ASIC Market Integrity Rules (Securities Markets – Capital) 2017

Chapter 1: Introduction

Part 1.1 Preliminary

1.1.1 Enabling legislation

ASIC makes this instrument under subsection 798G(1) of the Corporations Act.

1.1.2 Title

This instrument is ASIC Market Integrity Rules (Securities Markets – Capital) 2017.

1.1.3 Commencement

(1) Each provision of this instrument other than Rule 1.1.3A commences on the later of:

(a)        4 December 2017; and

(b)       the day after this instrument is registered on the Federal Register of Legislation.

(2) Rule 1.1.3A commences on the later of:

(a)        7 May 2018; and

(b)       the day after this instrument is registered on the Federal Register of Legislation.

Note: The register may be accessed at www.legislation.gov.au.

1.1.3A Revocation

The following instruments are repealed:

(a)        ASIC Market Integrity Rules (APX Market-Capital) 2014;

(b)       ASIC Market Integrity Rules (ASX Market-Capital) 2014;

(c)        ASIC Market Integrity Rules (Chi-X Australia Market-Capital) 2014.

1.1.4 Scope of these Rules

These Rules apply to:

(a)        the activities or conduct of the Markets;

(b)       the activities or conduct of persons in relation to the Markets; and

(c)        the activities or conduct of persons in relation to financial products traded on the Markets,

as specified in each Chapter, Part or Rule.

1.1.4A Transitional

A person other than an NSXA AOP Participant does not have to comply with any provision of this instrument until 7 May 2018. 

 1.1.5 Entities that must comply with these Rules

The following entities must comply with these Rules:

(a)        Market operators;

(b)       Market Participants; and

(c)        Other Regulated Entities;

as specified in each Rule.

1.1.6 Conduct by officers, Employees or agents

In these Rules, conduct engaged in on behalf of a person:

(a)        by an officer, Employee, or other agent of the person, and whether or not within the scope of the actual or apparent authority of the officer, Employee, or other agent; or

(b)       by any other person at the direction or with the consent or agreement (whether express or implied) of an officer, Employee, or other agent of the person, and whether or not the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the officer, Employee, or other agent,

is deemed to have been engaged in by the person.

1.1.7 State of mind of a person

(1) If for the purposes of these Rules in respect of conduct engaged in by a person, it is necessary to establish the state of mind of the person, it is sufficient to show that an officer, Employee, or other agent of the person, being an officer, Employee, or other agent by whom the conduct was engaged in and whether or not the conduct was within the scope of the actual or apparent authority of that officer, Employee, or other agent, had that state of mind.

(2) In subrule (1), a reference to the state of mind of a person includes a reference to the knowledge, intention, opinion, belief or purpose of the person and the person’s reasons for the person’s intention, opinion, belief or purpose.

Part 1.2 Waiver

1.2.1 Waiver of Rules

(1) Subject to Rule 1.2.3, ASIC may relieve any person or class of persons from the obligation to comply with a provision of these Rules, either generally or in a particular case or category, and either unconditionally or subject to such conditions as ASIC thinks fit.

(2) If any conditions on a waiver given under subrule (1) are imposed, all of the conditions must be complied with for the waiver to be effective.

(3) ASIC may withdraw, in writing, a waiver given under subrule (1) at any time.

(4) Any request by a person for a waiver under subrule (1) must be in writing.

(5) Any waiver given under subrule (1), and any conditions imposed on that waiver, must be in writing.

(6) ASIC may publish notice of a waiver given under subrule (1).

1.2.2 Compliance with conditions

Failure to comply with a condition imposed under Rule 1.2.1 is a contravention of this Rule.

1.2.3 Period during which relief applies

ASIC may specify the period or specific event during which any relief from an obligation to comply with a provision of these Rules may apply.

1.2.4 Register

(1) ASIC may establish and maintain a register for recording details of relief granted under Rule 1.2.1 and may enter the following details in the register:

(a)        the date that the relief takes effect;

(b)       the person or class of persons relieved from the obligation;

(c)        the provision to which the relief applies;

(d)       brief reasons for the relief; and

(e)        any conditions that apply to the relief.

(2) ASIC may publish the register referred to in subrule (1).

Part 1.3 Notice, notification and service of documents

1.3.1 Market Participant to have email system

A Market Participant must acquire and maintain an operating email system for the purposes of receiving notices under these Rules.

1.3.2 Methods of giving notice in writing

Unless otherwise specified in a Rule, ASIC may give a notice under these Rules by any of the following methods:

(a)        delivering it to the recipient personally;

(b)       leaving it at or by sending it by courier or post to the address of the recipient last notified to ASIC;

(c)        sending it by facsimile to the recipient’s facsimile number last notified to ASIC;

(d)       a circular or bulletin addressed to a class of persons and delivered or communicated by any means permitted under this Rule;

(e)        specific email by any method which identifies a person or person’s title as addressee and no notice of non-delivery has been received;

(f)        broadcast email by any method which identifies the addressee and which, having regard to all the relevant circumstances at the time, was as reliable as appropriate for the purposes for which the information was communicated.

Part 1.4 Interpretation

1.4.1 References to time

In these Rules a reference to time is to the time in Sydney, Australia.

1.4.2 Words and expressions defined in the Corporations Act

Words and expressions defined in the Corporations Act will unless otherwise defined or specified in these Rules or the contrary intention appears, have the same meaning in these Rules.

1.4.3 Definitions

AQUA Product means a financial product which is:

1.         a financial product issued by or provided pursuant to a Managed Fund;
2.        an ETF Security; or
3.         a Structured Product,

which is admitted to Trading Status as an AQUA Product or to the AQUA Quote Display Board.

AQUA Product Issuer means an entity which issues, distributes or makes available AQUA Products and which has been admitted as an AQUA Product Issuer.

