On 1 April1987, six exchanges that operated in the state capital cities merged to form the ASX. It is an Australia’s primary national market for equities, derivatives, and securities. In Nov.1998, the ASX became the first exchange in the world to have its shares listed on its own market. On 1 August 2010, the responsibility for the supervision of real-time trading on the ASX was transferred to ASIC. The ASIC which is an independent commonwealth government body become the Australia’s corporate, market and financial service regulator.
From then on, trading on the ASX is regulated and supervised mainly by ASIC and ASX. In this report, we are going to look in detail at the role played by the ASX and ASIC in the regulation and supervision of trading on the ASX. Moreover, a wide range of sources are used in this report. Some information are obtained from the textbook, official website of the ASX and ASIC, as well as several journal articles. Topics covered in this report are the importance of the ASX as a regulator, the responsibility and objective of the ASX and ASIC, roles played by the ASX and ASIC, and the supervision transferred.
2.0 Roles played by the ASX in the markets
2.1 Importance of the ASX as a regulator
The successful regulation of the share market is an important priority of parliament and legislators as most share ownership is direct, through shares or other listed investments (Quilter 2010, p.160), which emphasizes the importance of the role played by ASX (Australian Stock Exchange).
2.2 Responsibility and objective of the ASX
Accordingly, ASX takes the primary responsibility that not only monitors its market for its operation but also oversees and supervises all the market participants. ASX also set its objectives to adapt the rapidly development of dynamic markets. It would love to provide a well-informed and fair market for an internationally competitive market but not just for the financial securities traded on it (Quilter 2010, p.160).
2.3 Roles of the ASX
In order to regulate the markets, the ASX generated one set of rules which are called Listing Rules. The Listing rules represent certain criteria that all the market participants have to meet and follow. Otherwise, failure to comply with those rules might lead to delisted from the Board (Chand 2010, p.20). In a word, the companies and trusts whose securities are listed, the relationships between market participants for example, stockbrokers, their client and the ASX are also regulated by Listing Rules. For instance, there is an important rule for listed entities called “continuous disclosure”. Such rule requests companies to inform the ASX of any information that may have influence on the share price.
In other words, it is compulsory for all the companies to disclose relative information to the whole market. If a company fails in providing fully information to the ASX, then the ASX Surveillance would notify the Listing Unit that who might decide if it is necessary to contact the entity. If so, the entity would be contacted by the Listing Unit and requested to provide any undisclosed information. If the information provided does not meet the satisfaction of exchange, the trading shares of the company might be suspended or this company might be delisted. Moreover, those Listing Rules are enforceable by the Corporations Act (Quilter 2010, p.160). Besides, the ASX performs many other roles. For example, it allows companies to raise funds.
2.4 Changing role of the ASX
Furthermore, as the market is active and develops rapidly, the role of the ASX has changed. The ASX was used to be predominantly self-regulated. However, it falls under the control of Corporations Act, its own listing rules and regulated by ASIC nowadays (Chand 2010, p.20). The Federal Government is trying to transfer some aspect of the ASX’s function to the ASIC. The function of supervising real-time trading and the conduct by participants on those financial markets had been targeted and transferred to the ASIC from 1 August 2010 (Quilter 2010, p.160). The reason why the Federal Government made such decision is because the ASX is a publicly listed company listed in its own exchange that might give rise to conflict of interest. Additionally, the Australian Government supports the increase of competition between market operators.
