Anne McEwen (SA, Australian Labor Party) Share this | Link to this | Hansard source

Following the receipt of satisfactory responses, on behalf of the Senate Standing Committee on Regulations and Ordnances, I give notice that on the next day of sitting I shall withdraw four notices of motion to disallow, the full terms of which have been circulated in the chamber and that I now hand to the Clerk. I seek leave to incorporate in Hansard the committee’s correspondence concerning these instruments.

Leave granted.

The document read as follows—

SENATOR STEPHENS

AT THE GIVING OF NOTICES

10 FEBRUARY 2011

NOTICE OF INTENTION TO WITHDRAW NOTICES OF

MOTION TO DISALLOW

Twelve sitting days after today

Business of the Senate─Notices of Motion Nos:

1. ASIC Market Integrity Rules (ASX Market) 2010 made under subsection 798G(1) of the Corporations Act 2001. [F2010L02211]

2. Australian Wine and Brandy Corporation (Annual General Meeting of the Industry) Amendment Regulations 2010 (No. 1), as contained in Select Legislative Instrument 2010 No. 218 and made under the Australian Wine and Brandy Corporation Act 1980. [F2010L02114]

3. Electoral and Referendum Amendment Regulations 2010 (No. 3), as contained in Select Legislative Instrument 2010 No. 227 and made under the Commonwealth Electoral Act 1918 and the Referendum (Machinery Provisions) Act 1984. [F2010L02131]

4. Producer Offset Amendment Rules 2010 (No. 1) made under section 376-265 of the Income Tax Assessment Act 1997. [F2010L01826]

ASIC Market Integrity Rules (ASX Market) 2010

28 October

The Hon David Bradbury MP

Parliamentary Secretary to the Treasurer

Room R1.89

Parliament House

CANBERRA ACT 2600

Dear Parliamentary Secretary

The Committee’s function is to examine all legislative instruments subject to disallowance or disapproval by the Senate to ensure that they comply with broad principles of personal rights and parliamentary propriety. In accordance with that function, the Committee is writing to you in relation to the following instruments made under subsection 798G(1) of the Corporations Act 2001.

ASIC Market Integrity Rules (APX Market) 2010

This instrument specifies market integrity rules in relation to the licensed market operated by Asia Pacific Exchange Limited. The Committee’s consideration of this instrument has raised the following matters.

First, rule 1.2.1 permits ASIC to provide an entity with a waiver from all or any of these rules. Subrule 1.2.1(4) notes that for the purposes of Part 1.2, ‘waiver’ means a waiver under rule 1.2.1. Rule 1.2.4, which is located in Part 1.2, permits ASIC to establish and maintain a register for recording details of ‘relief’ granted under Rule 1.2.1. It is not clear whether the term ‘relief’ has a meaning that is different from ‘waiver’. If not, it would assist clarity in application of the rules if rule 1.2.4 was amended to refer to ‘waiver’.

Secondly, rule 1.4.3 includes a definition of the term ‘prohibited conduct’. Paragraphs (b)(iii) and (iv) refer, respectively, to short selling and cornering. These terms are not defined in the Rules. It may be that these terms are thought to be well understood in the finance community but given their status as prohibited conduct, it would assist the application of the Rules if there was greater specification of the conduct that is being referred to (for example, does short selling include covered and naked short sales?).

ASIC Market Integrity Rules (SIM VSE Market) 2010

This instrument specifies market integrity rules in relation to the licensed market operated by SIM Venture Securities Exchange Limited. The Committee’s consideration of this instrument has raised the following matters.

First, rule 1.2.1 permits ASIC to provide an entity with a waiver from all or any of these rules. The Committee’s concern with this rule is the same as for the APX Market Rules above.

The second matter arises from a comparison of the definitions provided in these Rules with those provided in the ASIC Market Integrity Rules (APX Market) 2010. While the definitions must obviously reflect the different circumstances of these two markets, there are some common terms in both sets of Rules the definitions of which are drafted in different ways—see the definitions for ‘bid’, ‘immediate family’, ‘offer’, and ‘official list’. There are other common terms where the differences in definition may be due to differences in the two markets—see the definitions for ‘family company’, ‘family trust’, ‘takeover’. The Committee would appreciate advice clarifying the differences in the definitions between the Rules.

