ASIC RG 266 — ASIC Regulatory Guide – RG 266 Guidance on ASIC market integrity rules for participants of futures markets

Page 1 REGULATORY GUIDE 266 Guidance on ASIC market integrity rules for participants of futures markets August 2022 About this guide This guide is for market participants subject to the ASIC Market Integrity Rules (Futures Markets) 2017 and ASIC Market Integrity Rules (Capital) 2021. It gives guidance on how market participants can comply with their obligations under these rules. Page 2 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 2 About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by:  explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act)  explaining how ASIC interprets the law  describing the principles underlying ASIC’s approach  giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project. Document history This guide was issued in August 2022 and is based on legislation and regulations as at the date of issue. In May 2024, we updated RG 266.328 to define ‘immediately’ for a major event notification. In December 2025, we updated Section M: Technological and operational resilience to include details of a class waiver (relating to partially exempt outsourcing arrangements). Guidance relating to critical business services and business continuity plans was clarified, updates were made to outdated references and some structural changes were made. Previous version  Superseded Regulatory Guide 266, issued May 2018 Disclaimer This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations. Examples in this guide are purely for illustration; they are not exhaustive and are not intended to impose or imply particular rules or requirements. Page 3 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 3 Contents A Overview ........................................................................................... 5 Supervision of trading on domestic licensed financial markets ......... 5 ASIC market integrity rules ................................................................ 5 Communicating with ASIC ................................................................. 6 Scope of this regulatory guide ........................................................... 6 Related guidance ............................................................................... 7 B Supervision of trading on domestic licensed financial markets 8 ASIC’s supervisory responsibilities .................................................... 8 How ASIC works together with market licensees .............................. 9 Status of notifications, consents, waivers, etc., given before 1 August 2010 .................................................................................. 10 C ASIC market integrity rules........................................................... 11 ASIC market integrity rules .............................................................. 11 Waivers ............................................................................................ 12 D Communicating with ASIC ............................................................ 14 Forms ............................................................................................... 14 Contacting ASIC .............................................................................. 15 When to contact ASIC ..................................................................... 16 Notifying ASIC of reportable situations ............................................ 17 E Risk management .......................................................................... 18 Risk management requirements for market participants ................. 18 Setting and documenting limits ........................................................ 19 Terminal connections ....................................................................... 23 Accessing terminal connections ...................................................... 24 F Trust account reconciliation reporting ........................................ 26 Trust account reconciliation reporting .............................................. 26 G Capital requirements ..................................................................... 27 Scope, application and waivers ....................................................... 27 Lodging forms and returns ............................................................... 27 ASX guidance materials on capital .................................................. 27 H Good fame and character requirement ....................................... 29 I Supervisory policies and procedures ......................................... 30 J Foreign participants: Minimum presence requirements ........... 31 K Suspicious activity reporting ....................................................... 33 What suspicious activity must be reported? .................................... 33 Compliance with Part 3.6 ................................................................. 43 L Crossing systems .......................................................................... 47 Scope and application ..................................................................... 47 Notifying ASIC of intention to operate a crossing system ............... 48 Monthly reporting to ASIC on trading activity and system changes 49 Public disclosure about crossing system operations ....................... 49 Disclosure to crossing system clients .............................................. 51 Fair treatment of users ..................................................................... 56 Monitoring and suspicious activity reporting .................................... 57 Systems and controls ...................................................................... 60 Page 4 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 4 M Technological and operational resilience ................................... 62 Scope and application ..................................................................... 62 Critical business services ................................................................ 63 Information security ......................................................................... 74 Business continuity plans ................................................................ 77 Governance ..................................................................................... 82 Appendix 1: Procedures, determinations and practice notes .......... 84 Appendix 2: Superseded guidance ..................................................... 85 Key terms ............................................................................................... 86 Related information ............................................................................... 