Even though the ASX had transferred some aspect function to the ASIC, the ASX still retained responsibility for ensuring participants admitted to its market comply with its operating rules. The new settlements did not change the ASX’s existing oversight of listed entities, and the obligations on ASX’s clearing and settlement facility operators also remained without changed as well. Meanwhile, in order to taking over the role from ASX successfully before 2010, ASIC prepared for a series of activities such as the integration of market surveillance system, application of a streamlined markets analysis methodology and relationship management. ASIC also had been developing and training high quality Market and Participant Supervision team (www.asic.gov.au/market-supervision)
3.0 Roles played by the ASIC in the market
3.1 Responsibility and objective of the ASIC
As an independent Commonwealth Government body, it is ASIC’s job to improve transparency and confidence in Australian financial market and protect retail investors against any misconduct in it. So a legislative instrument, ASIC Market Integrity Rules (ASX Market) 2010, is constituted by ASIC to regulate and supervise the behaviour of market operators, market participants, other regulated entities and financial products traded on the relevant markets. Market integrity rules together with the amended ASX operating rules will form the new market supervision system. The management of ASIC concluded that the market integrity rules will amend the previous deficiencies of ASX operating rules. Meanwhile, the market integrity will depending on the new market environment and meets the customers’ needs. (www.asic.gov.au/market-supervision)
3.2 Roles of the ASIC
Under the ASIC market integrity rules, there are mainly 3 functions performed by ASIC on the ASX trading market:
1. Supervises market operators (ASX Limited).
ASIC generates annual report of assessment on ASX group’s compliance with its supervisory obligations, and ASX is required to have appropriate arrangements to monitor and enforce compliance with its operating rules.
2. Regulates participants:
Market participants must have appropriate management structures, supervisory policies to make sure that their conducts and operation processes comply with integrity rules and Market Operating Rules. Insurances are also required against breach of duty, arising from any act of the market participants and its staffs. (ASIC 2010, pp24-26) 3. Protects markets’ stability and consumers’ safety: ASIC engaged in improving product disclosure and taking legal action against illegal behavior in market trading, mainly insider trading as well as market manipulation, and refining restrictions on short selling.(ASIC 2010, pp.28)
ASIC also supervise the providers of credit or credit-related services and consist of lenders, brokers and other intermediaries who assist consumers to obtain credit. And the new regime administrated by ASIC and the applications of credit license both avoid the probable illegal conducts and potential criminal actions arise. (Reserve Bank of Australia.2009, pp68-69) In a word, after taking over the responsibility from ASX, maintaining and developing a fair, orderly and transparent market and making sure the investors and borrowers can meet their need in the market become the significant role of ASIC.
4.0 Conclusion & Recommendation
This report looks into the roles played by ASX as well as ASIC in the regulation and supervision of trading on Australian Stock Exchange. The change of regulatory power from ASX to ASIC has also be summarized and analyzed in the report. The situation is, after the transfer of role from ASX to ASIC, ASX Limited still takes the responsibility to regulate the companies listing in the ASX share market by enforcing them comply with the listing rules, while ASIC controls the supervision of the domestic trading market and make sure that ASX, participants and other regulated equities operate under the Market Integrity Rules.
ASX along with ASIC form a strong and efficient group to maintain the transparency and order of Australian stock exchange, protecting retail customers and taking actions against any misconduct in it. However, share market has so great impact on raising capital and equity finance, that it is essential to make sure the participants in the market have confidence in the integrity of its operation. Thus it is wise for the government to transfer the supervision and regulation from ASX to ASIC, due to the situation that ASX is also a publicly listed company. It is more appropriate for Australian government to fully remove the responsibilities of regulation and supervision form ASX to a government body like ASIC, which will greatly reduce the probability of conflict interest.
ASIC. 2010, A Year of Achievement, ASIC Annul Report, pp.28
ASX. ‘Surveillance.’ ASX Compliance. http://www.asxgroup.com.au/asx-compliance.html (2 Apr.2011)
Australian Securities & Investments Commission. ASIC Market Integrity Rules (ASX Market) 2010 pp. 24-26.
Australian Securities & Investments Commission. Viewed 30th March
Chand, P.& Cummings, L. 2010, Financial Accounting Theory and Practice . 5th edn, McGraw-Hill, Australia.
Quilter, M, 2010, The Company Law Notes. 4th edn, Thomson Reuters Australia Limited, Australia.