ASX pays $1m penalty over thousands of pre-trade transparency failures

ASX pays $1m penalty over thousands of pre-trade transparency failures

Photo: Marcus Reubenstein, via Unsplash.

The corporate watchdog has issued its first ever infringement notice to a market operator after the Australian Stock Exchange (ASX: ASX) breached a pre-trade transparency rule on 8,417 occasions between April 2019 and December 2022.

ASX has paid a penalty of $1.05 million following an Australian Securities and Investments Commission (ASIC) investigation that found the market operator failed to make information about orders available for certain equity market products.

ASIC emphasises that pre-trade information is important because it assists with price formation, aids liquidity, enables investors to assess investment opportunities, and value listed companies.

There are limited exemptions to the rule however for block trades, whereby consideration for a transaction is $200,000 or more for Tier 3 equity market products.

The ASX's transparency mistakes arose because an incorrect system configuration relating to block trade exemptions was set at $0 instead of $200,000 for some Tier 3 equity products; an issue that went undetected until drawn to ASX’s attention by a market participant.  

On at least two occasions before 22 December 2022, the ASX could have, but did not, identify the issue.

The corporate watchdog considers this serious, having led to 8,417 orders placed that were not pre-trade transparent, and a further 165 trades in purported reliance on the exception.

"Confidence in Australia’s market operators is fundamental to fair and efficient markets. This action demonstrates that ASIC will hold market operators to the highest standards," says ASIC Chair Joe Longo.

ASIC also found there was no evidence of other losses suffered as a result of the conduct, but the damage to public confidence in the operation of the market is such that the consequences of the conduct are an aggravating factor in the determination of penalty.

"Technology and operational resilience for market operators is a strategic enforcement priority. ASIC will continue to take action to ensure that market operators and market participants have robust systems, controls and technological infrastructure in place to support Australia’s capital markets," Longo says.

ASIC found that the circumstances giving rise to the system configuration issue were indicative of carelessness rather than recklessness or intentional misconduct.  Once aware, ASX took immediate steps to remedy the issue and notify ASIC.

Compliance with the infringement notice is not an admission of guilt or liability and by doing so, ASX is not taken to have contravened subsection 798H(1) of the Corporations Act.

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