willful misconduct. Once informed, ASX took immediate action to correct the problem and notify ASIC.
Compliance with the infringement notice does not constitute an admission of guilt or liability and in so doing, ASX is not deemed to have contravened subsection 798H(1) of the Corporations Act.
This outcome is separate from ASIC’s investigation in relation to the ASX CHESS Replacement Scheme. This investigation is ongoing.
Market Integrity Rule 6.1.2 requires market operators to make certain information, such as order volume and price, available on their trading system. There are limited exceptions to this rule, including where the consideration for the transaction is $200,000 or more for Class 3 stock market products, known as trading blocks.