ASIC Market Integrity Rules (ASX Market) 2010

This instrument specifies market integrity rules in relation to the licensed market operated by Australian Securities Exchange Limited. The Committee’s consideration of this instrument has raised the following matters.

First, rule 1.2.1 permits ASIC to provide an entity with a waiver from all or any of these rules. The Committee’s concern with this rule is the same as for the APX Market Rules above.

Secondly, rule 2.1.4 specifies good fame and character requirements for people involved in the business of a market participant. Paragraph 2.1.4(2)(b)(i) states that a person may be assessed not to be of good fame and character if the person has been charged with or convicted of any offence. Notwithstanding the discretionary latitude granted by the word ‘may’, this paragraph nevertheless allows the fact that a person has been charged with an offence to count against their good fame and character, regardless of whether a conviction has followed from that charge. The Committee would appreciate your advice as to why this provision is worded in this way.

Thirdly, rules 2.4.13 to 2.4.15 deal with the renewal of accreditation of an accredited adviser. These rules include a requirement that ASIC must give written reasons if an application for renewal is rejected (subrule 2.4.15(2)). Rule 2.4.16 then provides that if ASIC has not renewed an accreditation by one business day after the renewal date the person ceases to hold the relevant accreditation. The intention behind this rule is not clear. It appears to allow ASIC to avoid processes for rejection of an application specified in rule 2.4.15, including the need to give reasons. The Committee would therefore appreciate your advice clarifying the operation of rule 2.4.16.

Finally, rules 4.1.9, 4.1.10, and 4.2.2 require that specified records and recordings be kept for certain periods of time. The required time periods differ, ranging from a minimum of 3 months (in the case of recordings of telephone conversations, under rule 4.1.10), to a minimum of 5 years (for a record of a client complaint, under rule 4.2.2), and seven years for records of an authorised person (rule 4.1.9). The Committee notes that rule 2.27 of the ASIC Market Integrity Rules (ASX 24 Market) 2010 also imposes a minimum 3 month requirement on keeping of telephone recordings. The reason for the different time periods is not clear, nor is the reason why, in two of these rules, the required time period is expressed as a minimum period. The Committee would appreciate further advice on the reason for the different time periods.

ASIC Market Integrity Rules (IMB Market) 2010

This instrument specifies market integrity rules in relation to the licensed market operated by IMB Limited. The Committee’s consideration of this instrument has raised the following concerns.

First, rule 1.2.1 permits ASIC to provide an entity with a waiver from all or any of these rules. The Committee’s concern with this rule is the same as for the APX Market Rules above.

Secondly, rule 1.1.5 requires that the market operator (IMB Ltd), market participants and other regulated entities must comply with these Rules. However the Rules only impose specific obligations, found in Chapter 2, on market participants. It is not clear what obligations are being imposed on the market operator or other regulated entities by these rules. The Committee would appreciate some further advice on this issue.

ASIC Market Integrity Rules (NSXA Market) 2010

This instrument specifies market integrity rules in relation to the licensed market operated by National Stock Exchange of Australia Limited. First, rule 1.2.1 permits ASIC to provide an entity with a waiver from all or any of these rules. The Committee’s concern with this rule is the same as for the APX Market Rules above.

Information on consultation

Finally, section 17 of the Legislative Instruments Act 2003 directs a rule-maker to be satisfied that appropriate consultation, as is reasonably practicable, has been undertaken particularly where a proposed instrument is likely to have an effect on business. The definition of ‘explanatory statement’ in section 4 of the Act requires an explanatory statement to describe the nature of any consultation that has been carried out. The Explanatory Statements that accompanies the ASIC Market Integrity Rules (APX Market) 2010, ASIC Market Integrity Rules (SIM VSE Market) 2010, ASIC Market Integrity Rules (IMB Market) 2010, ASIC Market Integrity Rules (NSXA Market) 2010 state only that there was ‘targeted consultation’ on the market integrity rules. The Committee would appreciate further information as to who the targets of the consultation were, thus providing an explanation that better meets the requirements of the Act.

