ASX arrangements for handling conflicts between its commercial interests and its statutory obligations

The ASX Group considers that a well supervised and fair market, together with fair and effective clearing and settlement facilities, in which both local and foreign users have confidence, are absolutely essential to the fulfilment of its commercial objectives and the maintenance of its reputation for integrity.

In addition under the Corporations Act, the ASX Group is required to have adequate arrangements to handle conflicts between its commercial interests and its obligations:

  • as a market licensee, to ensure that the market operates in a fair, orderly and transparent manner, and
  • as a CS facility licensee, to ensure that the clearing and settlement facilities’ services are provided in a fair and effective manner.

The general nature of these conflicts and how they are handled are summarised in the ASX Commercial and Supervisory Conflict of Interest Policy (PDF 35KB).  This also includes the general rules and principles on the basis of which ASX staff must conduct themselves.

Measures for handling conflicts

Self-listing conflict

As an entity admitted to its own official list, ASX does not supervise itself.  This is done by ASIC.

Special purpose subsidiary for market supervision

ASX has structured itself to separate its market supervision functions from other parts of its business, such as its Business Development area and its Operations area.

Accordingly the operational supervisory functions (monitoring compliance with the rules, investigating apparent breaches and then taking disciplinary action, etc) are undertaken within a special purpose subsidiary, ASX Markets Supervision Pty Limited (ASXMS).

ASXMS has its own board of directors and only one of its five directors is also a director of other companies in the ASX Group.  The current Chairman of ASXMS, Mr Alan Cameron AM, is not a director of any other ASX Group company and is a former chairman of ASIC.  Background on the ASXMS directors can be found here.

The Chief Supervision Officer (CSO) who is in charge of all ASX supervisory activities reports on these matters direct to the ASXMS Board and not to the Managing Director & Chief Executive Officer of ASX Limited.

The ASXMS Board receives regular reports from the CSO on the conduct of supervisory activities and also approves all the ASX Group arrangements for handling conflicts, including the internal information barrier arrangements and codes of conduct for supervisory staff.

Governance arrangement for CSO

The CSO may not sit on the board of or have a material commercial association with an entity listed on ASX or a market, clearing or settlement participant.

Also under the ASX Dealing Rules for Employees and Directors, the CSO must not hold, deal in or have an interest in the securities of any listed entity, other than an interest which may arise by reason of those securities being a component of an investment in a listed investment company, managed fund or index product.

Referrals to ASXMS by other parts of ASX

It is likely that staff who are responsible for operating the market may become aware of events that indicate possible breaches of the Operating Rules. It is required that these must then be referred to ASXMS for proper investigation and analysis and, in appropriate cases, enforcement action.

Independent Disciplinary Tribunal

Where disciplinary proceedings are required under the Operating Rules, it is a separate, independent peer review tribunal that considers the submissions put to it by ASX Enforcement staff and by the relevant participant and then decides whether there has been a contravention of the rules and, if so, what penalty should be imposed in accordance with the rules.  This Tribunal must also approve any terms of settlement that may be agreed by Enforcement staff and the participant.

There are strict internal procedures to separate the legal and administrative staff of the Disciplinary Tribunal from other areas of ASXMS that are responsible for investigating possible contraventions and bringing enforcement proceedings before the Tribunal.

The proceeds of fines imposed by the Disciplinary Tribunal and the proceeds of agreed settlements with participants are allocated to the ASX Market Supervision Education and Research program (after deducting certain expenses incurred in bringing matters before the Tribunal).

Rules for ASX Group staff

ASX has strict codes of conduct for its staff to ensure that supervisory decisions are only made by staff in ASXMS (except in two minor and specific cases) and that those staff members cannot be influenced by other staff members, who may have business objectives.  These staff members making supervisory decisions are required to make those decisions solely for the purposes envisaged by the rules and must not take into account commercial considerations or what will benefit ASX as a commercial entity.

The decisions of these staff members must be fair and consistent and in accordance with the relevant policy of the particular rule.

The ASX Group ensures that staff performance objectives are appropriate and that performance measurement and compensation processes do not provide incentives for supervisory staff to exercise their powers in an improper manner or for an improper purpose.

Transparency

Many significant decisions, such as the grant of waivers and the basis for them and summaries of decisions of the Disciplinary Tribunal, are published.

Compliance review processes

There are processes in place for continual internal compliance reviews, in order to ensure that staff making supervisory decisions are doing so in accordance with the required standards.

Supervisory policy

ASX recognises that conflicts between its commercial interests and its statutory obligations could occur not only when supervisory decisions are made, but also when the policy to be applied in making those decisions is devised or changed, whether that policy is reflected in the actual Operating Rule framework or is just applied by ASXMS staff in exercising the discretions embodied in the rules. 

Accordingly where any change in policy is considered, under ASX’s internal governance arrangements, that change must be agreed to by the CSO, who is accountable in this regard to the ASXMS Board.

Generally significant changes in policy are the subject of public consultation and, in some cases, the issue of guidance notes explaining the new policy.

Where ASX proposes to make significant changes to its rules, it consults with ASIC and the Australian Treasury and all changes are subject to a statutory power vested in the Minister to disallow them.

External supervision by ASIC

ASIC monitors compliance by the ASX Group with its statutory obligations as the holder of Market Licences and CS Facility Licences.  Each year it undertakes an onsite visit for the purpose of a formal assessment as to how well ASX has complied with its obligations as a licence holder.  These obligations include the obligation to have adequate arrangements for handling conflicts of interest, supervising the market and enforcing compliance with the operating rules and having sufficient resources for supervising and operating the market and for operating the clearing and settlement facilities properly.

Following its assessment ASIC produces a report in this regard and a copy is provided to the relevant Australian Government Minister (the Minister for Superannuation and Corporate Law) and may be (and generally is) also released on ASIC’s website.

To date all such reports have concluded that ASX has complied with its statutory obligations as a licence holder.

Further comment on internal and external oversight of the ASX Group can be found at:

ASX Key Licence Obligations

The Understanding ASX's Key Licence Obligations policy (PDF 49KB) explains how ASX interprets its obligations and those of its licensed susidiaries.