88 Page 5 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 5 A Overview Key points We are responsible for supervising trading on Australian domestic licensed financial markets. As part of our supervisory responsibilities, we make market integrity rules and monitor compliance by market participants with those rules. This regulatory guide gives guidance on the obligations of participants of futures markets in relation to: • risk management for house accounts; • supervisory policies and procedures; • minimum presence requirements for foreign market participants; • client detail record keeping; • crossing systems; • suspicious activity reporting; • capital requirements; and • technological and operational resilience of critical business services. Supervision of trading on domestic licensed financial markets RG 266.1 We are responsible for supervising the activities and the conduct of business by market participants in relation to domestic licensed markets (i.e. financial markets operated by persons licensed under s795B(1) of the Corporations Act 2001 (Corporations Act)). RG 266.2 We are also responsible for supervising compliance with the Corporations Act and for making and supervising compliance with market integrity rules. RG 266.3 Australian market licensees are responsible for the operation of their markets and for monitoring and enforcing compliance with their markets’ operating rules, which include their listing rules. ASIC market integrity rules RG 266.4 Under Pt 7.2A of the Corporations Act, we are able to make market integrity rules dealing with activities and conduct in relation to domestic licensed financial markets, including the activities and conduct of market participants. We are also responsible for granting waivers from the obligation to comply with a provision of the market integrity rules. Page 6 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 6 Communicating with ASIC RG 266.5 Market participants can contact ASIC directly to ensure that market integrity matters are known and addressed in an efficient and timely manner. RG 266.6 You may contact ASIC by direct email or by telephone to the relevant ASIC teams to communicate issues and queries about markets, trading and participant conduct. For contact details see RG 266.44–RG 266.48. See Table 3 for a list of email addresses you can use to contact ASIC about different market- and participant-related matters. RG 266.7 In Table 2 we have listed some of the information which must be provided to ASIC under the market integrity rules. Scope of this regulatory guide RG 266.8 This regulatory guide provides guidance for market participants on the ASIC Market Integrity Rules (Futures Markets) 2017 and ASIC Market Integrity Rules (Capital) 2021. Note 1: In this guide, ‘Futures Markets Rules’ refers to the ASIC Market Integrity Rules (Futures Markets) 2017. The Futures Markets Rules replaced the ASIC Market Integrity Rules (ASX 24 Market) 2010, the ASIC Market Integrity Rules (FEX Market) 2013 and ASIC Market Integrity Rules (Competition in Exchange Markets) 2011. The Futures Markets Rules can be downloaded from the Federal Register of Legislation. Note 2: In this guide, ‘Capital Rules’ refers to the ASIC Market Integrity Rules (Capital) 2021. The Capital Rules replaced the ASIC Market Integrity Rules (Futures Markets – Capital) 2017.The Capital Rules can be downloaded from the Federal Register of Legislation. Note 3: Guidance on the ASIC Market Integrity Rules (Securities Markets) 2017 for market participants can be found in Regulatory Guide 265 Guidance on ASIC market integrity rules for participants of securities markets (RG 265). RG 266.9 The guide also explains how we expect participants to comply with requirements about: (a) risk management; (b) supervisory policies and procedures; (c) minimum presence requirements for foreign participants; (d) crossing systems; (e) suspicious activity reporting; (f) client detail record keeping; (g) capital requirements; and (h) technological and operational resilience of critical business services. RG 266.10 This guide does not cover the operating rules of market operators or clearing and settlement (CS) facility operators. Page 7 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 7 Related guidance RG 266.11 Table 1 identifies other regulatory guides that may be relevant to market participants. Note: Guidance on various obligations under the Futures Markets Rules that apply to market operators can be found in Regulatory Guide 172 Financial markets: Domestic and overseas operators (RG 172). Table 1: Related guidance Topic ASIC regulatory guide Our guidance for participants of securities markets subject to the Securities Markets Rules Regulatory Guide 265 Guidance on ASIC market integrity rules for participants of securities markets (RG 265) The disciplinary framework for the market integrity rules, the function of the Markets Disciplinary Panel (MDP), and the policies that the MDP will take into account when making decisions about alleged contraventions of the market integrity rules Regulatory Guide 216 Markets Disciplinary Panel (RG 216) Notifying ASIC of a range of conduct by Australian financial services (AFS) licensees known as ‘reportable situations’: see s912DAA Regulatory Guide 78 Breach reporting by AFS licensees and credit licensees (RG 78) Our approach to supervising compliance with AFS licensing obligations Regulatory Guide 104 AFS licensing: Meeting the general obligations (RG 104) and Regulatory Guide 105 AFS licensing: Organisational competence (RG 105) Page 8 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 8 B Supervision of trading on domestic licensed financial markets Key points We are responsible for supervising trading on Australian domestic licensed financial markets. We take a risk-based approach to surveillance of compliance with the market integrity rules and market participants’ obligations under the Corporations Act. ASIC’s supervisory responsibilities RG 266.12 We are responsible for supervising market participants, market operators and other prescribed entities for compliance with the market integrity rules. This is in addition to our role in supervising compliance by market participants with the market misconduct provisions of the Corporations Act (e.g. the prohibitions against insider trading, market manipulation and making false and misleading statements) and with the general obligations of AFS licensees. Note 1: For our approach to supervising compliance with the general obligations of AFS licensees under s912A of the Corporations Act, see RG 104 and RG 105. Note 2: Guidance on market operators’ obligations under the Securities Markets Rules can be found in RG 172. Note 3: Our supervisory responsibilities do not extend to foreign-based markets that are licensed to operate in Australia under s795B(2) or to financial markets that are exempt from being licensed. Supervision of compliance with market integrity rules RG 266.13 We take a risk-based approach to surveillance of compliance with the market integrity rules and market participants’ obligations under the Corporations Act. In doing so, we consider the Objectives and principles of securities regulation set out by