Market Infrastructure Licensee

Market integrity serves as a cornerstone for fair and transparent trading activities. The Australian Securities and Investments Commission (ASIC) enforces these principles by overseeing the operations of clearing and settlement facilities, financial markets, and derivative trade repositories. In doing so, ASIC licenses and regulates all the market operators, dividing them into three primary categories of market infrastructure licensees, one of which is Financial Market Operators.

Financial Market Operators

A Financial Market Operator functions within a framework that facilitates the buying and selling of financial products. To operate within this framework, the operator must either hold a license or be exempt from licensing requirements.

Identifying whether you are indeed operating within a financial market can be a complex task. However, ASIC guidelines help to clarify this aspect. Under these guidelines, you are considered to be operating in a financial market if your business activities include:

  1. Receiving and accepting offers for the acquisition or disposal of financial products, or
  2. Receiving invitations and offers for the acquisition or disposal of financial products, which are designed to result in making offers to acquire or dispose of a financial product or accepting such offers.

As a financial market operator, there are certain standards and requirements that you must adhere to. These include operating in a manner that is fair, orderly, and transparent. Additionally, if your market provides intermediate retail services, you are obligated to establish compensation arrangements. Other requirements involve meeting the conditions of your license, implementing a conflict management system, and ensuring that anyone disqualified from operating under the ASIC guidelines is not involved in the operations of your licensed entity.

Clearing and Settlement Facility

Clearing and Settlement Facilities provide vital services related to the transaction of financial products. These facilities are crucial intermediaries, managing the clearing and settling of trades in the financial market. Regulatory oversight of these facilities is a shared responsibility between the Reserve Bank of Australia and the Australian Securities and Investments Commission (ASIC). Any operator wishing to provide these services must possess a license or receive an exemption from this requirement issued by the Minister.

The process of granting licenses in this market is largely a decision made by the Minister, with ASIC primarily serving as an advisory body. ASIC provides guidance to the Minister on issues related to applications, exemptions, and other aspects pertinent to the functioning of Clearing and Settlement facilities.

Obtaining a license requires adherence to a set of criteria, the fulfilment of which helps ensure that an operator is competent and reliable. However, the final decision to grant or refuse a license rests with the Minister. In extraordinary circumstances, the Minister may choose to grant an exemption.

Operators of Clearing and Settlement Facilities have a series of obligations with which they must comply. ASIC plays a vital role in monitoring operators’ conduct and the broader market, evaluating compliance, and enforcing sanctions or prohibitions when noncompliance is detected. It is a system designed to safeguard market integrity and promote fair and transparent trading.

Derivative Trade Depositories

Derivative Trade Repositories (DTRs) serve as pivotal facilities that collect and maintain data on derivative trades and positions. The rules governing their operations mandate specific responsibilities regarding reporting, clearing, and execution of derivative transactions. As per the Corporation Act 2001, any repository intending to receive derivative trade data in accordance with obligatory reporting requirements must hold a valid license.

A licensed DTR must adhere strictly to the guidelines established under the ASIC Derivative Transaction Rules (Reporting) 2013 and ASIC Derivative Trade Repository Rules 2013. These rules collectively shape the regulatory framework that oversees the operation of these repositories, ensuring transparency and integrity in the derivative markets.

Applications for a DTR license can be made by both domestic and overseas operators. However, all applicants must fulfil certain specified criteria to be considered for a license. The licensing process, overseen by ASIC, helps ensure that DTR facilities meet requisite operational standards, thereby fostering a robust and dependable market infrastructure for derivative transactions.

Here are some valuable resources that can provide more insight and guidance on market integrity and the roles of financial market operators, clearing and settlement facilities, and derivative trade repositories:

  1. Australian Securities and Investments Commission (ASIC): As the regulatory body overseeing these operations, the ASIC website provides a wealth of information about licensing requirements, regulatory guidelines, and more.

  2. The Reserve Bank of Australia (RBA): This is another vital resource that provides information on the regulation of clearing and settlement facilities.

  3. ASIC Regulatory Guide 172: Financial markets: This guide provides detailed information for operators of financial markets.

  4. ASIC Derivative Transaction Rules (Reporting) 2013: A primary resource for understanding the rules and regulations for derivative trade repositories.

  5. ASIC Derivative Trade Repository Rules 2013: These rules provide further clarity on the operation of derivative trade repositories.