AQUA Quote Display Board means the facility provided by a Market operator for AQUA Product Issuers and Trading Participants to advertise their interest in acquiring or disposing of AQUA Products.

ASIC means the Australian Securities and Investments Commission.

ASX means ASX Limited (ACN 008 624 691).

ASX Market means the financial market operated by ASX under Australian Market Licence (ASX Limited) 2002.

Automated Order Processing means the process by which orders are registered in a Trading Participant’s system and, if accepted for submission into a Trading Platform by the Trading Participant, submitted as corresponding Trading Messages without being keyed or rekeyed by a DTR.

Business Day means a day other than a Saturday, Sunday, New Year’s Day, Good Friday, Easter Monday, Christmas Day or Boxing Day.

Cash Market Product means an Equity Market Product, a Quoted Product, a Warrant admitted to Trading Status, an AQUA Product admitted to Trading Status or to the AQUA Quote Display Board, a CGS Depository Interest admitted to Trading Status and any other product that a Market operator authorises for trading on its Trading Platform as a Cash Market Product.

CGS Market means a financial market:

1.         on or through which offers to acquire or dispose of CGS Depository Interests are made or accepted;

(b)       the operator of which is licensed under subsection 795B(1) of the Corporations Act; and

(c)        the operator of which has entered into contractual arrangements with the Australian Office of Financial Management to offer trading services in CGS Depository Interests.

CHESS Depositary Interest has the meaning given to the term “CDI” by rule 2.13.1 of the operating rules of ASX Settlement Pty Limited (ACN 008 504 532).

Chi-X Australia means Chi-X Australia Pty Ltd (ACN 129 584 667).

Chi-X Market means the market operated by Chi-X Australia under Australian Market Licence (Chi-X Australia Pty Ltd) 2011.

Clearing Facility means, in relation to a transaction, the clearing and settlement facility, if any, within the meaning of section 761A of the Corporations Act, through which the transaction has been or will be cleared.

Clearing Participant means a person admitted as a participant under the Clearing Rules.

Clearing Rules means:

(a)        in relation to a particular Clearing Facility, the operating rules, procedures, practices, directions, decisions and requirements of that Clearing Facility;

(b)       in relation to a particular Clearing Participant, the rules of the Clearing Facility to which that Clearing Participant is subject.

Corporations Act means the Corporations Act 2001 (Cth).

Derivatives Market Contract means a Futures Market Contract, an Options Market Contract and any other contract that a Market operator authorises for trading on its Trading Platform as a Derivatives Market Contract.

Derivatives Market Transaction means a transaction between Trading Participants for one or more Derivatives Market Contracts.

DTR means a representative of a Trading Participant who has been authorised by the Trading Participant to submit Trading Messages to a Trading Platform on behalf of the Trading Participant.

Employee in relation to a Market Participant includes a director, employee, officer, agent, representative, consultant or adviser of that Market Participant, or an independent contractor who acts for or by arrangement with a Market Participant.

Equity Market Product means:

(a)        a share in a body;

(b)       a financial product referred to in subparagraph 764A(1)(b)(i) or subparagraph 764A(1)(ba)(i) of the Act; or

(c)        a right (whether existing or future and whether contingent or not) to acquire, by way of issue, the following under a rights issue:

(i)         a share covered by paragraph (a); or

(ii)       a financial product covered by paragraph (b); or

(d)       a CHESS Depositary Interest,

admitted to quotation under a Market’s operating rules, but does not include a CGS Depository Interest.

Equity Securities means:

(a)        shares in a body corporate or an unincorporated body other than redeemable preference shares which are Loan Securities in accordance with paragraph (c) of the definition of Loan Securities; or

(b)       interests in a managed investment scheme, except those referred to in paragraph (d) of the definition of Loan Securities; or

(c)        renounceable and non-renounceable rights to subscribe for Securities other than Loan Securities; or

(d)       options over unissued Securities other than Loan Securities; or

(e)        convertible notes; or

(f)        any Securities which are determined to be Equity Securities by the operator of a Market on which those Securities are able to be traded in accordance with the operating rules of the Market,

(g)       but does not include Options Market Contracts, or Securities determined to be Loan Securities by the operator of a Market where those financial products are able to be traded in accordance with the operating rules of the Market.

ETF means a Managed Fund:

(a)        the Equity Securities of which are:

(i)         listed on a Market;

(ii)       able to be traded on a Market; or

(iii)     admitted to Trading Status as an AQUA Product or to the AQUA Quote Display Board;

(b)       with power and approval to continuously issue and have quoted on the relevant Market, Equity Securities in the Managed Fund;

(c)        which provides for the issue of new Equity Securities in return for the subscriber transferring to the Managed Fund a portfolio of Securities, cash or a combination of Securities and cash; and

(d)       for which the price of the Underlying Instrument is continuously disclosed or can be immediately ascertained.

ETF Security means a financial product issued by or provided pursuant to an ETF.

(b)       the person has the ability to remove the trustee of the trust and replace that trustee with his or her own nominee.

Futures Market Contract means a contract on the terms of a Futures Series.

Futures Series means a set of contractual terms on which futures contracts are authorised for trading by a Market operator.

Immediate Family in relation to a person, means that person’s spouse and any non-adult children.

IR Plus Market means the market operated by IR Plus Securities Exchange Limited (ACN 087 708 898) under Australian Market Licence (IR Plus Securities Exchange Limited) 2002.

Issuer means, in relation to a Cash Market Product, an Equity Market Product or other financial product able to be traded on a Market, the legal entity which issues the relevant product.

