The Australian Competition and Consumer Commission has authorised the Australian Stock Exchange Limited and Options Clearing House Pty Ltd changes to ASX Business Rules for participation and trading in the ASX's automated derivatives* markets.
Authorisation was sought for the rules as they are an arrangement which could have the purpose or effect of substantially lessening competition as defined in section 45 of the Trade Practices Act.
The main issues considered by the ACCC related to the regulation of participation and trading in ASXs derivatives markets, ACCC Chairman, Professor Allan Fels, said today. The participation rules specify who can participate in the options and share ratio markets, the criteria for admission and the procedures for sanctioning and withdrawal of admission.
In general terms, the ACCC considered that the public interest is served through maintaining investor confidence and protection by limiting access to the market to those who meet capital adequacy requirements and the other admission criteria.
Further, the ACCC decided there is public benefit in rules which protect the integrity of the market through requiring clearing members to have adequate physical and staff resources and through the disciplining of participants for inappropriate conduct.
The ACCC was concerned that some rules were subjective and undefined. However, it noted, in relation to options, that there are appropriate review and appeal mechanisms in place to ensure disciplinary action is not taken in instances where the circumstances do not warrant such action.
The ACCC noted that these same review and appeal mechanisms did not consistently apply to the share ratios market. In particular, it was concerned that the rules in relation to the approval and withdrawal of approval of SEATS ratio operators make no mention of rights of appeal against decisions by the board (to uphold a decision by ASX to reject or withdraw approval) to the Appeal Tribunal.
Further, in relation to authorised ratio advisers, the ASX Board is not bound to approve an application for approval as a ratio adviser (even if the applicant meets the requirements set by the rules) and may require the person to pass a further examination or the board may reject an application without specifying a reason for the rejection.
The ACCC was concerned that this rule provided the ASX Board with an absolute discretion in relation to the approval of ratio advisers and also noted there are no rights of appeal against a decision by the board to reject or withdraw approval as an authorised ratio adviser.
In relation to trading, the ACCC considered the move to an automated system is likely to result in significant improvements on the old trading floor regime, including:
greater efficiencies for participants and ASX through improvements to the speed and accuracy of order processing and matching trades; national access to the market on equal terms; improved supervision and security of the market through better information on market activities and electronic audit trails; greater flexibility in constructing more complex orders; and consistency with automated equities trading (SEATS).
The ACCC accepted that there is public benefit in setting minimum rules and standards which apply to all transactions and participants in the derivatives market to the extent that they contribute to the efficient operation of the market and provide for a more secure environment for investors, provided that they do not unreasonably inhibit competition.
Further, the Commission considered it important that ASX have powers to take immediate actions to protect investors and the integrity of the market and is satisfied that adequate safeguards exist to prevent ASX and participants from engaging in conduct which is detrimental to competition in the market.
After issuing its draft determination, and the holding of a pre-decision conference, the ACCC considered the matters raised at the conference and further submissions received.
It will now grant authorisation to the ASX business rules for five years. The authorisation the ACCC grants to the rules contained in section 9 is subject to the condition that ASX further amend the ASX business rules to:
delete Rule 9.7.3(f); include provisions for appeal to the Appeal Tribunal in relation to decisions by the ASX board to reject or withdraw an application for an authorised ratio adviser; and include provisions for appeal to the Appeal Tribunal in relation to decisions to reject or withdraw approval as a SEATS ratio operator.
The ACCC has also considered a notification lodged by the ASX about third line forcing exclusive dealing conduct. In particular, the conduct requires Registered Independent Options Traders (RIOTs) to acquire services from clearing members and refusing to register, or continue to register, them as RIOTs unless they have in place at all times appropriate arrangements with a clearing member for the acquisition of such services .
The ACCC was satisfied that the public benefits arising from enhanced market liquidity through having RIOTs trade in the market, balanced with maintaining financial integrity are likely to outweigh any public detriments which may result through requiring RIOTs to clear their trades through a clearing member and decided to allow the immunity provided by the notification to stand.
For further information about this media release: Professor Allan Fels, Chairman, (03) 9290 1812 Alana Woods, Acting Director Public Relations (02) 6243 1108 MR 172/97 9 December 1997
*A derivative is a financial instrument that derives its value form the value of another more basic instrument, such as a security traded on the stock exchange. Types of derivatives markets conducted by ASX include options and share ratios. An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell an underlying security at a predetermined price on or before a predetermined date. To acquire this right the taker pays a premium to the writer (seller) of the contract. Share ratio contracts enable investors to invest in a shares relative performance. Ratios allow investors to gain exposure to a share, not on the basis of whether it goes up or down in price, but based on how it performs compared to an overall share market benchmark such as the All Ordinaries Index.