the International Organization of Securities Commissions (IOSCO). Note: IOSCO, Objectives and principles of securities regulation (PDF 187 KB), report, 10 June 2010. RG 266.14 We perform risk assessments of participants and, where necessary, conduct targeted surveillance of suspected misconduct. RG 266.15 We are responsible for any investigation and action in relation to an alleged breach of the market integrity rules. Page 9 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 9 SFE procedures, determinations and practice notes RG 266.16 In assessing a market participant’s compliance with the market integrity rules, we will seek to follow relevant published interpretation as contained in old Sydney Futures Exchange (SFE) procedures, determinations and practice notes. The old SFE procedures, determinations and practice notes that remain relevant are listed in the appendix. RG 266.17 In some instances, we have incorporated content from the SFE procedures, determinations and practice notes into the ASIC market integrity rules. Market surveillance RG 266.18 To promote market integrity, we monitor on-market trading activity, including activity in relation to futures market contracts, through a variety of computerised systems. RG 266.19 Our Market Surveillance team makes inquiries of market operators, participants, listed entities, clients and others, using compulsory powers where necessary. Disciplinary process RG 266.20 The disciplinary process for breaches of the market integrity rules is contained in RG 216. The MDP exercises ASIC’s power to issue infringement notices and accept court enforceable undertakings relating to breaches of the market integrity rules. RG 216 provides guidance on the processes by which matters will be referred to, and dealt with by, the MDP. How ASIC works together with market licensees RG 266.21 Australian market licensees are responsible for the operation of their markets and are required to set operating rules for their markets. These operating rules govern how trading can take place on the market and may, where relevant, deal with entities trading on the market’s official list. Market licensees are responsible for monitoring and enforcing compliance with their operating rules. Note: Guidance on market licensee obligations under the Corporations Act and, for domestic licensees, under the Securities Markets Rules and Futures Markets Rules, can be found in RG 172. RG 266.22 ASIC and market licensees conduct site visits of market participants and, where appropriate, share information on supervisory practices. Page 10 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 10 Status of notifications, consents, waivers, etc., given before 1 August 2010 RG 266.23 Unless ASIC determines that it should be amended or revoked, any written: (a) waiver, exemption, consent, recognition, accreditation, approval, determination or notification given by a market operator to a participant under the operating rules of a market, where those rules are incorporated into the market integrity rules; and (b) notification or certification given by market participants to market operators under the operating rules of a market, where those rules are incorporated into the market integrity rules, is grandfathered and taken to be given by ASIC so as to continue in its existing form, and continue to have the same effect as given under the operating rules: reg 10.15.04 of the Corporations Regulations 2001 (Corporations Regulations). Note: Rule 1.6.1 of the Futures Markets Rules provides additional transitional arrangements to ensure the continuity of the status of notifications and certifications given by a market participant to ASIC in accordance with the market integrity rules in force immediately prior to 7 May 2018. Page 11 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 11 C ASIC market integrity rules Key points The market integrity rules are made by ASIC and apply to market operators, market participants, other prescribed entities and financial products traded on a licensed market. We will consult on future amendments to the market integrity rules as required. We are responsible for supervising compliance with the market integrity rules. We are also responsible for granting waivers from the obligation to comply with a provision of the market integrity rules. ASIC market integrity rules RG 266.24 We are able to make market integrity rules under Pt 7.2A of the Corporations Act dealing with the activities or conduct of: (a) licensed markets; (b) persons in relation to licensed markets; and (c) persons in relation to financial products traded on licensed markets. RG 266.25 The market integrity rules are legislative instruments and are subject to parliamentary scrutiny and possible disallowance by Parliament. Ministerial consent to market integrity rules RG 266.26 We may not make a market integrity rule unless we have the written consent of the Minister. An exception applies for making emergency rules that are necessary, or are in the public interest, to protect people dealing in a financial product. Future review and amendment to the market integrity rules RG 266.27 We will review the market integrity rules from time to time to make any adjustments required as a result of our experience in administering the rules; developments in the market and the international regulatory environment; and feedback from market operators, participants and clients. RG 266.28 We expect to consult on any future amendment of these rules. Page 12 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 12 Waivers Power to grant a waiver of a market integrity rule RG 266.29 We are able to grant waivers from the obligation to comply with a provision of the market integrity rules. RG 266.30 Any such waiver may be general, or limited to a particular case or category, and may be limited by such conditions as we think fit. If conditions are imposed on a waiver, all of the conditions must be complied with for the waiver to be effective. Failure to comply with a condition imposed on a waiver is a contravention of Rule 1.2.2. Further, failure to comply with a condition on a waiver may amount to a possible breach of the relevant market integrity rule waived. Note: In this guide, ‘Chapter 4’, ‘Part 4.2’ and ‘Rule 4.2.1’ (for example) refer to a chapter, part or rule (respectively) of the Futures Markets Rules, unless otherwise specified. RG 266.31 We will make a waiver by way of legislative instrument. All legislative instruments, including waivers, are registered on the Federal Register of Legislation and are publicly available. RG 266.32 We may withdraw, by legislative instrument, a waiver at any time. We will not grant a waiver retrospectively. Approach to considering a market integrity rule waiver RG 266.33 We will consider and determine all requests for a waiver of a market integrity rule on the basis of the facts, circumstances and merits of each request. In determining whether such a request should be