Loan Securities means:

(a)        debentures, stocks or bonds issued or proposed to be issued by a government; or

(b)       debentures of a body corporate or an unincorporated body; or

(c)        redeemable preference shares which have a fixed and certain date for redemption, other than shares having a participating entitlement to rights or options referred to in paragraphs (c) and (d) of the definition of Equity Securities; or

(d)       interests in a managed investment scheme, relating to a financial or business undertaking or scheme, common enterprise or investment contract, the trustee or representative or responsible entity of which only invests in or acquires one or more of Loan Securities, mortgages and cash; or

(e)        in relation to a Market, any Securities which are determined to be Loan Securities by the operator of the Market on which those Securities are able to be traded in accordance with the operating rules of the Market,

but does not include Options Market Contracts or, in relation to a Market, Securities determined to be Equity Securities by the operator of the Market where those financial products are able to be traded in accordance with the operating rules of the Market.

Managed Fund means:

(a)        a managed investment scheme which is a registered managed investment scheme pursuant to section 601EB of the Corporations Act or a managed investment scheme which ASIC has exempted from those registration requirements; or

(b)       a foreign company which has the economic features of a managed investment scheme, namely:

(i)         investors contribute money or money’s worth to acquire rights to benefits produced by the collective investment;

(ii)       contributions of investors are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for investors holding financial products in the collective investment; and

(iii)     investors holding financial products issued in the collective investment do not have day to day control over the operation of the collective investment.

Market means any of the following:

(a)        the ASX Market;

(b)       the Chi-X Market;

(c)        the IR Plus Market;

(d)       the NSXA Market;

(e)        the SSX Market.

NSXA means National Stock Exchange of Australia Limited (ACN 000 902 063).

NSXA AOP Participant means a Participant of the NSXA Market that has either:

(a)        given to ASIC an AOP Initial Certification in respect of the NSXA Market under Rule 5.6.6 of the ASIC Market Integrity Rules (Securities Markets) 2017; or

(b)       used its systems for Automated Order Processing in relation to the NSXA Market.

NSXA Market means the market operated by NSXA under Australian Market Licence (National Stock Exchange of Australia Limited) 2002.

Official Quotation, in relation to financial products, means admission to quotation by a Market operator under the listing rules of that Market.

Option Series means a set of contractual terms on which options are authorised by a Market operator for trading on its Market.

Options Market Contract means a contract on the terms of an Option Series.

Order means, unless the contrary intention appears:

(a)        in relation to Cash Market Products, an instruction to purchase or sell Cash Market Products, or an instruction to amend or cancel a prior instruction to purchase or sell Cash Market Products;

(b)       in relation to Derivatives Market Contracts, an instruction to enter into a Derivatives Market Transaction, or an instruction to amend or cancel a prior instruction to enter into a Derivatives Market Transaction; and

(c)        in relation to other financial products, an instruction to purchase or sell financial products, or an instruction to amend or cancel a prior instruction to purchase or sell financial products.

Other Regulated Entities means entities prescribed by regulations made for the purposes of paragraph 798H(1)(c) of the Corporations Act, that must comply with these Rules.

Participant, in relation to a Market, means a person who is allowed to directly participate in the Market under the operating rules of the Market other than as a recognised affiliate.

Pre-Commencement Market Integrity Rules means:

1.         the ASIC Market Integrity Rules (APX Market-Capital) 2014;

(b)       the ASIC Market Integrity Rules (ASX Market-Capital) 2014; and

(c)        the ASIC Market Integrity Rules (Chi-X Australia Market-Capital) 2014.

Principal Trader means a Market Participant with Trading Permission for one or more Products which limits it to trading on its own behalf.

Product means a Cash Market Product or a Derivatives Market Contract, as applicable.

Quoted Product means a financial product that has been granted Official Quotation.

Rules means these market integrity rules.

Security or security means:

(a)        a security within the meaning of section 761A of the Corporations Act; or

(b)       a managed investment product.

SSX means Sydney Stock Exchange Limited (ACN 080 399 220).

SSX Market means the market operated by SSX under Australian Market Licence (Sydney Stock Exchange Limited) 2004.

Structured Product means a Security or derivative:

(a)        which gives the holder financial exposure to the performance of one or more Underlying Instruments;

(b)       the value of which is linked to the performance of those Underlying Instruments; and

(c)        whereby investors do not have day to day control over the operation of the entity which issues or provides the Security or derivative.

Terms of Issue means, in relation to Warrants, rights, conditions and obligations of the Warrant-Issuer and the holder of the Warrant.

Trading Messages means those messages submitted into a Trading Platform relating to trading functions, such as orders, amendment or cancellation of orders and the reporting or cancellation of Market transactions on the Trading Platform.

Trading Participant means a Market Participant which has Trading Permission in respect of one or more financial products.

Trading Permission means the right to submit Trading Messages in a Trading Platform.

Trading Platform means a facility made available by a Market operator to Market Participants of the relevant Market for the entry of Trading Messages, the matching of Orders, the advertisement of invitations to trade and the reporting of transactions.

Trading Status means authorisation by a Market operator or a CGS Market operator for a financial product to be traded on the relevant Market or CGS Market.

Underlying Instrument means:

(a)        in relation to Option Series and Futures Series, the instrument which underlies that Option Series or Futures Series;

(b)       in relation to Warrants means the financial product, index, foreign or Australian currency or commodity which underlies that Warrant; and

(c)        in relation to AQUA Products and other financial products, means the financial product, index, foreign or Australian currency, commodity or other point of reference for determining the value of the relevant product.

Warrant has the meaning given by regulation 1.0.02 of the Corporations Regulations 2001.

Warrant-Issuer means an entity approved by a Market operator to issue Warrants.

