Information leaks before trading announcements are more likely to occur with merger and acquisition alerts, according to an new ASIC review on equity markets.
Commissioner Cathie Armour gave a summary of the report, which is yet to be released, in her address at the Refinitiv Australian Regulatory Summit in Sydney on Tuesday.
She warned ASIC will be looking to crack down on brokers with a higher concentration of anomalous order flow and clients with repeat patterns of abnormal trading.
The regulator has made a point of urging the financial services firms to embed fairness into their internal processes post-royal commission. ASIC chair James Shipton called on the industry to be both fair and inclusive at the regulator’s annual conference in May.
Ms Armour told the conference this week that the watchdog will also be pushing professionalism in the finance sector, with a focus in the body’s surveillance on certain issues including market fragmentation, market cleanliness, the end of LIBOR and scams in the crypto-assets segment.
She also noted the ASIC’s implementation of its new supervisory approach: close and continuous monitoring, which she said has seen the regulator conduct more than 250 onsite interviews with banking staff at all levels across the big four and AMP. ASIC staff were reported to have been onsite in the institutions for 95 days since the program was launched in October.
“As a market regulator, ASIC has a role to play in this changing environment,” Ms Armour said.
“We care about how all these changes impact on investors and consumers and more broadly, on our community.”
Market cleanliness, a measure of market integrity, looks at how likely information and insider trading is to leak before material price sensitive announcements.
While ASIC has concluded market cleanliness over the last three years was stable, it found that there was an increase in the volume traded by suspicious accounts.
Ms Armour reported that, on average over the last three years, 0.6 of a percentage point of accounts that traded before a material announcement were thought by ASIC to be suspicious.
Those accounts profitably traded on average, 5.2 per cent of the volume before the announcement.
Many of the suspicious trading and abnormal price action happened before scheduled announcements, particularly among smaller companies in resources.
“Interestingly though, the suspicious trading was not normally accompanied by abnormal price action, so maybe they were very sophisticated traders,” Ms Armour said.
“If you’re involved in a potential M&A transaction, you really need to put into place, very robust security measures as early as possible in the transaction cycle.”
Also of note was LIBOR, the key international interest rate benchmark, will not continue beyond 2021. ASIC recently reached out to Australian firms with a call to action to be proactive in their transition away from the benchmark.
“Australian entities have varying degrees of exposure to LIBOR through their derivatives, loans and investment holdings,” Ms Armour said.
“You also need to make sure you are aware of any business practices or systems dependencies on LIBOR. The transition away from LIBOR could be complex and may have significant implications on your risk management, operational processes and IT infrastructure.
“Insufficient preparations for the transition could have a negative impact on your business, clients and the markets in which you operate.”
She also noted while the crypto-asset market in Australia has been relatively quiet, there was a surge in April in crypto trading volumes in April.
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