ASIC has today made recommendations to improve ASX Limited’s (ASX) compliance with its market licence obligations, following an assessment of the AQUA market for exchange traded products (ETPs) operated by ASX.
Report 644 Assessment of ASX’s arrangements for exchanged traded AQUA products makes recommendations focusing on three key areas:
- AQUA market governance, risk and strategy
- arrangements for operating the market, including supervision and enforcement of compliance with the AQUA rules
- human resourcing of the AQUA market.
The AQUA ETP market is a comparatively new area of operation for ASX. As new market segments grow and become increasingly sophisticated, we expect market operators to review, revise and adapt their arrangements for operating the market accordingly-and to be aware of incremental changes to the market over time. Our recommendations are aimed at challenging ASX to more proactively set the direction and standards for this market segment in the next phase of its development.
Other ETP market operators regulated by ASIC are encouraged to review the findings and recommendations to determine what is applicable to their market operation.
ASIC will monitor ASX’s implementation of our recommendations to ensure that this work is completed in a timely manner.
ASIC Commissioner Cathie Armour said, ‘It is essential for market operators with a listing or admission function to remain focused on the effective discharge of their gatekeeper responsibilities. Our assessment of ASX’s AQUA market highlights the importance of review and continuous improvement by the market operator to ensure that the growth of the market does not outpace the sophistication of processes and systems to operate and monitor it.’
In December 2017, ASIC released Information Sheet 230 Exchange traded products: Admission guidelines (INFO 230). At this time, ASIC and the ASX also agreed an admission process for ETPs on the ASX AQUA market, where ASX would take full responsibility for the day-to-day admission process as it does with the admission of listed companies.
ASIC Report 583 Review of exchange traded products (REP 583) was released in August 2018. We found that the Australian ETP market is generally functioning well and is delivering on promises to investors, but we had recommendations with regard to potential risks that require monitoring by issuers and oversight by market operators.
Section 794C of the Corporations Act empowers ASIC to assess how a market licensee is complying with its obligations. In conducting our assessments, ASIC may assess how well a market licensee is complying with its obligations under s792A. This includes obligations to ensure that securities markets operate in a fair, orderly and transparent way (s792A(1)(a) of the Corporations Act) and that the market operator has adequate arrangements and sufficient resources to operate the market (s792A(1)(c) and (d) of the Corporations Act).
During 2019, ASIC undertook an assessment of how well ASX was complying with its general obligations as a market licensee in respect of the AQUA ETP market. This included an assessment of ASX’s implementation of the changes to its AQUA and warrants approval process and admission procedures in December 2017, as well as a broader review of ASX’s efforts to satisfy the regulatory expectations for ETP market operators set out in INFO 230 and REP 583.