Part 3.1 Clients trading in products for first time
3.1.1 Documents to be given to a client
Before accepting an order from a person to enter into a Market Transaction, a Market Participant must give the person, in addition to all of the documents which the Market Participant is required to give the person in respect of the Market Transaction under the Corporations Act, all of the documents the Market Participant is required to give the person in respect of the Market Transaction under this Part.
Note: There is no penalty for this Rule.
3.1.3 Information to be given to a client: Execution arrangements
Before accepting an Order from a person to enter into a Market Transaction, if the Market Participant does not have Trading Permission to execute that Market Transaction, the Market Participant must give the person a document which clearly discloses the execution arrangements in place for that Market Transaction including, without limitation:
(a) the name, principal telephone number and principal business address of the Market Participant which executes the Market Transactions of the Market Participant; and
(b) the extent of any NGF coverage, or coverage under other Compensation Arrangements, of the Market Transaction.
Maximum penalty: $100,000
3.1.4 Information to be given to a client: Clearing arrangements
(1A) This Rule only applies where there is a Clearing Facility through which Market Transactions are cleared.
(1) Before accepting an order from a person (the “Client”) to enter into a Market Transaction if the Market Participant:
(a) is not a Clearing Participant, who is permitted under the Clearing Rules to clear the Market Transaction; or
(b) is a Clearing Participant who is permitted under the Clearing Rules to clear that Market Transaction, but has an arrangement with another Clearing Participant to clear that Market Transaction, and such transaction is cleared under the arrangement,
the Market Participant must give the Client a document which clearly discloses the clearing arrangements in place for that Market Transaction, including, without limitation, any information required by subrule (2).
(2) The written disclosure document referred to in subrule (1) must include:
(a) the name, principal telephone number and principal business address of the Clearing Participant which clears the Market Transactions of the Market Participant; and
(b) if, under the clearing arrangements:
(i) notwithstanding that the Market Transaction may have been entered into on the Client’s behalf, the Clearing Participant carries the Clearing Obligations and any settlement obligations for all Market Transactions of the Market Participant, including those of the Client, and must settle as principal with the Clearing Facility or the relevant counter-party; or
(ii) the Client owes obligations to the Clearing Participant in relation to the clearing and settlement of Market Transactions;
(iii) the Clearing Participant has rights against the Client in the event that:
(A) the Client fails to pay the amounts due in respect of Market Transactions; or
(B) the Client fails to fulfil its settlement obligations in respect of Market Transactions,
statements to that effect.
Maximum penalty: $100,000
3.1.4A Information to be given to a client: Settlement arrangements
(1) Before accepting an order from a person (the “Client”) to enter into a Market Transaction if the Market Participant:
(a) is not a Settlement Participant, who is permitted under the Settlement Rules to settle the Market Transaction; or
(b) is a Settlement Participant who is permitted under the Settlement Rules to settle that Market Transaction, but has an arrangement with a Settlement Agent to settle that Market Transaction, and such transaction is settled under the arrangement,
the Market Participant must give the Client a document which clearly discloses the settlement arrangements in place for that Market Transaction, including, without limitation, any information required by subrule (2).
(2) The written disclosure document referred to in subrule (1) must include:
(a) the name, principal telephone number and principal business address of the Settlement Agent which settles the Market Transactions of the Market Participant; and
(b) if, under the settlement arrangements:
(i) notwithstanding that the Market Transaction may have been entered into on the Client’s behalf, the Market Participant carries the Settlement Obligations for all Market Transactions of the Market Participant, including those of the Client, and must settle as principal with the relevant counter-party; or
(ii) the Client owes obligations to the Market Participant in relation to the settlement of Market Transactions;
(iii) the Market Participant has rights against the Client in the event that:
(A) the Client fails to pay the amounts due in respect of Market Transactions; or
(B) the Client fails to fulfil its settlement obligations in respect of Market Transactions,
statements to that effect.