Part 1.5 Participants of multiple Markets

1.5.1 Participants may rely on notifications

Where these Rules require a Market Participant to give to ASIC any document (however described) in relation to the Market Participant for a Market, the Market Participant may give to ASIC the same document in relation to more than one Market, provided that:

(a)        the Market Participant has notified ASIC in writing that it intends to comply with these Rules by relying on that document, or on documents of that kind, in relation to each Market to which the document applies; and

(b)       the document contains all of the information that would be required to be in the document if it were given separately in relation to each Market.

Part 1.6 Transitional

1.6.1 Status of notifications and certifications given by a Market Participant under the Pre-Commencement Market Integrity Rules

(1) This Rule applies if:

(a)        a Market Participant gave ASIC a written notification or certification under the Pre-Commencement Market Integrity Rules; and

(b)       the notification or certification has not been withdrawn or otherwise ceased to have effect; and

(c)        the power or obligation in the Pre-Commencement Market Integrity Rules to give the notification or certification is incorporated under a corresponding provision in these Rules.

(1A) For the purposes of this Rule, a provision (old provision) of the Pre-Commencement Market Integrity Rules corresponds to a provision (new provision) of these Rules (and vice versa) if the old provision and the new provision are substantially the same.

(1B) For the purposes of subrule (1A), differences of all or any of the following kinds are not sufficient to mean that two provisions are not substantially the same:

(a)        differences in the numbering of the provisions;

(b)       differences of a minor technical nature (for example, differences in punctuation, or differences that are attributable to the correction of incorrect cross-references);

(c)        the fact that one of the provisions refers to a corresponding previous law and the other does not;

(d)       other differences that are attributable to the fact that these Rules apply to more than one Market.

(2) The notification or certification:

(a)        is taken to have been given to ASIC by the Market Participant under the corresponding provision in these Rules; and

(b)       will continue in its existing form, and continue to have the same effect under these Rules, as when given under the Pre-Commencement Market Integrity Rules.

 

Chapter 8: Capital requirements

Part 8.1 Preliminary

8.1.1 Definitions

In this Chapter:

Approved Clearing Facility means ASX Clear Pty Limited (ACN 001 314 503).

Risk-Based Capital Requirements means the requirements set out in Schedule 1A.

Part 8.2 Application

8.2.1 Market Participant to comply with Risk-Based Capital Requirements

A Market Participant must at all times comply with the Risk-Based Capital Requirements, unless:

(a)        the Market Participant is only a Principal Trader; or

(b)       the Market Participant is a Clearing Participant of an Approved Clearing Facility and complies with the capital requirements under the Clearing Rules.

Note: The Risk-Based Capital Requirements are set out in Schedule 1A.

 

Chapter 9: Accounts and audit

Part 9.1AA Preliminary

9.1AA.1 Definitions

In this Chapter:

Approved Clearing Facility means ASX Clear Pty Limited (ACN 001 314 503).

Approved Deposit Taking Institution means:

(a)        an authorised deposit taking institution under section 5 of the Banking Act 1959 (Cth);

(b)       a banking institution which has its activities formally regulated in accordance with the standards of the Basel Committee on Banking Supervision; or

(c)        an institution which has been given a risk weighting by the Australian Prudential Regulation Authority equivalent to an authorised deposit taking institution referred to in paragraph (a).

Approved Subordinated Debt means an amount owing by a Market Participant under a subordination arrangement which is approved by ASIC under Rule S1A.2.4.

Approved Subordinated Loan Deed means, in respect of a subordination arrangement, a deed which:

(a)        is executed:

(i)         by the lender and ASIC under seal or by such equivalent method expressly recognised under the Corporations Act;

(ii)       in the case of a Market Participant which is a company, by the Market Participant under seal or by such equivalent method expressly recognised under the Corporations Act; and

(iii)     in the case of a Market Participant which is a partnership, by each of its partners;

(b)       sets out details of the terms governing any subordinated debt regulated by the subordination arrangement or identifies the document which does so;

(c)        contains those provisions required by ASIC including without limitation, provisions to the effect that:

(i)         alterations to the subordinated loan deed or the terms or details of any subordinated debt regulated by the subordination arrangement cannot be made unless the agreement of all parties is obtained and the variation is executed in the manner required under paragraph (a);

(ii)       ASIC must be satisfied that the Market Participant has made adequate arrangements to ensure that Schedule 1A will be complied with and will continue to be complied with upon the maturity date of any loan for a fixed term;

(iii)     ASIC must be given full particulars of any debt to be regulated by the subordination arrangement under the subordinated loan deed prior to such debt being created; and

(iv)      prior to the Bankruptcy of the Market Participant, repayment of any subordinated debt regulated by the subordination arrangement can only occur in accordance with subrules S1A.2.4(6) and (7); and

(d)       contains specific acknowledgment by the lender of the matters set out in paragraphs S1A.2.4(2)(a) and (b).

Bankruptcy means in respect of an entity:

(a)        the entity becomes an externally administered body corporate within the meaning of the Corporations Act;

(b)       the entity becomes an individual who is an insolvent under administration within the meaning of the Corporations Act;

(c)        if the entity is a partnership, the entity is wound up or dissolved or a liquidator is appointed to it;

(d)       a person takes control of the entity’s property for the benefit of the entity’s creditors because the entity is, or is likely to become, insolvent;

(e)        the entity enters into an arrangement, composition or compromise with, or assignment for the benefit of, all of its creditors or any class of them; or

(f)        anything analogous to, or having a substantially similar effect to the events specified in paragraphs (a) to (e) happens to the entity under the laws of any applicable jurisdiction.

CFD means contract for difference.