granted, we will take into account commercial considerations against the need to maintain the integrity of the market. RG 266.34 Where appropriate, we may grant a waiver to a class of persons. The process of requesting a waiver RG 266.35 Any request for a waiver must be in writing. It should also include details of the market integrity rule to be waived, the person or class of persons seeking the waiver, the requested start date and duration of the waiver, the rationale for the waiver, all relevant facts and circumstances in support of the request, and any other relevant information. RG 266.36 Market participants may be refused a request if they fail to address all of the relevant issues. Similarly, failure to supply relevant information may cause a delay in finalising the request. RG 266.37 Should a commercially time-sensitive situation arise, we can consider such requests on an urgent basis, providing the participant has clearly Page 13 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 13 demonstrated that the urgency results from factors beyond their reasonable control and that those factors could not reasonably have been foreseen. Self- imposed deadlines will not be a sufficient basis for urgent consideration. RG 266.38 Applications for waivers should be submitted through the ASIC Regulatory Portal. Participants will need to pay fees for their application. We have provided details about payment options in the portal. For more information, see how to apply for relief. Publication of waivers RG 266.39 All waivers will be publicly available on the Federal Register of Legislation. RG 266.40 We may also publish notice of a waiver on our website. We maintain a public register of waivers on our website that contains details of: (a) the date a waiver takes effect; (b) the person or class of persons relieved from the obligation in the market integrity rule; (c) the provision of the market integrity rule to which the waiver applies; (d) brief reasons for the waiver; and (e) any conditions that apply to the waiver. Page 14 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 14 D Communicating with ASIC Key points Market participants can contact ASIC directly to ensure that market integrity matters are known and addressed in an efficient and timely manner. Market participants should use the forms available on the ASIC Regulatory Portal to submit certain information to us as required under the market integrity rules. Other contact points include direct email and telephone access to the relevant ASIC teams to communicate issues and queries about markets, trading and participant conduct. Breaches of the market integrity rules and/or provisions of the Corporations Act should be reported in accordance with the reportable situations procedures set out in RG 78. Forms RG 266.41 Details about the type of information that is required to be submitted to ASIC in writing are contained in the market integrity rules. RG 266.42 Market participants should use the forms available on the ASIC Regulatory Portal to submit certain information to us as required under the market integrity rules. If you encounter issues while using the portal, contact market.intermediaries@asic.gov.au. RG 266.43 Table 2 lists some of the matters market participants will need to notify ASIC about. Note that this list is not exhaustive. Table 2: What market participants must notify ASIC about All market participants Reportable situations (s912DAA) Futures markets participants Trust account reconciliation breaches (Part 2.3) Suspicious activity reports (Rule 3.6.1) Crossing systems and suspicious activity reports (Chapter 5) Investigations into participants (Part 2.1) Becoming aware of a major event (Rule 8B.4.1(6)) Page 15 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 15 Contacting ASIC RG 266.44 The market integrity rules require market participants to provide ASIC with information and other notifications in certain circumstances. Information should be provided in the manner detailed in the relevant market integrity rule. Written applications and requests RG 266.45 Requests and applications should be made to ASIC using the relevant form on the ASIC Regulatory Portal. If you encounter issues while using the portal, contact market.intermediaries@asic.gov.au. ASIC Regulatory Portal RG 266.46 Market participants can submit a range of applications and notifications using the forms available on the ASIC Regulatory Portal. Where a form is available on the portal, participants should use the portal to make the application or notification. Telephone hotline RG 266.47 Market participants can directly contact the relevant ASIC teams by calling our markets-related hotline on 1300 029 454 between 9 am and 5 pm Eastern Standard Time on market trading days. The hotline is for communicating with ASIC about live markets trading issues, non-live markets queries, general participant queries, notifications and exemptions. Participants can also call ASIC’s Client Contact Centre on 1300 300 630. Email RG 266.48 There are three email addresses set up for use by market participants for market- and participant-related matters: see Table 3 for details. Table 3: ASIC email addresses for use by market participants Email address To be used for: Examples of information, applications and notifications feedback.breach@asic.gov.au Reportable situations under s912D of the Corporations Act Queries regarding reportable situations Market participants must lodge notifications of reportable situations under s912DAA via the ASIC Regulatory Portal. Further guidance is given in RG 78 markets@asic.gov.au Matters relating to markets and trading Concerns or queries about trading anomalies Queries about unexplained market events Concerns about misconduct in the market market.intermediaries@asic.gov.au Participant-related matters General participant queries Page 16 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 16 When to contact ASIC RG 266.49 As stated above, we are responsible for supervising trading activities by market participants to ensure market integrity. As such, we can be contacted about conduct and activities that occur on domestic licensed financial markets. RG 266.50 Australian market licensees retain responsibility for the operation of their markets. Queries about the operations and processes of markets should be directed to the relevant market operator. RG 266.51 In general terms, if your issue relates to an obligation or conduct covered by the market integrity rules or provisions of the Corporations Act, you should contact ASIC. The following examples indicate the sorts of matters that might arise and who to contact. Example 1: Expiry of a futures contract Participant A has a trading-related query about the expiry of a futures market contract. • Where the query is about the delivery or process of the futures market contract, Participant A should contact the operator of the market on which the futures market contract is traded. • Where