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ASIC levies additional licence conditions on ASX

Yasmine Masi25 November 2021
Man using magnifying glass to run audit on ipad

The Australian Securities and Investments Commission (ASIC) has imposed additional licence conditions on three licences held within the Australian Securities Exchange (ASX) Group to mitigate risks for future upgrades, after the conclusion of an investigation into the 2020 market outage.

ASIC’s investigation into whether ASX had met its obligations under its Australian market licence commenced after several incidents impacted the effective operation of the ASX equity market in November 2020.

These incidents included the outage on 16 November, the incorrect pricing and subsequent unavailability of ASX Centre Point orders, the failure of mass-order cancellation functionality, and the unavailability of tailor-made order combinations.

ASIC issued Consultation Paper 314 which proposed market integrity rules for market operators and participants to safeguard their critical business services, expected to come into effect in early 2022. This was followed by a report on the outage that cemented ASIC’s expectations for market operators and participants and highlighted serious deficiencies in the ASX’s ability to limit the impacts on overall liquidity.

“The ASX outage was a very serious event, exacerbated by subsequent operational issues,” Joe Longo, ASIC Chair, said.

“The imposition of these licence conditions will confirm that remedial actions are implemented appropriately and efficiently to address these operational issues – including for the critical rollout of the CHESS Replacement Program.

“ASIC’s actions today are all about ensuring the efficient and effective future operation of Australia’s financial markets infrastructure. ASX and market participants must act to ensure that the market can function at all times, so that vital sources of capital are available to the economy.”

The additional licence conditions imposed on ASX’s Australian market licence require remediation of the issues that led to the 2020 market outage and assign accountability to the ASX board and senior executives to implement these remedial actions.

The ASX board will also have to provide attestations specifying individual executive accountability and the executives’ interests will be aligned with the success of remedial actions, avoidance of any further outage and failure to comply with their accountability obligations.

The conditions imposed on the licences of ASX Clear Pty Ltd and ASX Settlement Pty Ltd also require an ASIC-approved independent expert to be appointed to assess whether ASX’s plan for the CHESS Replacement Program to go live in 2023 is fit for purpose.

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