Maximum penalty: $100,000
3.1.9 Client Agreement for Partly Paid Securities
(1) Before entering into a Market Transaction in respect of Partly Paid Securities on behalf of a Retail Client (the “Client”), subject to subrule (2), the Market Participant must enter into a written agreement with the Client under which the Market Participant discloses, and the Client acknowledges that they are aware, that:
(a) a Partly Paid Security is a security which may require the Client to make a further payment or payments at some time in the future;
(b) it is the responsibility of the Client to obtain and read a copy of the prospectus, product disclosure statement or information memorandum issued by an Issuer which sets out the particular features of, and rights and obligations attaching to, a Partly Paid Security before the Client places an order to buy a Partly Paid Security;
(c) the Client may be required to make further payments on a Partly Paid Security and that a failure to make a further payment by the specified date(s) may result in an Issuer of a Partly Paid Security or their associates or agents taking action, including legal action, against the Client to recover the outstanding payments and/or may result in the forfeiture of the Client’s entitlement to the Partly Paid Security;
(d) in certain circumstances the Client may be required to make a further payment on a Partly Paid Security despite the fact that the Client may have disposed of a Partly Paid Security prior to the date that a further payment falls due;
(e) the Client should monitor announcements made by the Issuer of a Partly Paid Security and that it is the responsibility of the Client to inform themselves of the dates or circumstances that a further payment falls due and the last day that the Client can dispose of the Partly Paid Security before the Client becomes required to make a further payment; and
(f) the amount of a further payment may be unrelated to the financial performance of a Partly Paid Security and that the amount of the further payment may exceed the intrinsic value of a Partly Paid Security at the time a further payment falls due.
(2) A Market Participant is not required to enter into an agreement under subrule (1) before entering into a Market Transaction to sell Partly Paid Securities.
Maximum penalty: $100,000
3.1.10 Other terms of Client Agreement
For the avoidance of doubt, the agreement referred to in Rule 3.1.9 may include other disclosures, acknowledgements, terms and conditions agreed between the Market Participant and the Client, or required to be included under the Market Operating Rules, provided they are not inconsistent with the requirements of Rule 3.1.9.
Note: There is no penalty for this Rule.
3.1.11 Market Participant to keep copy of Client Agreement and disclosures
The Market Participant must retain a copy of each agreement entered into under Rule 3.1.9 and any disclosures made under this Part for at least 7 years following the date on which the agreement, or the arrangement the subject of the disclosure, is terminated.
Maximum penalty: $100,000
Part 3.2 Trading as Principal
3.2.1 Application
This Part 3.2 applies where a Market Participant enters into a Market Transaction with a Client as Principal, except where the Client is a Market Participant or a participant or member of a Recognised Overseas Exchange.
Note: There is no penalty for this Rule.
3.2.2 Disclosure and consent
Before entering into a Market Transaction as Principal with a person (the “Client”), the Market Participant must disclose, or have previously disclosed, in accordance with paragraph 991E(1)(c) of the Corporations Act, that it is acting, or may act, as Principal and have obtained the consent of the Client, in accordance with paragraph 991E(1)(d) of the Corporations Act.
Maximum penalty: $100,000
3.2.3 Confirmation must include disclosure
When a Market Participant enters into a Market Transaction with a person (the “Client”) as Principal, the confirmation issued by the Market Participant to the Client under Rule 3.4.1 in respect of that Market Transaction must state that the Market Participant entered into the transaction as Principal and not as agent.
Maximum penalty: $100,000
3.2.4 Brokerage and commission
(1) When a Market Participant enters into a Market Transaction as Principal on its own behalf with a person (the “Client”), the Market Participant must not charge the Client brokerage, commission or any other fee in respect of the Market Transaction, except in the following circumstances:
(a) where the Client is a Prescribed Person of the Market Participant;
(b) where the Client is a Wholesale Client who has consented to the Market Participant charging brokerage, commission or the other fee (and that consent has not been withdrawn); or
(c) where otherwise permitted by the Corporations Act.
(2) The Market Participant must keep a written record of any consent given by a Wholesale Client under paragraph (1)(b), and send a copy of the record to that Wholesale Client as soon as practicable.