the query is about possible manipulation in relation to the futures market contract or market misconduct, Participant A should contact ASIC. Example 2: Crossings Participant A has a trading-related query about conducting crossings. • Participant A should contact the relevant market operator to confirm what products, times and procedures apply as this is an operational issue. • Where the query is about the interpretation of specific Futures Markets Rules (e.g. rules relating to wash trading, pre-negotiation or block trades), Participant A should contact ASIC. Example 3: Market manipulation Participant A has a trading-related query about possible market manipulation by one of their clients. • Participant A should contact ASIC. Example 4: Trade cancellations Participant A has a trading-related query about trade cancellations. • Participant A should contact the relevant market operator. Page 17 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 17 Notifying ASIC of reportable situations RG 266.52 Breaches (or likely breaches) of market integrity rules may constitute reportable situations for AFS licensees under s912D. If certain breaches of the market integrity rules are required to be reported under s912DAA, market participants need to report them to ASIC. The process for notifying ASIC of reportable situations under s912DAA and reporting significant breaches of market integrity rules to ASIC is the same. RG 266.53 Guidance on how to notify ASIC of a reportable situation by AFS licensees under s912DAA is set out in RG 78. You must report to ASIC using the prescribed form on the ASIC Regulatory Portal. Note: See RG 78 for further guidance on the process for notifying ASIC of reportable situations, and how we deal with these notifications. Page 18 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 18 E Risk management Key points Market participants must meet certain risk management requirements for their house accounts, including setting and documenting appropriate limits, and requirements relating to terminal connections. Risk management requirements for market participants RG 266.54 Market participants that are principal traders have not traditionally accessed futures markets directly and, in those cases, their order and position limits have been set by the market participant that provides them with access to the market. This is because the market participant that provides the principal trader with access to the market must meet certain risk management obligations (including setting order and position limits) for the principal trader as its client: Rule 2.2.1. RG 266.55 There are now an increasing number of principal traders accessing futures markets directly, rather than as clients of another market participant. There has also been an increase in automation and innovation in electronic trading more generally, including proprietary trading. Note: A principal trader is a market participant that trades only on its own behalf. RG 266.56 To deal with these changes occurring in market structure and the electronic market environment, Rule 2.2.1 requires all market participants that execute trades on behalf of a house account on a futures market to meet certain risk management requirements: see Table 4. Note: The term ‘house account’ is defined in Rule 1.4.3. Table 4: Risk management—House account requirements Requirement Description Order and/or position limits A market participant must demonstrate prudent risk management procedures by setting and documenting appropriate predetermined order and/or position limits on each of its house accounts, including a volume per order limit, an aggregate loss limit and an aggregate net session limit These limits must be:  based on the market participant’s analysis of its financial resources or other relevant factors; and  input into trading platform account maintenance by the market participant’s risk manager Page 19 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 19 Requirement Description Maximum price change limits A market participant must set and document maximum price change limits in relation to house accounts These limits must be input into trading platform account maintenance by the market participant’s risk manager System requirements A market participant’s order system for execution of trades on the house account must have the capability for:  setting limits; and  rejecting orders that are in excess of the limits set Amendment of limits A market participant may amend the predetermined order and/or position limits based on its analysis of financial resources or other relevant factors for house accounts Terminal connections Where a market participant has connected to a terminal for the purposes of allowing trading for a house account, it:  is responsible under the rules for any orders entered through the terminal on behalf of the house account; and  must promptly take all steps necessary to terminate such a connection when notified to do so by ASIC Accessing terminal connections Before connecting to a terminal for the purposes of allowing trading for a house account, and at all times while so connected, a market participant must:  have the necessary skills, facilities and procedures to operate such a facility;  understand the risks and obligations attached to the use of such a facility;  ensure that each order so placed, and any order system, complies with the rules;  provide appropriate controls on access to passwords of the market participant and its employees to such systems; and  ensure appropriate controls are implemented for the security of its premises and physical access of the market participant and its employees to such systems Note: ASIC Market Integrity Rules (Futures Markets) Class Waiver 2018/313 provides a conditional waiver from the aggregate loss limit requirement in specified circumstances. Setting and documenting limits RG 266.57 A market participant must demonstrate prudent risk management procedures. This includes, but is not limited to, setting and documenting: (a) appropriate predetermined order and/or position limits on each of its house accounts, including a volume per order limit, an aggregate loss limit and an aggregate net session limit, based on the market participant’s analysis of its financial resources or other relevant factors; and (b) maximum price change limits (Rules 2.2.1(1)(ab) and (b)). Note: ASIC Market Integrity Rules (Futures Markets) Class Waiver 2018/313 provides a conditional waiver from the aggregate loss limit requirement in specified circumstances. Page 20 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 20 RG 266.58 The limits determined in Rules 2.2.1(1)(a), (ab) and (b) must be input by a market participant’s risk manager into trading platform account maintenance and will be established as preset accounts: Rule 2.2.1(1)(c). The ‘risk manager’ is the person responsible for managing risks within the market participant’s business, and their role and responsibilities will