The Committee operates within the disallowance timeframe established by the Legislative Instruments Act 2003 and works toward completing consideration of a legislative instrument before the expiry of the 15th sitting day after it has been tabled in the Senate. Correspondence should therefore be forwarded to the Committee as soon as possible but before the date shown below to allow it time to consider your advice prior to the expiration of the 15th sitting day. In the event that a response is not received by the 15th sitting day, the Committee may as a precautionary measure give a notice of motion to disallow the instrument.

The Committee would therefore appreciate advice on the above matters before 19 November 2010. Correspondence should be directed to the Chair, Senate Standing Committee on Regulations and Ordinances, Room S1.111, Parliament House, Canberra.

Yours sincerely

Senator the Hon Ursula Stephens

Chair

23 November 2010

Senator the Hon Ursula Stephens

Chair, Senate Standing Committee on

Regulations and Ordinances

Parliament House

CANBERRA ACT 2600

Dear Senator Stephens

Thank you for your letter of 28 October 2010 concerning various Market Integrity Rules made by the Australian Securities and Investments Commission (ASIC) under subsection 798G(1) of the Corporations Act 2001.

ASIC took over the supervisory responsibility for Australia’s domestically licensed financial markets from 1 August 2010. As such, it has been necessary for ASIC to examine the market rules that existed prior to 1 August 2010 to determine those that would become Market Integrity Rules (and hence be administered by ASIC) and those that would stay with the relevant market operator. The division of rules between Market Integrity Rules and the market operator was agreed between ASIC and each market operator, and was the subject of consultation with industry.

As such, ASIC’s Market Integrity Rules for each of the ASX, ASX 24, APX, IMB, NSXA and SIM VSE markets are based on a subset of each of the relevant market operators’ rules in existence prior to the transfer of market supervision from each of those markets to ASIC.

The principle applied to the division of market rules was:

• ASIC would make into Market Integrity Rules those rules that existed prior to 1 August 2010 that related to market integrity matters (e.g. those that related to participant conduct); and
• market operators would retain in their rule books, those rules that related to operational and mechanical matters.

A key priority in effecting the transfer of supervision from market operators to ASIC was to ensure ongoing market certainty and continuity and, to the greatest extent possible, minimise disruption and transition costs to market participants. To achieve this, ASIC’s Market Integrity Rules largely maintain the form and substance of the regulatory regime embodied in the market rules that existed prior to the transfer of the supervisory responsibility.

This was to ensure that the markets continued to largely operate as they operated prior to the transfer of supervisory responsibility. It also ensured that the Market Integrity Rules for each market continue to use similar terms - and work in concert - with the operating rules that were retained by the market operator for each respective market.

Following a suitable settling in period, ASIC will consider whether subsequent amendments to the Market Integrity Rules are warranted. This may include consideration of harmonising the individual Market Integrity Rule books for all markets. This is likely to take place in the longer term and will be done in the context of detailed discussion with industry to minimise the impact and costs to business.

A response to the Committee’s specific questions regarding each set of Market Integrity Rules is detailed in Appendix A.

Consultation

ASIC conducted two rounds of consultation in relation to developing the initial Market Integrity Rules for the four smaller markets (APX, SIM: VSE, IMB and NSXA). The first round comprised widespread public consultation regarding ASIC’s general policy approach, and included a draft set of rules for the ASX and SFE (now ASX 24) markets (which, although not directly relevant to the smaller markets, were indicative of ASIC’s proposed approach to these markets), The second round comprised targeted consultation with the market operators and relevant stakeholders for each of the smaller markets.

Round 1: Policy development - widespread public consultation

ASIC consulted on its policy approach to the creation of Market Integrity Rules as part of its February 2010 Consultation Paper 131 Proposed ASIC Market Integrity Rules: ASX and SFE [now ASX 24] Markets (CP 131). ASIC’s proposed policy approach and draft rules for the ASX and SFE markets were published on its website and public submissions were sought. Operators of the APX, SIM VSE, IMB, and NSXA markets were individually notified of the release of CP131 and encouraged to consider its contents in the context of their own markets.

