ASX's supervisory role

The Australian Securities Exchange (ASX) is often referred to as one of 'the regulators' of financial market activity in Australia.  It is more accurate to describe ASX as a regulated commercial organisation that monitors specific aspects of the businesses of other organisations (for example, the governance of listed companies and the on-exchange or on-market trade execution by brokers).  ASX does so as a condition of the licences it has been granted by Government to conduct its own commercial undertakings.

A single document comprehensively explaining ASX's role in Australia’s financial market regulatory framework (PDF 113KB) is available.

What ASX does and does not do

ASX is neither a financial services regulator (like ASIC) nor a prudential supervisor (like APRA).  ASX is a commercial and regulated organisation with some monitoring and supervisory responsibilities derived from its commercial licences.

ASX's relationship with regulators

ASX’s relationship with regulators (ASIC and the Reserve Bank of Australia) is that of a commercial organisation which has six separate licences from the Government in order to conduct its business.

Public Perceptions of ASX Role

During FY08 ASX endured a sustained period of market and media commentary based on the assumption that ASX had a responsibility to prudentially regulate brokers and comprehensively regulate short selling, stock lending and a range of other activities. ASX’s powers and responsibilities are much narrower. ASX does not have the capacity to regulate or supervise OTC conduct or the conduct of non-ASX Participants and it cannot use its rule making ability to override legislation.

Clarifying the nature of ASX’s supervisory responsibilities has become increasingly important, especially during the turbulent market conditions that prevailed in 2007- 2008. How well ASX’s different and competing stakeholder groups understand ASX’s role in Australia’s regulatory framework has a significant impact on ASX’s reputation and, in turn, on the reputation of the financial system generally. It is a matter of public interest as well as ASX shareholder interest.

This is not the first time that ASX has felt compelled to take steps to clarify its role. For example, a discussion paper released by ASX in October 1990 similarly set out to clarify the scope of ASX’s supervisory role in relation to listed entities:

It is often assumed by the public that a major activity of the ASX is to act as a corporate policeman and protect minority shareholders from fraud and other criminal activities. There is also a wide-spread belief that the ASX can wield significant regulatory power over companies and their directors. This belief appears to be shared by sections of the media when they call on the ASX to take action in some particular case which is beyond the scope of the ASX’s authority.

The ASX does not have the power to enter company officer, inspect records or conduct hearings. Its regulatory powers over listed companies and trusts ("companies") are based on the contractual agreement each company enters into by executing the listing agreement whereby companies agree to bind themselves to comply with the Listing Rules…

…the authority of the ASX over listed companies is limited to ensuring that they comply with the Listing Rules and to this end the range of actions available to ASX is limited to questioning companies and, where appropriate, taking the enforcement actions discussed later in this paper. The role of ASX does not extend to investigating or prosecuting criminal activities. Those tasks fall to the relevant government authorities…

Source: Australian Stock Exchange Ltd, "The Role of the Australian Stock Exchange and its Listing Rules", October 1990.