Maximum penalty: $100,000
3.2.5 Extended meaning of dealing as Principal
(1) Except where a Market Participant is dealing as a trustee of a trust in which the Market Participant has no direct or indirect beneficial interest, a reference in this Part 3.2 to a Market Participant dealing or entering into a Market Transaction as Principal, includes a reference to a Market Participant entering into a Market Transaction on its own behalf or on behalf of any of the following persons:
(a) a partner of the Market Participant;
(b) a director, company secretary or Substantial Holder of the Market Participant;
(c) the Immediate Family, Family Company or Family Trust of a partner, director, company secretary or Substantial Holder of the Market Participant;
(d) a body corporate in which the interests of one or more of the partners singly or together constitute a controlling interest; and
(e) any Related Body Corporate of the Market Participant.
(2) Without limitation, in paragraph (1)(b), a reference to dealing on behalf of a Substantial Holder means that any APX Product the subject of the Market Transaction is, or will be on the execution of the transaction, beneficially owned by the Substantial Holders.
(3) For the purposes of subrule (2), APX Products beneficially owned by a Substantial Holder include APX Products that appear or would appear as assets on the balance sheet or consolidated balance sheet of that Substantial Holder’s assets and liabilities, except where the APX Products concerned appear or would appear as assets on the balance sheet or consolidated balance sheet of a life insurance company registered under the Life Insurance Act 1995 (Cwlth) or the equivalent Act of a State, and are held for or on behalf of that life insurance company’s statutory funds.
Note: There is no penalty for this Rule.
3.2.6 Register of persons who are regarding as Principal
A Market Participant must keep a register of the persons referred to in paragraphs 3.2.5(1)(a) to (e).
Maximum penalty: $100,000
Part 3.3 Client instructions
3.3.1 Market Participant restrictions
A Market Participant must not:
(a) accept or execute instructions from a person (a “Client”) to enter into a Market Transaction except in accordance with these Rules and the Market Operating Rules;
(b) enter into a Market Transaction for a Client, except in accordance with the instructions of the Client, or of a person authorised in writing by a Client to give such instructions, or pursuant to an exercise of discretion in respect of that particular Client’s Managed Discretionary Account or as otherwise permitted by these Rules or the Market Operating Rules;
(c) allocate a Market Transaction to a Client’s account unless the Market Transaction was entered into on the instructions of the Client, or of a person authorised in writing by a Client to give such instructions, or pursuant to an exercise of discretion in respect of that particular Client’s Managed Discretionary Account or as otherwise permitted by these Rules or the Market Operating Rules; or
(d) except as permitted under these Rules or the Market Operating Rules, or in writing by ASIC, enter into or arrange a Market Transaction on the instructions of a Client unless the instructions are executed in such a manner that the Market Transaction is entered into on a Trading Platform.
Maximum penalty: $1,000,000
3.3.2 Excessive trading
A Market Participant must not enter into Market Transactions on a Managed Discretionary Account for a Retail Client where the size or frequency of the Market Transactions may be considered excessive having regard to the investment objectives, financial situation and needs of the client and the relevant markets.
Maximum penalty: $1,000,000
Part 3.4 Reporting to Clients
3.4.1 Confirmations—Form and timing
(1) Subject to Rule 3.4.3, a Market Participant must give a confirmation to a person (the “Client”) in respect of each Market Transaction entered into on the Client’s instructions or on the Client’s Managed Discretionary Account.
(2) The Market Participant must send to, or cause to be sent to, the Client a confirmation:
(a) in writing;
(b) electronically; or
(c) in another form permitted by ASIC,
as soon as practicable after the Market Participant enters into the Market Transaction.
