The transaction of certain exchange-traded funds (ETF) has been deemed problematic by industry participants after some funds traded well away from the price of the underlying index, an ASIC report has found.
The corporate regulator’s second market supervision report, “ASIC supervision of markets and participants: January to June 2011”, released yesterday, found there were issues over the order management, including problematic algorithms and orders for some ETFs, following work with industry participants.
“ASIC is continuing to work with market participants and their clients to reduce the risk of algorithms having a negative impact on market integrity,” the report said.
“And [ASIC is working] to ensure that orders from retail clients for ETFs are not priced significantly from their intrinsic value, taking into account the value of the underlying reference asset.”
ASIC said it had identified a number of instances where index ETF orders were placed well away from the value implied by the underlying index.
“This is reflected in the number of pre-emptive actions, increasing from 14 in the previous reporting period to 22 in the current reporting period,” the report said.
“Importantly, this does not replace deterrence action. If it is warranted, we will take enforcement action against a participant whose system or actions interfere with market integrity.”
ASIC commissioner Shane Tregillis said the regulator was building confidence among investors by making sure the country’s financial markets were efficient and fair.
The report found during the reporting period there were 23,494 trading alerts, with 121 matters requiring further consideration, 35 of which were referred for investigation.
Of this number, 17 involved potential insider trading, six related to market manipulation, 10 were around possible breaches of the market integrity rules and two alerts were of continuous disclosure obligations.
The report also found that outside of the 35 alerts, a further eight participant matters were identified during ASIC’s surveillance visits and referred for investigation – three of which related to supervision of representatives.