depend on the nature, scale and complexity of the market participant’s business. RG 266.59 A market participant may amend the predetermined order and position limits referred to in Rules 2.2.1(1)(ab) and (b) based on its analysis of financial resources or other relevant factors: Rule 2.2.1(e). RG 266.60 In addition to the limits referred to in Rules 2.2.1(1)(ab) and (b), a market participant’s order system for execution of trades on the house account must also have the capability for: (a) setting limits that reflect prudent account risk management; and (b) rejecting orders that are in excess of limits set by the market participant (Rule 2.2.1(1)(d)). Principal traders RG 266.61 A principal trader is a market participant that trades only on its own behalf. The principal trader is either: (a) a client of another market participant on a futures market where that other market participant permits the principal trader to connect to a terminal. The principal trader’s orders are routed directly through the terminal onto the trading platform and are subject to the terminal’s risk management system, but will usually bypass the market participant’s order system (see RG 266.65–RG 266.67 and Figure 1); (b) a client of another market participant on a futures market where the principal trader’s orders are subject to the market participant’s order system and the terminal’s risk management system (see RG 266.68– RG 266.70 and Figure 2); or (c) granted trading permission by ASX and given its own terminal (see RG 266.71–RG 266.74 and Figure 3). Note: A ‘terminal’ (sometimes referred to as a ‘gateway’) is defined under Rule 1.4.3 as an automated order entry interface through which an order system routes orders to the trading platform of a market. An ‘order system’ is the software application for entering orders into the trading platform through a terminal. RG 266.62 In each of these scenarios, the principal trader has an obligation under Rule 2.2.1(1) to demonstrate prudent risk management procedures. This includes, but is not limited to, ensuring that the principal trader’s order Page 21 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 21 system has the capability for setting limits that reflect prudent account risk management, and for rejecting orders that are in excess of those limits. RG 266.63 However, when a principal trader engages in trading as set out in RG 266.61(a)–RG 266.61(b), the principal trader does not access the market directly and may not have the capability to set, document and input into trading platform account maintenance predetermined order or position limits on its house account. We have therefore granted ASIC Market Integrity Rules (Futures Markets) Class Waiver 2018/312 (under Rule 1.2.1) for principal traders that engage in trading as set out in RG 266.61(a)– RG 266.61(b). This waiver relieves these principal traders from the obligation to comply with Rules 2.2.1(1)(ab), (b), (c) and (e). RG 266.64 In these circumstances, the market participant that provides the principal trader with access to the market has obligations under Rule 2.2.1 to: (a) set and document appropriate predetermined order and/or position limits on each of its client accounts (including its client account for the principal trader) (Rule 2.2.1(1)(a)); (b) set and document maximum price change limits (Rule 2.2.1(1)(b)); and (c) input the limits referred to in (a) and (b) above into trading platform account maintenance for each of its client accounts (including its client account for the principal trader) (Rule 2.2.1(1)(c)). Client of a market participant—Orders bypass market participant’s order system RG 266.65 When a principal trader engages in trading as set out in RG 266.61(a) and Figure 1, the market participant responsible for access to the terminal has an obligation under Rule 2.2.1(1)(a) to set and document predetermined limits for the principal trader as its client, and an obligation under Rule 2.2.1(1)(b) to set and document maximum price change limits. The principal trader may rely on the relief in ASIC Market Integrity Rules (Futures Markets) Class Waiver 2018/312. RG 266.66 The principal trader may set tighter and/or differing limits within its own order system at an individual trader or group level. RG 266.67 The principal trader must document the limits that it has set in its own order system. The principal trader must ensure its order system complies with Rules 2.2.1(1)(d) and (f). Page 22 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 22 Figure 1: Principal trader’s orders bypass market participant’s order system Note: See RG 266.61(a) for the processes set out in this flowchart (accessible version). Client of a market participant—Orders subject to market participant’s order system RG 266.68 When a principal trader engages in trading as set out in RG 266.61(b) and Figure 2, the market participant responsible for access to the terminal has an obligation under Rule 2.2.1(1)(a) to set and document predetermined limits for the principal trader as its client, and an obligation under Rule 2.2.1(1)(b) to set and document maximum price change limits. The principal trader may rely on the relief in ASIC Market Integrity Rules (Futures Markets) Class Waiver 2018/312. RG 266.69 The principal trader’s orders will also be subject to the limits set by the market participant in the market participant’s order system. The principal trader may set tighter and/or differing limits within its own order system at an individual trader or group level. RG 266.70 The principal trader must document the limits that the principal trader has set in its own order system. The principal trader must ensure that its order system complies with Rules 2.2.1(1)(d) and (f). Figure 2: Principal trader’s orders are subject to market participant’s order system Note: See RG 266.61(b) for the processes set out in this flowchart (accessible version). Orders Principal trader Order system Principal trader Terminal Market participant Orders Other clients Order system Market participant Market Orders Principal trader Order system Principal trader Terminal Market participant Orders Other clients Order system Market participant Market Page 23 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 23 Granted trading permission by the market operator RG 266.71 When a principal trader engages in trading as set out in RG 266.61(c) and Figure 3, the principal trader has direct access to the risk management tools that are provided as part of the software associated with the terminal. RG 266.72 The principal trader has an obligation under Rule 2.2.1(1)(ab) to set and document predetermined limits for each of its house accounts, and an obligation under Rule 2.2.1(1)(b) to set and document maximum price change limits. RG 266.73 The principal trader may also set tighter and/or differing limits within its own order system at an individual trader or group level. RG 266.74 The principal trader must document the limits it has set in