ASIC received feedback from a range of bodies including industry bodies that represent stockbrokers across the wider markets (i.e. not just ASX and SFE). Generally, respondents to CP131 expressed support for ASIC’s approach of maintaining status quo by retaining the substance of existing rules and expressed comfort with the proposed division of responsibilities between the market operators and ASIC.

This feedback then informed ASIC’s approach to developing the rules for the APX, SIM VSE, IMB and NSXA Markets. ASIC adopted all of the same policies which had been in CP 131 when developing the APX, SIM VSE, IMB, and NSXA Market Integrity Rules.

Round 2: Specific question for each market - targeted industry consultation

ASIC also conducted additional consultation specifically with the APX, SIM VSE, IMB, NSXA markets and their relevant stakeholders. In this context:

• ASIC provided draft versions of Market Integrity Rules to:

- each market operator in relation to its own draft Market Integrity Rules; and

- key industry associations: the Australian Financial Markets Association (AFMA) and the Stockbrokers Association of Australia (SAA).

• ASIC held numerous meetings with representatives of all of the market operators and as the Market Integrity Rules were being developed, market operators were encouraged to comment on each version of the Market Integrity Rules, including the final version.
• ASIC also provided draft Market Integrity Rules to every participant on each of the markets with the exception of every IMB participant. For IMB, where each customer of IMB is potentially a participant, nominee company participants were provided with draft Market Integrity Rules.

ASIC obtained confirmation from each market operator that they were comfortable with the relevant Market Integrity Rules for their market, prior to making the Market Integrity Rules.

ASIC has also published a Regulatory Guide, RG 215 Guidance on ASIC market integrity rules for APX, IMB, NSXA and SIM VSE markets, which gives guidance on how market participants can comply with their obligations under the APX, SIM VSE, IMB, and NSXA Market Integrity Rules.

I have been informed that ASIC has not received any feedback to date which would suggest that the transfer of supervision to ASIC and the accompanying creation of the ASIC Market Integrity Rules has been anything other than seamless.

I trust this information will be of assistance to you.

Yours sincerely

DAVID BRADBURY

Parliamentary Secretary to the Treasurer

APPENDIX A

1. ASIC Market Integrity Rules (APX Market) 2010: Matter 1

Matter raised

First, rule 1.2.1 permits ASIC to provide an entity with a waiver from all or any of /these rules.

Subrule 1.2.1(4) notes that for the purposes of Part 1.2, ‘waiver’ means a waiver under rule 1.2.1. Rule 1.2.4, which is located in Part 1.2, permits ASIC to establish and maintain a register for recording details of ‘relief granted under Rule 1.2.1. It is not clear whether the term ‘relief has a meaning that is different from ‘waiver’. If not, it would assist clarity in application of the rules if rule 1.2.4 was amended to refer to ‘waiver’.

Response

The term ‘relief’ is intended to have the same meaning as ‘waiver’. This wording was adopted from the ASX market rules that existed prior to 1 August 2010 (see section 5 below) and ASIC consulted with APX on the draft of this rule. ASIC received no adverse comments in response to the use of ‘waiver’ and ‘relief’. ASIC considered a consistent waiver policy and terminology adopted from the ASX market rules would achieve the objective of minimising disruption to existing market understanding and practice.

2. ASIC Market Integrity Rules (APX Market) 2010: Matter 2

Matter raised

Secondly, rule 1.4.3 includes a definition of the term ‘prohibited conduct ‘. Paragraphs (b)(iii) and (iv) refer, respectively, to short selling and cornering. These terms are not defined in the Rules. It may be that these terms are thought to be well understood in the finance community but given their status as prohibited conduct, it would assist the application of the Rules if there was greater specification of the conduct that is being referred to (for example, does short selling include covered and naked short sales?).