Classical ETF means a managed fund that meets all of the following criteria:

(a)        that is listed and quoted on a stock exchange (and in Australia is registered as a managed investment scheme under the Corporations Act);

(b)       where, under an open prospectus, the units in the fund can only be subscribed for and redeemed in kind, on demand and via the exchange of a defined basket of Equity securities;

(c)        that has a “passive” investment strategy designed to replicate a stock index at all times and this is evidenced by the holding of physical securities in weightings that predominantly match the stock index the fund has been issued over, and accordingly, any cash or Derivative components must be immaterial and must not be used to gear the fund;

(d)       where the underlying assets are known on a daily basis; and

(e)        that is subscribed for and redeemed in a “primary” market via either a Market Participant or the fund issuer, and existing units are traded in a “secondary” market provided through a stock exchange.

Client Balance means an individual Counterparty’s net debit or credit balance with a Market Participant arising from non-margined Financial Instruments.

Core Capital means:

(a)        in the case of a Market Participant which is a company, the sum of:

(i)         all ordinary issued shares to the extent that those shares are paid-up;

(ii)       all non cumulative Preference Shares;

(iii)     all reserves, excluding revaluation reserves other than Financial Asset Revaluation Reserves; and

(iv)      opening retained profits/losses adjusted for all current year movements; and

(b)       in the case of a Market Participant which is a partnership, the sum of the partners’ current and capital accounts.

Counterparty means in respect of a transaction to which a Market Participant is a party, another party to that transaction whether that person is a counterparty or a client.

Counterparty Risk Requirement means the greater of:

(a)        zero; and

(b)       the absolute sum of the counterparty risk amounts calculated in accordance with Annexure 1 to this Schedule 1A less any provision raised for doubtful debts.

Note: The provision for doubtful debts must relate to a specific Counterparty receivable for which a counterparty risk amount has been calculated in accordance with Annexure 1 or to cover the possibility of a Counterparty or Client Balance becoming doubtful. A Market Participant must not deduct a provision amount from an individual counterparty risk amount.

Debt Derivative includes:

(a)        a convertible note (except to the extent that Annexure 3 to this Schedule 1A provides for the treatment of a convertible note as an equity position);

(b)       an interest rate Swap;

(c)        a Forward Rate Agreement;

(d)       a forward contract over a Debt Instrument;

(e)        a Future over a Debt Instrument and a Future over an index or basket product based on Debt Instruments;

(f)        an index or basket product based on Debt Instruments; and

(g)       an Option over a Debt Instrument and an Option over any of the products referred to in paragraphs (a) to (f),

but does not include an instrument that falls within the definition of Equity Derivative or Foreign Exchange Derivative.

Debt Instrument includes:

(a)        a debt security without call or put provisions;

(b)       a discount security without call or put provisions;

(c)        a non-convertible preference share;

(d)       a redeemable preference share with a fixed and certain date for redemption; and

(e)        an interest in a managed investment scheme investing only in Debt Instruments, mortgages or cash, including an interest in a Hybrid ETF or Other Managed Fund that is issued over physical Debt Instruments only (ignoring any immaterial percentage of cash or Derivatives also included in the Hybrid ETF or Other Managed Fund and used only for hedging purposes),

but does not include an instrument that falls within the definition of Equity.

Derivative includes:

(a)        an Equity Derivative;

(b)       a Debt Derivative; and

(c)        a Foreign Exchange Derivative,

but does not include an instrument that falls within the definition of Equity or Debt Instrument.

Equity includes:

(a)        a share other than a share referred to in paragraphs (c) and (d) of the definition of Debt Instrument;

(b)       a depository receipt;

(c)        an instalment receipt;

(d)       an interest in a managed investment scheme, including an interest in a Hybrid ETF or an Other Managed Fund that is issued over:

(i)         physical Equities only;

(ii)       physical Debt Instruments and property;

(iii)     physical Equities, physical Debt Instruments and property;

(iv)      physical Equities and property; or

(v)       physical property only,

(ignoring any immaterial percentage of cash or Derivatives also included in the Hybrid ETF or Other Managed Fund and used only for hedging purposes), other than an interest referred to in paragraph (e) of the definition of Debt Instrument,

but does not include an instrument that falls within the definition of Debt Instrument.

Equity Derivative includes:

(a)        an equity Swap;

(b)       a forward contract over an Equity;

(c)        a Future over an Equity and a Future over a basket or index product based on Equities;

(d)       an index or basket product based on Equities (including a Classical ETF);

(e)        a renounceable or non-renounceable right to subscribe for an equity;

(f)        an Option over an Equity (whether issued or unissued) and an Option over any of the products referred to in paragraphs (a) to (d); and

(g)       an exchange traded CFD over:

(i)         an Equity; or

(ii)       a basket or index product based on Equities,

but does not include an instrument that falls within the definition of Debt Derivative or Foreign Exchange Derivative.

Excluded Asset means:

(a)        a fixed asset;

(b)       an intangible asset;

(c)        a future income tax benefit;

(d)       a non current asset;

(e)        a deposit with or loan to a person other than:

(i)         a deposit or loan with an Approved Deposit Taking Institution;

(ii)       a deposit or loan to the extent the balance is secured by collateral which is Liquid, evidenced in writing and valued at the mark-to-market value; or

(iii)     a deposit of funds as a margin or deposit with a person licensed to trade or clear Futures or Options to the extent that those funds relate to an open position;

(f)        a deposit with a third party clearing organisation;

(g)       a Related/Associated Person Balance to the extent the balance is not secured by collateral which is:

(i)         Liquid;

(ii)       under the control of the Market Participant, able to be accessed by the Market Participant without the approval of a third party and not otherwise encumbered;

(iii)     evidenced in writing by a legally binding agreement between the Market Participant and the Related/Associated Person in circumstances where the Market Participant has established that the Related/Associated Person and the persons signing the agreement have the legal capacity to enter into the agreement and provide the nominated collateral; and

(iv)      valued at the mark-to-market value;

(h)       a debt which was reported or created more than 30 days previously, other than a debt:

(i)         from another Market Participant that is not an Related/Associated Person; or

(ii)       which is secured by collateral which is Liquid, evidenced in writing and valued at the mark-to-market value;

(i)         a prepayment (being an expense which has been paid during one accounting period for a term which extends beyond the end of that period) which is not Liquid or which is Liquid but has been made in respect of an item of expenditure that is specifically required to be made by the Market Participant for the Market Participant to comply with the requirements of these Rules or the operating rules of a Market;

(j)         an asset which is not Liquid; or

(k)       an asset which is Liquid but which has a charge against it (in whole or in part) where the purpose of the charge is to raise funds for use outside the ordinary course of the Market Participant’s securities or derivatives business.

