Federal Register of Legislation - Australian Government

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ASIC Class Rule Waiver [16-0352]

Authoritative Version
  • - F2016L00594
  • No longer in force
CW 16/0352 Rules/Other as made
This instrument amends the ASIC Class Rule Waiver [CW 13/680] to extend the relief from the requirement to provide pre-trade transparency, as required by Subrule 4.1.1 of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011, for Contingent Equity Transactions for a further 12 months.
Administered by: Treasury
Registered 29 Apr 2016
Tabling HistoryDate
Tabled HR02-May-2016
Tabled Senate03-May-2016
Date of repeal 01 May 2016
Repealed by Division 1 of Part 3 of Chapter 3 of the Legislation Act 2003

 

 

EXPLANATORY STATEMENT for
ASIC CLASS RULE WAIVER [CW 16/0352]

Prepared by the Australian Securities and Investments Commission

 

Corporations Act 2001

 

The Australian Securities and Investments Commission (ASIC) makes ASIC Class Rule Waiver 16/0352 (this instrument) under subrule 1.2.1(1) of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011 (the Competition Rules). Under subrule 1.2.1(1), ASIC may relieve any person or class of persons from the obligation to comply with a provision of the Competition Rules.  Under Rule 1.2.3 ASIC may specifiy the period during which any relief from thand obligation to comply with a provision of the Rules may apply.

 

This instrument amends ASIC Class Rule Waiver 13/680 and is a continuance of ASIC Class Rule Waiver 15/0384.

 

1.                               Background


On 4 May 2015, ASIC amended ASIC Class Rule Waiver [CW 13/680], providing 12 months relief to Participants of the Market operated by ASX Limited (ACN 008 624 691) (ASX) from subrule 4.1.1(1) of the Competition Rules. Relief was granted where a Participant enters into a Transaction in an Equity Market Product that is part of a Contingent Equity Transaction (CET). 

A Participant that enters into a CET may therefore breach subrule 4.1.1(1) without the relief granted by ASIC Class Rule Waiver [CW 15/0384].

Reasons for granting the original Class Rule waiver

The Waiver was originally granted in order to:

a)         facilitate CETs at a net price, which contributes to the efficiency of the broader market as it enables participants to effectively hedge their options transactions; and

b)         allow post-trade transparency of the OTC equity component of the CET, as that transaction will be reported automatically by ASX.

In granting the Waiver, ASIC concluded that because the number of CETs was expected to be relatively low (ASX did not, and still does not, expect CETs to exceed 5% of total FlexClear transactions), their introduction would be unlikely to have an adverse impact on fairness, efficiency of the market, liquidity or price formation.

Furthermore, it was expected that the number of CETs would be low, so the overall effect on pre-trade transparency would be negligible.

Following the granting of the Waiver, an uptake of CETs would have facilitated an assessment of their impact on the market. However, as there have been no CETs to date such an assessment remains unfeasible.

 

2.                               Purpose of the instrument


This Class Rule Waiver varies [CW 13-680] by extending the relief for a Particpant from the obligation to comply with the pre-trade transparency obligation in subrule 4.1.1(1) of the Competition Rules by a further 12 months. The current Waiver expires on 4 May 2016 and was originally granted to monitor the impact of CETs on the lit market with regard to price formation and the fairness, efficiency and liquidity of the market. No CETs have transacted in this 12 month period and no data is available to facilitate an assessment on market impact.

 

A 12 month extension of the Waiver will result in an expiration date of 4 May 2017 by which time assessment of the market impact of this product can be undertaken.

 

The extension will enable a Participant to enter into a Transaction in an Equity Market Product that is part of a CET, without being required to comply with subrule 4.4.1(1).

 

3.                               Operation of the instrument

 

The instrument substitues the expiration date stated in paragraph 7C of [CW 13/680] of "4 May 2016", with "4 May 2017", thereby extending the waiver by 12 months.

 

4.                               Consultation

 

ASIC did not formally consult on this Class Rule Waiver, as since the relief was granted, no CETs have been traded and the circumstances have not changed since the granting of the original Class Rule Waiver 15/0384.

 

At the time of issuance of the original waiver, discussions were held with ASX acting on behalf of Participants who potentially would use CETs.  ASX advised that these Participants were supportive of a new ASX clearing service of which CETs are an important part.

 

 

 

 

This legislative instrument is compatible with human rights as it does not raise any human rights issues. 

Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

ASIC CLASS RULE WAIVER [CW 16/0352] 

ASIC Class Rule Waiver CW 16/0352 is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
This Legislative Instrument amends ASIC Class Rule Waiver [CW 13/680] by extending the relief from 4 May 2016 to 4 May 2017. It provides relief to Participants of the Market operated by ASX Limited (ACN 008 624 691) (ASX) from subrule 4.1.1(1) of the Competition Rules in the case where the Participant enters into a Transaction in an Equity Market Product that is part of a Contingent Equity Transaction (CET).  Subrule 4.1.1(1) of the Competition Rules provides that, subject to certain exceptions in  subrule 4.1.1(2), a Participant must not enter into a Transaction unless the Transaction is entered into by matching of a Pre-Trade Transparent Order (being an Order for which information such as price and volume is made available before execution) on an Order Book.
A CET is a single transaction consisting of two components or ‘legs’, namely:
(a)	an off-market transaction in an Equity Market Product (the Equity Leg); and
(b)	one or more over-the-counter (OTC) options transactions (the Option Leg).
As both the Equity Leg and the Option Leg are transacted simultaneously, the client agrees on a net price for the CET rather than pricing individual legs separately. 
The Equity Leg of the CET is negotiated off-market and therefore will not meet the pre-trade transparency requirement of subrule 4.1.1(1). A Participant that enters into a CET may therefore breach subrule 4.1.1(1) without this Class Rule Waiver.
 
Human rights implications
This Legislative Instrument does not engage any of the applicable rights or freedoms. 

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

Conclusion
This legislative instrument is compatible with human rights as it does not raise any human rights issues.

[Insert name and title of the promoter of the Bill or the rule-maker of the Legislative Instrument]