ASIC Market Integrity Rules: Who They Apply To and How ASIC Enforces Them

The Market Integrity Rules framework

ASIC makes Market Integrity Rules (MIRs) under Part 7.2A of the Corporations Act for licensed financial markets. These rules aim to maintain confidence in Australian markets and ensure fair trading. The rules cover a range of activities and behaviours to uphold market integrity. consumer data right in financial services can also impact market integrity considerations.

The ASIC Market Integrity Rules (Securities Markets) 2017 apply to the ASX, Cboe (Chi-X), NSXA and SSX securities markets. The ASIC Market Integrity Rules (Futures Markets) 2017 apply to ASX 24 and FEX futures markets. These rules govern the operation of these markets.

The ASIC Market Integrity Rules (Capital) 2021 set capital requirements for participants and came into effect from 17 June 2022. The MIRs replaced rules previously administered by market operators, reflecting a shift in supervision to ASIC following the 2010 transfer.

Who must comply

The ASIC Market Integrity Rules (MIRs) apply to specific entities operating within Australian financial markets. Market participants, including brokers and clearing participants, are obligated to comply when they trade directly on a covered market. These rules govern key areas of market conduct, including client order handling, best execution, recordkeeping, trade reporting, and the management of conflicts of interest. Some participants may also be subject to the ABA banking code of practice depending on their activities.

Market operators also have obligations under the MIRs. They are required to implement effective surveillance systems and report any suspicious activity they detect to ASIC. Recent changes to the rules have broadened the scope to include information security and operational resilience requirements for all participants.

Where a market participant operates across multiple markets, they must comply with each applicable set of MIRs simultaneously. This ensures consistent standards of market integrity regardless of the specific market being accessed.

Conduct expected of participants

Participants in the Australian market are expected to adhere to specific standards of conduct. Order handling rules mandate that participants treat client orders fairly and in a sequential manner. Best execution obligations require those dealing with retail clients to take reasonable steps to achieve the most favourable outcome for them. Participants should also be aware of RG 271 internal dispute resolution processes if disputes arise.

Prohibited conduct includes manipulative trading and engaging in false or misleading activities. These prohibitions align with market misconduct offences outlined in the Corporations Act. Furthermore, block trade rules necessitate the prompt registration and reporting of significant off-market transactions.

Finally, participants must meet prescribed capital requirements, maintaining specified levels of liquid capital and risk-based ratios. These rules are designed to ensure the stability and integrity of the market.

Enforcement and penalties

ASIC enforces the Market Integrity Rules (MIR) through various mechanisms. The Markets Disciplinary Panel (MDP) has the power to issue infringement notices for breaches of the MIR. These infringement notices can carry a substantial penalty, up to 15,000 penalty units.

Outcomes from MDP proceedings are publicly available, with details published alongside a media release and listed on a public register. Recent enforcement action demonstrates the scale of potential penalties; for example, Interactive Brokers Australia was recently subject to a penalty of $832,500 for surveillance failings.

For more serious or repeated breaches of the MIR, ASIC retains the ability to pursue civil and criminal enforcement actions under the Corporations Act.