Excluded Liability means the maximum liability specified in a guarantee or indemnity under paragraph S1A.2.6(1)(c).

(b)       the person has the ability to remove the trustee of the trust and replace the trustee with his or her own nominee.

Financial Asset Revaluation Reserves means revaluation reserves relating to available for sale financial assets as defined in accordance with accounting standards which are generally accepted in Australia or other accounting standards approved by ASIC under subrule S1A.2.7(3).

Financial Instrument means:

(a)        an Equity;

(b)       a Debt Instrument; and

(c)        a Derivative.

Foreign Exchange Derivative includes:

(a)        a forward contract over foreign currency;

(b)       a Future over foreign currency;

(c)        an Option over foreign currency; and

(d)       an exchange traded CFD over an exchange rate or foreign currency,

but does not include an instrument that meets the definition of Equity Derivative or Debt Derivative.

Forward Rate Agreement means an agreement in which two parties agree that:

(a)        one party will make payments to the other of an amount of interest based on an agreed interest rate for a specified period from a specified date applied to an agreed principal amount;

(b)       no commitment is made by either party to lend or borrow the principal amount; and

(c)        the exposure is limited to the interest difference between the agreed and actual market rates at settlement.

Future means a contract which is traded on an exchange, subject to a Primary Margin Requirement and which is:

(a)        a contract to make an adjustment between the parties on an agreed future date as to the value on that date of an interest rate, a foreign currency, an Equity, basket or index, or some other agreed factor; or

(b)       a deliverable bond futures contract or deliverable share futures contract.

Hybrid ETF means a managed fund:

(a)        that is listed and quoted on a stock exchange (and in Australia is registered as a managed investment scheme under the Corporations Act); and

(b)       where, under an open prospectus, the units can only be subscribed for and redeemed in cash or in kind; and

(c)        that is subscribed for and redeemed in a “primary” market and existing units are traded in a “secondary” market; or

(d)       that does not satisfy all of the requirements of a Classical ETF but satisfies the three criteria referred to in paragraphs (a), (b) and (c).

Immediate Family in relation to a person means that person’s spouse and any non-adult children.

Large Exposure Risk Requirement is the absolute sum of a Market Participant’s:

(a)        counterparty large exposure risk amount calculated in accordance with Annexure 2 to this Schedule 1A; and

(b)       issuer large exposure risk amount calculated in accordance with Annexure 2 to this Schedule 1A.

Liquid means realisable or otherwise convertible to cash within 30 days and in the case of a Financial Instrument, means the Financial Instrument meets the following criteria:

(a)        there are genuine independent offers from third parties to the Market Participant;

(b)       prices or rates exist that closely approximate the last sale price or rate in the Financial Instrument (whether exchange traded or over-the-counter);

(c)        payment/settlement can be effected within the settlement conventions applicable to the Financial Instrument; and

(d)       there is sufficient liquidity in the market to ensure a ready sale of the position held.

Liquid Capital means the sum of:

(a)        Core Capital;

(b)       cumulative Preference Shares;

(c)        Approved Subordinated Debt; and

(d)       revaluation reserves other than Financial Asset Revaluation Reserves;

less the sum of:

1.         Excluded Assets; and

(f)        Excluded Liabilities.

Liquid Margin means the amount calculated by deducting the Total Risk Requirement amount from the amount of Liquid Capital.

Non-Standard Risk Requirement means the amount calculated in accordance with Rule S1A.2.9 to cover unusual or non-standard exposures.

Operational Risk Requirement means the amount calculated in accordance with subrule S1A.2.3(1) which is required to cover exposures associated with commencing and remaining in business arising separately from exposures covered by other risk requirements.

Option means a contract which gives the holder the option or right, exercisable at or before a specified time to:

(a)        buy (whether by way of issue or transfer) or sell a quantity of a Financial Instrument or a foreign currency; or

(b)       be paid an amount of money calculated by reference to the value of a Financial Instrument, foreign currency or index as specified in the contract.

Other Managed Fund means a managed fund:

(a)        that is not listed and quoted on a stock exchange (and in Australia is registered as a managed investment scheme under the Corporations Act); or

(b)       that is listed and quoted on a stock exchange but does not satisfy all of the requirements of a Classical ETF or Hybrid ETF.

Position Risk Requirement is the absolute sum of the position risk amounts for a Market Participant’s:

(a)        Equity and Equity Derivative positions calculated in accordance with Parts A3.1 to A3.9 of Annexure 3 to this Schedule 1A;

(b)       Debt Instrument and Debt Derivative positions calculated in accordance with Parts A3.10 to A3.17 of Annexure 3 to this Schedule 1A; and

(c)        foreign exchange and Foreign Exchange Derivative positions calculated in accordance with Parts A3.18 to A3.22 of Annexure 3 to this Schedule 1A.

Preference Share means a preference share that is redeemable solely at the request of the Market Participant.

Primary Margin Requirement means the amount which a Market Participant lodges or is notionally required to lodge as a deposit to cover potential daily worse case price movements in the relevant market, lodged in accordance with the rules of an exchange or clearing house against open positions registered in the name of the Market Participant on the exchange or clearing house.

