ASIC Announces Major Changes to the Australian Market Integrity Rules

ASIC has made new market integrity rules for capital, providing important protections for investors and the integrity of the market.

June 16, 2021, | AtoZ Markets – The Australian Securities and Investments Commission (ASIC) has published new market integrity rules for capital providing important protections for investors and the integrity of the market, whilst simplifying the capital framework for market participants.

The ASIC Market Integrity Rules (Capital) 2021 will replace the existing separate rule books for securities market participants and futures market participants to create a common set of rules for capital.

The Capital Rules will:

  • move futures market participants from the existing net tangible asset regime to a risk-based regime, subject to a minimum core capital requirement of $1,000,000;
  • increase the minimum core capital requirement for securities market participants to $500,000;
  • include a requirement to calculate an underwriting and sub-underwriting risk amount; and
  • simplify the capital requirements by removing redundant rules and forms.

As a result of feedback received from the industry, ASIC has:

  • introduced an extension of the proposed transition period from six to 12 months;
  • modified the proposed liquidity requirements by replacing the proposed 12-month cash flow requirement with a three-month cash flow requirement, together with a requirement to maintain a 12-month liquidity plan;
  • included the ability to offset a right-of-use asset against a corresponding lease liability, with the net amount (if positive) to be treated as an excluded asset;
  • adjusted various components of the commodity position risk requirements and FX position risk as they apply to principal positions.

Commissioner Cathie Armour said,

‘ASIC’s new Capital Rules simplify and strengthen the current capital regime, better aligning our standards with comparable international capital frameworks and the financial requirements of the Australian financial services licensing regime. The Capital Rules further consider the risks associated with operating a market participant business, helping to better protect investors and counterparties.’

Following a 12-month transition period, market participants will be required to comply with the Capital Rules from 17 June 2022. Market participants may wish to opt into the Capital Rules before 17 June 2022, by providing written notice to ASIC. Upon opting in, market participants will be required to lodge monthly risk-based returns through ASIC’s regulatory portal.

Exemptions to requirements contained within the Capital Rules apply to clearing participants of an approved clearing facility, authorized deposit-taking institutions, and principal traders only.

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