Authorisation was sought for the rules as they are an arrangement which could have the purpose or effect of substantially lessening competition as defined in section 45 of the Trade Practices Act.
The main issues considered by the ACCC related to the regulation of participation and trading in ASXs derivatives markets, ACCC Chairman, Professor Allan Fels, said today. The participation rules specify who can participate in the options and share ratio markets, the criteria for admission and the procedures for sanctioning and withdrawal of admission.
In general terms, the ACCC considered that the public interest is served through maintaining investor confidence and protection by limiting access to the market to those who meet capital adequacy requirements and the other admission criteria.
Further, the ACCC decided there is public benefit in rules which protect the integrity of the market through requiring clearing members to have adequate physical and staff resources and through the disciplining of participants for inappropriate conduct.
The ACCC was concerned that some rules were subjective and undefined. However, it noted, in relation to options, that there are appropriate review and appeal mechanisms in place to ensure disciplinary action is not taken in instances where the circumstances do not warrant such action.
The ACCC noted that these same review and appeal mechanisms did not consistently apply to the share ratios market. In particular, it was concerned that the rules in relation to the approval and withdrawal of approval of SEATS ratio operators make no mention of rights of appeal against decisions by the board (to uphold a decision by ASX to reject or withdraw approval) to the Appeal Tribunal.
Further, in relation to authorised ratio advisers, the ASX Board is not bound to approve an application for approval as a ratio adviser (even if the applicant meets the requirements set by the rules) and may require the person to pass a further examination or the board may reject an application without specifying a reason for the rejection.
The ACCC was concerned that this rule provided the ASX Board with an absolute discretion in relation to the approval of ratio advisers and also noted there are no rights of appeal against a decision by the board to reject or withdraw approval as an authorised ratio adviser.
In relation to trading, the ACCC considered the move to an automated system is likely to result in significant improvements on the old trading floor regime, including:
greater efficiencies for participants and ASX through improvements to the speed and accuracy of order processing and matching trades; national access to the market on equal terms; improved supervision and security of the market through better information on market activities and electronic audit trails; greater flexibility in constructing more complex orders; and consistency with automated equities trading (SEATS).
The ACCC accepted that there is public benefit in setting minimum rules and standards which apply to all transactions and participants in the derivatives market to the extent that they contribute to the efficient operation of the market and provide for a more secure environment for investors, provided that they do not unreasonably inhibit competition.
Further, the Commission considered it important that ASX have powers to take immediate actions to protect investors and the integrity of the market and is satisfied that adequate safeguards exist to prevent ASX and participants from engaging in conduct which is detrimental to competition in the market.
After issuing its draft determination, and the holding of a pre-decision conference, the ACCC considered the matters raised at the conference and further submissions received.
It will now grant authorisation to the ASX business rules for five years. The authorisation the ACCC grants to the rules contained in section 9 is subject to the condition that ASX further amend the ASX business rules to:
delete Rule 9.7.3(f); include provisions for appeal to the Appeal Tribunal in relation to decisions by the ASX board to reject or withdraw an application for an authorised ratio adviser; and include provisions for appeal to the Appeal Tribunal in relation to decisions to reject or withdraw approval as a SEATS ratio operator.
The ACCC has also considered a notification lodged by the ASX about third line forcing exclusive dealing conduct. In particular, the conduct requires Registered Independent Options Traders (RIOTs) to acquire services from clearing members and refusing to register, or continue to register, them as RIOTs unless they have in place at all times appropriate arrangements with a clearing member for the acquisition of such services .
The ACCC was satisfied that the public benefits arising from enhanced market liquidity through having RIOTs trade in the market, balanced with maintaining financial integrity are likely to outweigh any public detriments which may result through requiring RIOTs to clear their trades through a clearing member and decided to allow the immunity provided by the notification to stand.
For further information about this media release: Professor Allan Fels, Chairman, (03) 9290 1812 Alana Woods, Acting Director Public Relations (02) 6243 1108 MR 172/97 9 December 1997
*A derivative is a financial instrument that derives its value form the value of another more basic instrument, such as a security traded on the stock exchange. Types of derivatives markets conducted by ASX include options and share ratios. An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell an underlying security at a predetermined price on or before a predetermined date. To acquire this right the taker pays a premium to the writer (seller) of the contract. Share ratio contracts enable investors to invest in a shares relative performance. Ratios allow investors to gain exposure to a share, not on the basis of whether it goes up or down in price, but based on how it performs compared to an overall share market benchmark such as the All Ordinaries Index.