Related/Associated Person means:

(a)        a partner, director, employee, officer or consultant of a Market Participant or of a company which is a partner of a Market Participant;

(b)       a person who is a member of the Immediate Family of a person referred to in paragraph (a);

(c)        the trustee of a Family Trust of a person referred to in paragraph (a);

(d)       an entity which is:

(i)         controlled by a person referred to in paragraphs (a), (b) or (c) or any of those persons acting together; or

(ii)       a corporation in which a person referred to in paragraphs (a) or (b) is beneficially entitled to more than 50% of the issued capital;

(e)        an entity which is the holding company, or which is controlled by the holding company, of a Market Participant or of a company which is a partner of a Market Participant;

(f)        a person who is a Substantial holder of a Market Participant or of a company which is a partner of a Market Participant;

(g)       an associate of a Market Participant (as defined in each section of Part 1.2, Division 2 of the Corporations Act) or of a company which is a partner of a Market Participant; and

(h)       a lender who is a party to an Approved Subordinated Loan Deed or a related entity or associate of that lender.

Related/Associated Person Balance is an amount owing to the Market Participant by a person who is a Related/Associated Person of the Market Participant and excludes an amount owing as a result of:

(a)        the deposit with, loans to or other amounts owing from an Approved Deposit Taking Institution;

(b)       the deposit of funds as a margin or deposit with a person licensed to trade or clear Futures or Options to the extent that those funds relate to an open position; or

(c)        a transaction in a Financial Instrument under Annexure 1 to this Schedule 1A which is made on terms no more favourable to the Related/Associated Person than those on which it would be reasonable to expect the Market Participant to make if it had entered into the transaction on an arm’s length basis, but not including sundry fees, interest or similar amounts owing on such transactions; or

(d)       brokerage or similar amounts owing that were reported or created less than 30 days previously and which arose as a result of a third party clearing arrangement entered in to with a Clearing Participant that is a Related/Associated Person of the Market Participant.

Risk-Based Capital Requirements means the requirements set out in Schedule 1A.

Substantial holder means a person who has or would have a substantial holding if Part 6C of the Corporations Act applied to that corporation.

Swap means a transaction in which two counterparties agree to exchange streams of payments over time on a predetermined basis.

Total Risk Requirement means the sum of:

(a)        Operational Risk Requirement;

(b)       Counterparty Risk Requirement;

(c)        Large Exposure Risk Requirement;

(d)       Position Risk Requirement;

(e)        Underwriting Risk Requirement; and

(f)        Non-Standard Risk Requirement,

however where an asset or liability is an Excluded Asset or Excluded Liability a risk requirement otherwise applicable under paragraphs (a) to (e) is not included.

Underwriting Risk Requirement is the absolute sum of the risk amounts calculated in accordance with Annexure 4 to this Schedule 1A.

Part 9.1 Application of Rules

9.1.1 Principal Traders and Clearing Participants

This Chapter does not apply to:

(a)        a Market Participant that is only approved as a Principal Trader; or

(b)       a Market Participant that is a Clearing Participant of an Approved Clearing Facility and complies with the capital requirements under the Clearing Rules.

Part 9.2 Risk-Based Capital Requirements—Reporting

9.2.1A Risk-Based Capital Requirements: Forms

In this Part 9.2:

Ad Hoc Risk-Based Return means a return containing the information in, and in the form set out in, Part 1 of Form 1 in Schedule 1C to these Rules.

Annual Audited Risk-Based Return means a return containing the information in, and in the form set out in, Part 1 of Form 3A in Schedule 1C to these Rules, except for the section Credit Facilities & Overdraft (coded “CFO”).

Monthly Risk-Based Return means a return containing the information in, and in the form set out in, Part 1 of Form 3A in Schedule 1C to these Rules.

Risk-Based Return Declaration means a declaration containing the information in, and in the form set out in, Part 2 of Form 2 in Schedule 1C to these Rules.

Summary Risk-Based Return means a return containing the information in, and in the form set out in, Part 1 of Form 3A in Schedule 1C to these Rules, except for the following sections:

(a)        Underwriting Risk Requirement (coded “URR”);

(b)       Non Standard Risk Requirement (coded “NRR”); and

(c)        Credit Facilities & Overdraft (coded “CFO”).

9.2.1 Risk-Based Capital Requirements—Ad hoc or summary return on request by ASIC

A Market Participant must, if requested to do so by ASIC, provide ASIC with:

(a)        an Ad Hoc Risk-Based Return; or

(b)       a Summary Risk-Based Return and Risk-Based Return Declaration,

authorised by one director or partner of the Market Participant, within the time specified by ASIC in the request.

9.2.2 Core Capital or Liquid Capital below minimum

(1) A Market Participant must notify ASIC immediately if its:

(a)        Core Capital is at any time less than the minimum amount required by paragraph S1A.2.1(b); or

(b)       Liquid Capital divided by its Total Risk Requirement is equal to or falls below 1.2.

(2) A Market Participant must provide ASIC with at the option of ASIC, an Ad Hoc Risk-Based Return, or a Summary Risk-Based Return and Risk-Based Return Declaration, disclosing the amount of its Liquid Margin:

(a)        no later than one Business Day after notifying ASIC under subrule (1); and

(b)       from then on, either:

(i)         by 10 am on the first Business Day of each week, showing the financial position of the Market Participant on the last Business Day of the prior week, for so long as the amount referred to in paragraph (1)(b) is equal to or less than 1.2 but greater than 1.1; and

(ii)       by 10 am on each Business Day, showing the financial position of the Market Participant on the prior Business Day, for so long as the amount referred to in paragraph (1)(b) is 1.1 or less.

(3) The return referred to in subrule (2) must be authorised by one director or partner of the Market Participant.