its order system. The principal trader must ensure its order system complies with Rules 2.2.1(1)(d) and (f). Figure 3: Principal trader granted trading permission by a market operator Note: See RG 266.61(c) for the processes set out in this flowchart (accessible version). Terminal connections RG 266.75 Any market participant, including a principal trader, who has connected to a terminal for the purposes of trading will be responsible under the Futures Markets Rules for any orders entered through the terminal: Rules 2.2.1(2)(a) and (ab). RG 266.76 We may give notice to a market participant requiring it to terminate a connection referred to in RG 266.75. As soon as a market participant receives notification, it must promptly take all steps necessary to terminate the connection: Rules 2.2.1(2)(b) and (c). Filters and filter parameters RG 266.77 As a market participant that has connected to a terminal is responsible for all orders entered through the terminal and must ensure those orders and the order system comply with the Futures Markets Rules (Rules 2.2.1(2)(a) and (ab) and Rule 2.2.1(4)(c)), we expect the market participant to apply appropriate filters and filter parameters to its order system. Orders Principal trader Order system Principal trader Terminal Principal trader Market Page 24 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 24 RG 266.78 What constitutes ‘appropriate’ will depend on the market participant’s order system capabilities; the nature, scale and complexity of its business; and the particular risks that the market participant has assessed as relevant to that business (including financial, reputational and regulatory risks). RG 266.79 Filters and filter parameters are pre-trade controls and the principal means by which trading messages are checked to ensure they comply with the rules. Filters are a set of rules that apply to an order system and determine automatically which trading messages (or series of related trading messages) meet a predefined set of criteria and can pass into the trading platform. RG 266.80 Filter parameters are the variables within each filter that can be changed to modify the operation of the filter without changing the rule to which the filter applies. The filter parameters result in trading messages being handled differently according to factors such as the type, source, size or price of an order, or its relationship with other orders. A filter parameter may apply at a number of different levels—for example, to particular financial products, representatives, authorised persons or clients, and to a dollar or margin value level. Accessing terminal connections RG 266.81 A market participant that connects to a terminal for the purposes of trading must, before connecting to the terminal and at all times while connected: (a) have the necessary skills, facilities and procedures to operate such a facility (Rule 2.2.1(4)(a)); (b) understand the risk and obligations attached to the use of such a facility (Rule 2.2.1(4)(b)); (c) ensure that each order placed through the terminal, and any order system, complies with the Futures Markets Rules (Rule 2.2.1(4)(c)); (d) provide appropriate controls (such as passwords) on any access by the market participant and its employees to such systems (Rule 2.2.1(4)(d)); and (e) ensure appropriate controls are implemented for the security of its premises and physical access by the market participant and its employees to such systems (Rule 2.2.1(4)(e)). RG 266.82 We recognise that, given the differences in types of businesses conducted by market participants, there must be some degree of flexibility in determining what constitutes ‘appropriate’ controls for each market participant for the purposes of Rules 2.2.1(4)(d) and (e). The types of controls that a market participant must implement will depend on the nature, scale and complexity of its business, and the particular risks that the market participant has assessed as relevant to that business (including financial, reputational and regulatory risks). Page 25 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 25 Example: Risk management for internet-based order systems XYZ Pty Ltd is a market participant that uses an internet-based order system to allow either clients or their principal traders to enter orders through a terminal into the trading platform. Each client or principal trader is granted remote access to the order system, allowing them to enter orders through the terminal 24 hours a day from their home computer or any other computer. XYZ Pty Ltd must ensure that its order system and remote access to the system is subject to appropriate security measures such as passwords, firewalls and other security-related software. XYZ Pty Ltd must also ensure that appropriate controls are implemented for the security of its premises and physical access of the market participants and its clients or principal traders to the order system. We would expect XYZ Pty Ltd to have appropriate policies and procedures in place outlining its security expectations for those who may be placing orders from locations other than the market participant’s business premises. Page 26 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 26 F Trust account reconciliation reporting Key points Market participants are required to notify ASIC in writing of matters concerning client money reconciliations. Trust account reconciliation reporting RG 266.83 All market participants holding client money (both clearing and non-clearing participants) must complete daily and monthly reconciliations of client money: Rules 2.3.2 and 2.3.3. Daily reconciliation of client money RG 266.84 Daily reconciliations are an essential part of a market participant’s compliance processes for protecting client money. In an insolvency situation, client money can be at risk if it is not properly segregated or accounted for. RG 266.85 Rule 2.3.4 requires a market participant to notify ASIC, in writing, within two business days if: (a) a trust account reconciliation has not been performed in accordance with Rule 2.3.2; (b) the reconciliation found the total deposits to be less than total third- party client money; or (c) the market participant is unable to reconcile its clients’ segregated accounts under Rule 2.3.2. RG 266.86 If the matter is a significant breach of the Futures Markets Rules, the notification should be submitted using the relevant form on the ASIC Regulatory Portal: see RG 266.52–RG 266.53. RG 266.87 If the matter is not reportable as a significant breach, the notification should also be submitted using the relevant form on the ASIC Regulatory Portal. Monthly reconciliation of client money RG 266.88 All market participants holding client money (both clearing and non-clearing participants) must lodge a monthly reconciliation of client money with ASIC within one month after the end of each month: Rule 2.3.3. The monthly reconciliation should be lodged through the ASIC Regulatory Portal. Page 27 