Response

As noted earlier, ASIC sought, wherever possible, to preserve definitions (including the absence of definitions) from the market rules that existed prior to 1 August 2010. This was to ensure that disruption and uncertainty were minimised in the transfer of market supervision to ASIC and to ensure consistency between the terms in use by the market operator in its rules on and after the commencement date, and the terms in use within the Market Integrity Rules. The definition of ‘prohibited conduct’ was included for that purpose. ASIC considers both ‘short selling’ and ‘cornering’ to be well understood by the market. ASIC also notes ‘corners’ are effectively described in Part 3.10 of the ASIC Market Integrity Rules (APX Market) and that both terms are defined in the current rules of the APX market operator.

By way of context, the APX market is currently dormant and has only one admitted participant. ASIC considers therefore that any prospect or consequence of confusion is limited. APX plans, in time, to resurrect its market and in doing so, ASIC will need to review its ASIC Market Integrity Rules (APX Market) and any proposed new market operator rules. ASIC will review this definition and associated terms in that context to address the concerns raised by the Committee.

3. ASIC Market Integrity Rules (SIM VSE Market) 2010: Matter 1

Matter raised

First, rule 1.2.1 permits ASIC to provide an entity with a waiver from all or any of these rules. The Committee’s concern with this rule is the same as for the APX Market Rules above.

Response

See comments in relation to item I.

4. ASIC Market Integrity Rules (S1M VSE Market) 2010: Matter 2

Matter raised

The second matter arises from a comparison of the definitions provided in these Rules with those provided in the ASIC Market Integrity Rules (APX Market) 2010. While the definitions must obviously reflect the different circumstances of these two markets, there are some common terms in both sets of Rules the definitions of which are drafted in different ways see the definitions for ‘bid’, ‘immediate family’, ‘offer’, and ‘official list ‘. There are other common terms where the differences in definition may be due to differences in the two markets - see the definitions for ‘family company’, ‘family trust’, ‘takeover’. The Committee would appreciate advice clarifying the differences in the definitions between the Rules.

Response

As outlined earlier, in order to minimise disruption to participants during the transfer of supervision, definitions which existed in the various market rules prior to 1 August 2010 were preserved in ASIC’s Market Integrity Rules. ASIC was also conscious to ensure that the Market Integrity Rules in no way conflicted with the operating rules which remained with each relevant the market operator - so as to ensure that the market continued to operate efficiently and effectively.

As a result, any differences in definitions are a reflection of the different definitions given to those terms under the market rules that existed prior to 1 August 2010 - which were then adopted into the Market Integrity Rules for APX and SIM VSE etc.

5. ASIC Market Integrity Rules (ASX Market) 2010: Matter 1

Matter raised

First. rule 1.2.1 permits ASIC to provide an entity with a waiver from all or any of these rules. The Committee’s concern with this rule is the same as for the APX Market Rules above.

Response

This Market Integrity Rule was based, in form and substance, on the ASX Market Rule on waivers that existed prior to the handover of supervisory responsibility to ASIC on 1 August 2010. As noted, there is no distinction between ‘relief’ and ‘waiver’, but where ASIC intended the rule to operate in the same way as it did prior to I August 2010, it adopted a drafting policy of using the market rule language that already existed.

ASIC has noted that the ASX continues to have a waiver power in its rule book, and ASIC considered that the use of common terms, as much as possible, was desirable.

The ASX continues to use the terms ‘relief’ to refer to the granting of a waiver, see for example Rule 6032 which prescribes that (emphasis added):

ASX may specify a period or specific event during which any relief under Rule [6030] may apply, in which case such relief is limited to such period or event.

Rule 6030 prescribes (emphasis added):

ASX may relieve any person or class of person from the obligation to comply with a provision (other than an indemnity or disclaimer provision) of these Rules, either generally or in a particular case or category, and either unconditionally or subject to such conditions as ASX thinks fit. If any conditions on a waiver are imposed, all of the conditions must be complied with for the waiver to be effective. ASX may withdraw a waiver at any time. Any request by a Market Participant for a waiver under this Rule [6030] must be in writing.

6. ASIC Market Integrity Rules (ASX Market) 2010: Matter 2

Matter raised

Secondly, rule 2.1.4 specifies good fame and character requirements for people involved in the business of a market participant. Paragraph 2.1.4(2)(b )(i) states that a person may be assessed not to be of good fame and character if the person has been charged with or convicted of any offence. Notwithstanding the discretionary latitude granted by the word ‘may’, this paragraph nevertheless allows the fact that a person has been charged with an offence to count against their good fame and character, regardless of whether a conviction has followed from that charge. The Committee would appreciate your advice as to why this provision is worded in this way.