9.2.3 Monthly Risk-Based Return

A Market Participant must prepare and deliver to ASIC within 10 Business Days of the end of each calendar month, the following documents and information:

(a)        if the Market Participant is not a partnership, a Monthly Risk-Based Return, which accurately reflects the Market Participant’s accounts and financial position on the last Business Day of the previous calendar month;

(b)       if the Market Participant is not a partnership, a Risk-Based Return Declaration relating to the Monthly Risk-Based Return, authorised by one director of the Market Participant;

(c)        if the Market Participant is a partnership, a Monthly Risk-Based Return, which accurately reflects the Market Participant’s accounts and financial position on the last Business Day of the previous calendar month, or such other alternative form of return as ASIC directs under this paragraph; and

(d)       if the Market Participant is a partnership, a Risk-Based Return Declaration relating to the Monthly Risk-Based Return, authorised by one partner of the Market Participant, or such other alternative form of declaration as ASIC directs under this paragraph.

9.2.4 Annual Audited Risk-Based Return

(1) A Market Participant must prepare and deliver to ASIC:

(a)        within three months following the end of the Market Participant’s financial year if the Market Participant is not a partnership; or

(b)       within two months following the end of the Market Participant’s financial year if the Market Participant is a partnership,

the following documents and information:

1.         the Market Participant’s statutory accounts, including directors’ declaration and audit report as required under the laws of the Market Participant’s home jurisdiction, which give a true and fair view of the financial position and performance of the Market Participant’s business as at the end of the financial year and which are prepared in accordance with accounting standards and principles which are generally accepted in Australia, unless ASIC determines otherwise;

(d)       if the Market Participant is not a partnership, an Annual Audited Risk-Based Return, which accurately reflects the Market Participant’s accounts and its financial position as at the end of the Market Participant’s financial year;

(e)        if the Market Participant is not a partnership, a Risk-Based Return Declaration relating to the Annual Audited Risk-Based Return, authorised by two directors of the Market Participant or by one director in accordance with a resolution of the board of directors of the Market Participant;

(f)        if the Market Participant is a partnership, an Annual Audited Risk-Based Return, which accurately reflects the Market Participant’s accounts and its financial position as at the end of the Market Participant’s financial year, or such other alternative form of return as ASIC directs under this paragraph;

(g)       if the Market Participant is a partnership, a Risk-Based Return Declaration relating to the Annual Audited Risk-Based Return, authorised by two partners of the Market Participant, or such other alternative form of declaration as ASIC directs under this paragraph;

(h)       an auditor’s report on the Annual Audited Risk-Based Return or the alternative form of return directed by ASIC under paragraph (f), in the form set out in Form 5 in Schedule 1C to these Rules, dated and signed by the audit firm;

(i)         a statement (the Key Risks and Internal Systems Statement) in the form set out in Form 6 in Schedule 1C to these Rules, dated and signed by two directors of the Market Participant or by one director in accordance with a resolution of the board of directors of the Market Participant (the date of the resolution must be specified), or, if the Market Participant is a partnership, by two partners of the Market Participant; and

(j)         the Market Participant’s group structure chart showing the Market Participant’s corporate ownership structure starting at the ultimate parent, dropping down to the immediate parent, the Market Participant, any subsidiaries (including nominee companies of the Market Participant) and any related/associated companies of the Market Participant.

(2) If the financial year end of the Market Participant is other than 30 June, the Market Participant must notify ASIC of its financial year end.

9.2.5 Partnership Statutory Declaration

A Market Participant that is a partnership must give ASIC, within 10 Business Days after the end of June and December each year, for each partner of the Market Participant, a declaration (the Partnership Statutory Declaration) in the form set out in Form 7 in Schedule 1C to these Rules, signed by the partner to which the Partnership Statutory Declaration relates and witnessed in accordance with the instructions included on the Partnership Statutory Declaration.

Part 9.4 General

9.4.1 Alternate director

Where a Market Participant has appointed an alternate director in accordance with section 201K of the Corporations Act and the constitution of the Market Participant, the alternate director may authorise or sign the forms referred to in Part 9.2 only if the Market Participant has provided ASIC with:

(a)        the details of the appointment of the alternate director; and

(b)       a statement that the Market Participant’s constitution permits the appointment of the alternate director.

9.4.2 Use of Return Lodgement and Monitoring System

(1) Unless otherwise directed by ASIC, a Market Participant may comply with the following provisions:

(a)        Rule 9.2.1;

(b)       subrule 9.2.2(2);

(c)        Rule 9.2.3;

(d)       paragraphs 9.2.4(1)(d) to (g),

by submitting the information required to be delivered to ASIC under those provisions to the electronic Return Lodgement and Monitoring system maintained by a Market operator.

(2) Where a Risk-Based Return Declaration is submitted to the electronic return lodgement and monitoring system maintained by a Market operator, each reference in that Risk-Based Return Declaration to the ASIC Market Integrity Rules (ASX Market) 2010 is taken to be a reference to these Rules.

Note. 1: Before 26 May 2014, equivalent requirements in these Rules were set out in the ASIC Market Integrity Rules (ASX Market) 2010.

Note 2: There is no penalty for this Rule.

Part 9.5 Scope of audits

9.5.1 Market Participant to assist auditor

(1) A Market Participant must give its auditor access to its premises and Employees and all records, documents, explanations and other information required by the auditor in respect of any audit conducted under Part 9.2.

(2) A Market Participant must:

(a)        not impose any limitation on the extent of any audit required under Part 9.2; and

(b)       permit and direct the auditor to notify ASIC immediately if any limitation is imposed on the auditor, or if the auditor is hindered or delayed in the performance of the auditor’s duties.

(3) The records of each of the Market Participant’s nominee companies must be included in the audit.