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 27 G Capital requirements Key points The market integrity rules for capital and reporting do not apply if the market participant is a principal trader only, a clearing participant of an approved clearing facility or an authorised deposit-taking institution. A market participant should lodge capital returns using the ASIC Regulatory Portal. Scope, application and waivers RG 266.89 This section provides guidance on the Capital Rules. Note: In this guide, ‘Capital Rules’ refers to ASIC Market Integrity Rules (Capital) 2021. RG 266.90 The Capital Rules set out the capital and reporting requirements for participants of futures and securities markets. The market integrity rules for capital and reporting do not apply if the market participant is a principal trader only, a clearing participant of an approved clearing facility or an authorised deposit-taking institution. A clearing participant must comply with the CS facility’s capital and reporting requirements. Note: In June 2021, ASIC made the Capital Rules. The Capital Rules replaced ASIC Market Integrity Rules (Futures Markets – Capital) 2017 and ASIC Market Integrity Rules (Securities Markets – Capital) 2017. Lodging forms and returns RG 266.91 A market participant should lodge capital returns using the ASIC Regulatory Portal: Rule 9.4.2 of the Capital Rules. RG 266.92 Market participants that belong to multiple futures markets (e.g. participants of both the ASX 24 market and the FEX market) only need to lodge one return. ASX guidance materials on capital RG 266.93 Prior to 1 August 2011, the ASX Operating Rules set out capital requirements for market participants. These capital requirements were administered with the benefit of guidance materials issued by ASX Group–– in particular, the Capital Liquidity Handbook and the Capital Requirements Guidance. Page 28 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 28 RG 266.94 As such, we will take into account the Capital Liquidity Handbook and the Capital Requirements Guidance when interpreting the Capital Rules to the extent they are relevant. RG 266.95 In future, we may consider reviewing our policy position on these guidance materials in light of changes in the market or other factors. If so, we will consult with industry at that stage. Page 29 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 29 H Good fame and character requirement Key points Market participants are obliged to ensure that all persons involved in the business in connection with the relevant market are of good fame and character and high business integrity: Rule 2.2.3(1). To satisfy itself that a person meets this requirement, a market participant should consider the factors in Rule 2.2.3(2)(b). This list is neither prescriptive nor exhaustive. A market participant may exercise its own discretion when making this assessment. A person will not meet this requirement if they are disqualified from managing a corporation or insolvent under administration: Rule 2.2.3(2)(a). RG 266.96 A market participant must ensure that all persons involved in its business in connection with the relevant market are of good fame and character and high business integrity: Rule 2.2.3(1). RG 266.97 Under Rule 2.2.3(2)(b), when assessing whether a person is of good fame and character and high business integrity, a market participant should consider whether the person has been: (a) convicted of any offence; (b) disciplined by or adversely mentioned in a report of a government or governmental authority or agency; (c) adversely mentioned in a report of a market operator, a clearing facility, a settlement facility or any other exchange; or (d) disciplined by a market operator, a clearing facility, a settlement facility or any other exchange. RG 266.98 Under Rule 2.2.3(2)(a), a person will not be of good fame and character if they are: (a) disqualified from managing a corporation under the Corporations Act (or under the law of another country); or (b) an insolvent under administration (or its equivalent in another country). RG 266.99 Aside from the express circumstance in Rule 2.2.3(2)(a), none of the limbs in Rule 2.2.3(2)(b) will serve to determine that a person is not of good fame and character. Rule 2.2.3 does not prescribe the checks that a market participant must do in order to satisfy this requirement. RG 266.100 A market participant may exercise its own discretion to satisfy itself that a person is of good fame and character and high business integrity. The market participant may consider: (a) the facts and circumstances as a whole; and (b) any procedural fairness and due process requirements relating to persons involved in its business in connection with the relevant market. Page 30 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investments Commission August 2022 Page 30 I Supervisory policies and procedures Key points Market participants must have appropriate supervisory policies and procedures in place to ensure compliance with the Futures Markets Rules, operating rules and Corporations Act. Supervisory policies and procedures should be in writing and tailored to the nature, size and complexity of the market participant’s business. RG 266.101 Rule 2.2.8 requires a market participant to have appropriate supervisory policies and procedures to ensure compliance by the market participant, and each person involved in its business as a market participant, with the Futures Markets Rules, operating rules and the Corporations Act. RG 266.102 A distinction can be drawn between compliance procedures and supervisory procedures. Compliance procedures generally cover the applicable rules and policies and describe prohibited practices. Supervisory procedures document the supervisory system that has been established to ensure that the compliance procedures are being followed, and to prevent and detect prohibited practices. RG 266.103 We expect a market participant to be able to demonstrate that it has established, maintained and continues to enforce supervisory policies and procedures that are tailored to the nature, size and complexity of its business. A market participant should also undertake periodic reassessment of its supervisory policies and procedures in light of changes to its business. RG 266.104 We expect a market participant’s supervisory policies and procedures to be in writing and to be designed to reasonably supervise the business and each person involved in the business. RG 266.105 We also expect a market participant to maintain evidence that supervisory policies and procedures have been implemented and carried out, and make this available to ASIC on request. A market participant should be able to demonstrate that it has allocated sufficient personnel and system resources to implement the supervisory policies and procedures. Page 31 REGULATORY GUIDE 266: Guidance on ASIC market integrity rules for participants of futures markets © Australian Securities and Investm