(3) The confirmation must meet the following requirements:
(a) the confirmation must include all of the information required to be included in a confirmation under Division 3 of Part 7.9 of the Corporations Act;
(b) the confirmation must include a statement that the confirmation is issued subject to:
(i) the directions, decisions and requirements of the Market Operator, these Rules, the Market Operating Rules and where relevant, the Clearing Rules and the Settlement Rules;
(ii) the customs and usages of the APX Market; and
(iii) the correction of errors and omissions,
unless the Market Participant has obtained and retained an acknowledgment from the Client that the conditions set out in subparagraphs (i), (ii) and (iii) apply to the issue of confirmations to that Client;
(c) if the Market Transaction is to be cleared or settled by another party which is a Clearing Participant or Settlement Agent, the confirmation must include the name of the Market Participant which executed the trade and, where relevant, the Clearing Participant which clears it and/or the Settlement Agent who settles it;
(d) the confirmation must state the time by which all documents and information which the Market Participant, Clearing Participant and/or, Settlement Agent will require to settle the Market Transaction must be provided by the Client:
(i) in the case of a sale of APX Products, the date by which the Client must provide all documents and security holder information (including, if applicable, the relevant holder identification number or personal identification number and/or shareholder reference number) required by the Relevant Clearing Participant to meet its Clearing Obligations and/or, Relevant Settlement Participant to meet its Settlement Obligations; and
(ii) if applicable, the date by which the Client must provide the consideration specified in the confirmation; and
(iii) if applicable, the date by which the net consideration to the Client falls due;
(e) the confirmation must state the amount of money which the Client must pay, or which the Client will receive, on settlement of the Market Transaction and, if the Client is required to pay an amount of money, the time by which that money must be paid;
(f) where the Market Transaction involved a Crossing, the confirmation must include a statement to that effect;
(g) the confirmation must include any disclosure required under Rule 3.2.3; and
(h) if the confirmation is a confirmation in respect of a Conditional Sale of an APX Product and the corresponding confirmation in respect of the conditional purchase of the relevant APX Product, the confirmation must be endorsed as conditional and state the condition and the effect of non-fulfilment of the condition.
Maximum penalty: $100,000
3.4.2 Confirmations—accumulation and price averaging
If a Market Participant is required by Rule 3.4.1 to give a confirmation to a person (the “Client”) and the Market Participant enters into multiple Market Transactions for the purpose of completing the Client’s order, the Market Participant may accumulate those Market Transactions on a single confirmation and specify the volume weighted average price for those Market Transactions provided that:
(a) the Client authorised in writing the accumulation and price averaging of 2 or more Market Transactions in a confirmation at or before the time the order was placed; and
(b) if requested by the Client, the Market Participant gives to the Client a statement of all the individual prices of the APX Products, as applicable, which are accumulated and averaged under this Rule.
Maximum penalty: $20,000
3.4.3 Confirmations—clients other than Retail Clients
(1) A Market Participant is not required to comply with Rule 3.4.1 in respect of a client that is not a Retail Client, provided the Market Participant has notified the client before entering a Trading Message on the client’s behalf that Market Transactions effected for the client are subject to:
(a) the directions, decisions and requirements of the Market Operator, these Rules, the Market Operating Rules, and where relevant, the Clearing Rules and the Settlement Rules;
(b) the customs and usages of the APX Market; and
(c) the correction of errors and omissions.
(2) A Market Participant must keep a record of the notification.
Maximum penalty: $100,000
Part 3.5 Client Money and Property
3.5.1 Trust accounts APX Market Transactions
A Market Participant must establish one or more clients’ trust accounts for money received by the Market Participant in connection with dealings in APX Products.
Maximum penalty: $1,000,000
3.5.3 Bank accounts to be with Australian ADI
All money received by a Market Participant which the Corporations Act requires the Market Participant to deposit in a clients’ segregated account or in a clients’ trust account must be deposited in an account with an Australian ADI in Australia (which has been rated by an Approved Ratings Agency as being at least short term investment grade) unless:
(a) the money is received by the Market Participant in another country and the Market Participant deposits the money in a clients’ segregated account or clients’ trust account with a branch of an Australian ADI with such a rating in that country; or
(b) Rule 3.5.4 applies.
Maximum penalty: $1,000,000
3.5.4 Approved foreign banks
(1) ASIC may approve, in writing, foreign banks at which Market Participants may:
(a) open clients’ segregated accounts or clients’ trust accounts for the handling of money received for a person in another country or for a person who is resident in another country; and
(b) invest money held in clients’ segregated accounts or clients’ trust accounts in another country.
