ASIC slaps ASX with $1m-plus penalty for breaking rules

ASX pays fine after investigation by ASIC found market integrity rules were breached more than 8000 times.

ASX has paid a $1.05m fine for allegedly breaching market integrity rules.

ASX has suffered a fresh blow to its reputation – and its pocket – after the corporate watchdog whacked it with a $1.05m fine for breaching market integrity rules more than 8000 times.

Issuing its first-ever infringement notice to a market operator, the Australian Securities & Investments Commission took aim at ASX, which is responsible for the nation’s $2.5 trillion equities market, after finding it had failed to comply with pre-trade transparency rules on 8417 occasions between 2019 and 2022.

The latest humiliation for the ASX adds to the reputational damage the bourse operator has suffered in recent years, with the botched replacement of its ageing CHESS clearing and settlement system still under investigation for potential legal breaches.

ASIC on Thursday took aim at ASX for its “carelessness” in contravening the market integrity rules, which require ASX to make available pre-trade information for orders. An investigation by the corporate cop found that the market operator failed to do this on thousands of occasions, with the breaches only identified after a market participant raised the alarm in late 2022.

From then, ASIC was made aware of the breaches after ASX corrected the issue and dobbed itself in.

On investigating, the regulator found that on at least two occasions prior to December 2022, ASX could have, but did not, identify the issue.

Its failure to detect the issue earlier, as well as the damage to public confidence in the operation of the market were aggravating factors in determining the million-dollar penalty, ASIC said.

“Confidence in Australia’s market operators is fundamental to fair and efficient markets,” ASIC chair Joe Longo said.

“This action demonstrates that ASIC will hold market operators to the highest standards.”

ASIC found that the system failure arose due to carelessness rather than recklessness or intentional misconduct.

The fine and infringement notice, meanwhile, deliver a fresh reputational hit to the under-pressure market operator, which has suffered a torrid few years marred by outages and a bungled replacement of its ageing CHESS system.

The disastrous CHESS replacement project suffered numerous delays and cost the ASX hundreds of millions of dollars in writedowns as well as the departure of its chief executive and chief financial officer. A replacement for the current system is now estimated to be years away after ASX in late 2023 confirmed it had tapped Indian tech giant TATA Consultancy Services to design and rebuild the project.

Adding to its woes, the corporate regulator is still investigating the ASX, its directors and management for “suspected contraventions” of company laws in relation to the botched program, which was led by former boss Dominic Stevens.

Commenting on the market integrity breaches, Mr Longo said technology and operational resilience for market operators was a strategic enforcement priority for ASIC.

“ASIC will continue to take action to ensure that market operators and market participants have robust systems, controls and technological infrastructure in place to support Australia’s capital markets,” he said.

The system configuration error that led to the contraventions impacted certain orders on ASX’s matching system, Centre Point. There were 8,417 orders and amended orders affected by the error, according to ASX. On average, around 76 million order book changes are received each day on the ASX.

The regulator found there was no evidence of other losses suffered as a result of the conduct, but noted the damage to public confidence in the operation of the market was such that “the consequences of the conduct are an aggravating factor in the determination of penalty”.

ASX chief executive Helen Lofthouse said the exchange operator understood the seriousness of the issue.

“As a market operator, ASX strives towards the highest standards and this includes providing appropriate pre-trade transparency at all times,” she said.

“The availability of pre-trade information is fundamental to a fair and transparent market, and we take seriously any impairment to this. We are very disappointed this error happened.”

Investors shrugged off the market rule breaches and corresponding fine, sending ASX’s share price higher through Thursday’s session. The stock closed up 0.8 per cent at $66.29 against a broader sharemarket gain of 0.4 per cent. Since the October lows, ASX’s share price has surged 20 per cent, beating the S&P/ASX 200’s 14 per cent gain.