ASX's monitoring of brokers, other market participants and listed entities

ASX monitors conduct in accordance with both the terms of its licences and the terms of its Operating Rules. On this basis ASX can be distinguished from APRA and ASIC, which are government agency regulators with regulatory powers conferred by Government. ASX is neither a financial services regulator (like ASIC) nor a prudential supervisor (like APRA).

ASX is best characterised as a commercial and regulated organisation with some monitoring or supervisory functions as detailed below:

ASX's monitoring and supervisory functions


Organisations that wish to obtain financial market services directly from a licensed ASX group company - for example, a broker wanting to link its systems with ASX’s systems to be able to submit orders into ASX’s trade matching facility - sign up to a set of Operating Rules as to how that activity will be conducted.  These organisations (referred to in ASX’s Operating Rules as ‘Participants’) agree to ASX monitoring their conduct in respect of the parts of their business that are involved in using the ASX service for which they have signed up.  They do not sign up to be regulated by ASX in respect of their over-the-counter (OTC) businesses or for ASX to duplicate oversight of their relationship with customers which is regulated by ASIC or another regulator.

Market rules

Market Participants (brokers and other intermediaries) enter into a contractual relationship with ASX to comply with the market rules (a sub-set of the Operating Rules).

The following table provides clarity around what ASX does and does not do in relation to its market rules:

ASX does... ASX does not...
Tick symbol Establish rules for the admission, expulsion and ongoing obligations of Market Participants. Cross symbol Regulate related bodies-corporate,  associated entities, or third-party contracts entered into by Participants.
Tick symbol Monitor Participant conduct that directly impacts on the market: for example, monitor compliance with ASX’s client order priority rules and crossing rules. Cross symbol Regulate conduct by brokers, financial advisers, financial planners or any other AFSL holders in relation to OTC activities including margin lending, securities lending/borrowing, etc. Regulate or supervise the activities of non-ASX Participants in any way.
Tick symbol Conduct real-time market surveillance to detect market manipulation, insider trading, front-running, breaches of continuous disclosure and other illegal activity that impacts on ASX’s markets. Cross symbol Determine what the law is, or monitor trading on any other market or OTC activity.
Tick symbol Refer possible illegal activity to ASIC for ASIC’s consideration of investigation and prosecution. Cross symbol Investigate and prosecute companies or individuals for breaches of the law.
Tick symbol Establish and monitor Market Participant capital liquidity requirements. Cross symbol

ASX does not purport to prevent insolvency of brokers or to provide comfort to clients of brokers as to their broker's financial position. ASX's involvement in setting capital liquidity requirements are directed at the quite separate issues of the stability of the Australian clearing system and hence, ASX's own financial exposure as central clearing counterparty to that group of organisations that are participants in ASX's clearing house. One of the many layers of management of these counterparty risks involves a liquidity requirement directed at maximising the prospect that participants in ASX's clearing organisations will be able to convert capital into cash inside 30 days. The fact that a trading participant that does not clear its own trades becomes insolvent within days of having represented that it satisfies such a liquidity requirement does not represent a regulatory failure.

Clearing and settlement rules

Participants that use ASX’s clearing and settlement (CS) facilities enter into a contractual relationship with ASX to comply with the CS rules (a sub-set of the Operating Rules).

The following table provides clarity around what ASX does and does not do in relation to its CS rules:

ASX does... ASX does not...
Tick symbol Novate* on-market cash equity and equity derivative trades, with ACH acting as central counterparty. Cross symbol Novate all trades in ASX-listed financial products. Approximately 25-30% of equity trades reported to ASX are off-market, bi-lateral trades. These are not novated.
Tick symbol Novate on-market traded derivatives, with SFECC acting as central counterparty. Cross symbol Provide individuals with financial advice on the most appropriate derivative products or risk exposure for their circumstances.
Tick symbol Provide settlement services for both on-market novated trades, and off-market bilateral trades in ASX-listed products. Cross symbol Monitor or supervise bilateral OTC contracts between Market Participants or other AFSL holders.

*Novation is the process whereby ASX’s clearing house becomes the counterparty to every buyer and seller, effectively ensuring the performance of every on-market transaction.

Listing rules

Similarly, listed entities (trusts and companies) enter into a contractual relationship with ASX to comply with the listing rules (a sub-set of the Operating Rules) .

The following table provides clarity around what ASX does and does not do in relation to its listing rules:

ASX does.. ASX does not...
Tick symbol Establish rules for the admission, expulsion and ongoing quotation of securities by listed entities. Cross symbol Regulate the activity of listed entities generally: eg regulate takeovers, mergers and acquisitions, or other corporate activity.
Tick symbol Facilitate the release of information to the market, including material company announcements, director interest notices (DINs) and substantial shareholder notices (SHNs). Cross symbol Determine what specific information is material to a listed company, or anticipate when a shareholder has an obligation to lodge a SHN or DIN.
Tick symbol Provide safeguards for investors to enhance the attractiveness of ASX’s markets: for example, shareholder approval requirements for capital raisings, and requirements for periodic reporting. Cross symbol Audit or otherwise guarantee the accuracy of information provided by listed entities to their shareholders and the market.
 Tick symbol

Promote good governance practices and shareholder engagement via its participation in the ASX Corporate Governance Council.

  Cross symbol  "Control" the Corporate Governance Council. ASX provides the Council secretariat and Chair, but is otherwise one of twenty-one Council members. Other members represent different business, shareholder and industry groups.  
Tick symbol Require an entity to report its governance practices on an "if not, why not" basis in response to the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations. Cross symbol Prescribe black letter governance practices: for example, determine what business activities a listed entity can carry out, or what corporate structure a listed entity adopts.