(2) ASIC may impose conditions on the use of a foreign bank approved under subrule (1) for clients’ segregated accounts and clients’ trust accounts.
Note: There is no penalty for this Rule.
3.5.5 Change of rating or approval of ADI
If the Market Participant has a clients’ segregated account or a clients’ trust account with an Australian ADI which ceases to have the rating referred to in Rule 3.5.3 or with a foreign bank which ceases to be a bank approved under Rule 3.5.4, the Market Participant must transfer the balance of the relevant account to an entity which meets the requirements of Rule 3.5.3 or Rule 3.5.4, as applicable.
Maximum penalty: $1,000,000
3.5.9 Reconciliation of trust accounts
(1) A Market Participant must perform a reconciliation of:
(a) the aggregate balance held by it at the close of business on each Business Day in clients’ trust accounts maintained pursuant to Rule 3.5.1 and the corresponding balance as recorded in the Market Participant’s accounting records; and
(b) the balance held by it at the close of business on the last Business Day of each week on trust for each person on whose behalf money is held in a trust account maintained pursuant to Rule 3.5.1 and the corresponding balance as recorded in the Market Participant’s accounting records,
that:
is accurate in all respects; and
(d) contains a statement signed by a Responsible Executive or a person authorised in writing by a Responsible Executive, stating that the signatory believes, and has no reason not to believe, that the reconciliation is accurate in all respects.
(2) The Market Participant must perform the reconciliation referred to in subrule (1) by 7.00 pm on the Trading Day after the Trading Day to which the reconciliation relates.
Maximum penalty: $1,000,000
3.5.10 Obligation to notify ASIC in respect of reconciliation
A Market Participant must notify ASIC, in writing, within 2 Business Days if:
(a) a reconciliation has not been performed in accordance with Rule 3.5.9; or
(b) according to a reconciliation performed pursuant to Rule 3.5.9, there is a deficiency of funds in its trust accounts (or, in respect of a reconciliation performed pursuant to paragraph 3.5.9(1)(b), a deficiency in respect of any particular person on whose behalf money is held in the trust account) or if it is unable to reconcile its trust accounts pursuant to Rule 3.5.9.
Maximum penalty: $100,000
3.5.11 Schedule of trust amounts
Each Market Participant must by no later than 5 Business Days after 31 March, 30 June, 30 September and 31 December in each year cause to be prepared a schedule as at the above dates showing the respective amounts held in the Market Participant’s trust account on behalf of clients together with the names of the particular client in respect of each amount.
Maximum penalty: $100,000
Part 3.6 Prohibition of advice to Client
3.6.1 Definition used in this Part 3.6
For the purposes of this Part 3.6, “Client” includes a shareholder in a company which constitutes the Market Participant.
Note: There is no penalty for this Rule.
3.6.2 Market Participant possesses information that is not generally available
Where as a result of its relationship to a Client, a Market Participant is in possession of information that is not generally available in relation to a Financial Product and which would be likely to materially affect the price of that Financial Product if the information was generally available, that Market Participant must not give any advice to any other Client of a nature that would damage the interest of either of those Clients.
Maximum penalty: $1,000,000
3.6.3 Chinese Walls in place
For the purposes of Rule 3.6.2, a Market Participant is not regarded as having possession of information that is not generally available in relation to a Financial Product where:
(a) that Market Participant has in place arrangements whereby information known to persons included in one part of the business of the Market Participant is not available, directly or indirectly, to those involved in another part of the business of the Market Participant;
(b) it is accepted that in each of the parts of the business of the Market Participant so divided, decisions will be taken without reference to any interest which any other such part or any person in any other such part of the business of the Market Participant may have in the matter; and
(c) the person advising the Client is not in possession of that information.
Note: There is no penalty for this Rule.
3.6.4 Certain actions do not constitute giving advice
For the purposes of Rule 3.6.2, a Market Participant or an Employee or partner of a Market Participant advising a Client that the Market Participant is precluded from giving the Client advice will not be regarded as giving advice.