Response

For the reasons stated earlier, this rule was brought across without amendment from the ASX market rules that existed prior to the handover of supervisory responsibility to ASIC. This rule dates back to at least 2003, and for that reason is well understood by market participants. Further, and in conformity with ASIC’s general objective of certainty, it was concerned to ensure that existing processes would be preserved.

7. ASIC Market Integrity Rules (ASX Market) 2010: Matter 3

Matter raised

Thirdly, rules 2.4.13 to 2.4.15 deal with the renewal of accreditation of an accredited adviser. These rules include a requirement that ASIC must give written reasons if an application for renewal is rejected (subrule 2.4.15(2)). Rule 2.4.16 then provides that if ASIC has not renewed an accreditation by one business day after the renewal date the person ceases to hold the relevant accreditation. The intention behind this rule is not clear. It appears to allow ASIC to avoid processes for rejection of an application specified in rule 2.4.15, including the need to give reasons. The Committee would therefore appreciate your advice clarifying the operation of rule 2.4.16.

Response

Rule 2.4.16 was made to address the possibility of a dispute arising about lodgement or receipt of a renewal application. Specifically, in cases where an application is, for whatever reason, not received, ASIC wanted to ensure accreditation did not continue. Accreditation is a critically important means of ensuring advisors are adequately skilled to deliver their services, and inadvertent continuation of accreditation would have a detrimental effect on market integrity.

ASIC has noted your concern that the rule could be used to circumvent the requirement to provide reasons, and has advised me that it has no intention of using the rule for this purpose. ASIC has also advised that it is not aware of any participant or other entity raising a concern during the months the rule has been in the public domain or during the consultation process.

8. ASIC Market Integrity Rules (ASX Market) 2010: Matter 4

Matter raised

Finally, rules 4.1.9, 4.1.10, and 4.2.2 require that specified records and recordings be kept for certain periods of time. The required time periods differ, ranging from a minimum of 3 months (in the case of recordings of telephone conversations, under rule 4.1.10), to a minimum of 5 years (for a record of a client complaint, under rule 4.2.2), and seven years for records of an authorised person (rule 4.1.9). The Committee notes that rule 2.27 of the ASIC Market Integrity Rules (ASX 24 Market) 2010 also imposes a minimum 3 month requirement on keeping of telephone recordings. The reason for the different time periods is not clear, nor is the reason why, in two of these rules, the required time period is expressed as a minimum period. The Committee would appreciate further advice on the reason for the different time periods.

Response

ASX and ASX 24 markets had varying times and obligations in the market rules that existed prior to 1 August 2010 and these time periods were imported into the relevant Market Integrity Rules to ensure minimal disruption and costs to business. Participants were familiar with these time frames (and typically structure their back-office arrangements to ensure compliance with them) and they have been preserved, wherever possible, to ensure that pre-existing procedures which participants had in place remained sufficient for compliance with the Market Integrity Rules.

A minimum period is specified in the rules to ensure that participants that adopt a policy of longer storage of information (for example where they are subject to another jurisdiction requirement for a longer period) will not be in breach of this rule.

9. ASIC Market Integrity Rules (IMB Market) 2010: Matter 1

Matter raised

First, rule 1.2.1 permits ASIC to provide an entity with a waiver from all or any of these rules. The Committee’s concern with this rule is the same as for the APX Market Rules above.

Response

See comments in relation to item I.

10. ASIC Market Integrity Rules (IMB Market) 2010: Matter 2

Matter•raised

Secondly, rule 1.1.5 requires that the market operator (IMB Ltd), market participants and other regulated entities must comply with these Rules. However the Rules only impose specific obligations, found in Chapter 2, on market participants. It is not clear what obligations are being imposed on the market operator or other regulated entities by these rules. The Committee would appreciate some further advice on this issue.

Response

Under the enabling legislation for the creation of the Market Integrity Rules (see section 798H of the