You must have a licence to operate a financial market or clearing and settlement facility.
Updated as at 11 March 2004.
Financial markets
You must have a licence to operate a financial market. The Finance Minister, on ASIC's advice, grants these licences.
What is a financial market?
A financial market refers to 'a facility through which offers to acquire or dispose of financial products are regularly made or accepted' (s767A(1)(a)). This definition in the Corporations Act is designed to exclude services which merely provide information or factual reports about current market prices and it specifically excludes:
- dealers who, as principal, regularly offer to acquire and dispose of financial products (this activity is called 'making a market' for which an Australian financial services licence is required);
- treasury operations within a corporate group; and
- auctions of forfeited shares.
Exemptions
If you run a market, you have to have a licence, but the Minister can exempt specific operators. (It's likely that this will only happen in limited circumstances.) The Minister has issued a class exemption notice which provides specific relief (subject to certain requirements) from the markets licensing regime for 'low volume financial markets'. A low volume financial market is one through which less than 100 transactions with a completed transaction value of less than $500,000 are performed each year.
Generally, the pre-FSR exempted markets which fall within the definition of a financial market under FSR have become licensed to operate a financial market under the FSR regime. Markets which provide services solely to wholesale clients are not exempted on that basis alone.
In the case of financial markets operated overseas, the operator may apply to be a licensed under a separate licensing process. That process is intended to create simplicity in circumstances in which the operator's home regulatory authority is recognised by ASIC.
What is the licensee's role?
The licensed operator of a financial market is the primary regulator of the market participants' conduct. It must ensure that the market's rules and procedures, and the way they're enforced, are consistent with fair, orderly and transparent trading on the market. There must also be adequate arrangements for handling conflicts of interest.
Possible future developments...
As indicated above, purely market making activities are not presently caught by the Corporations Act definition of 'financial market'. However, developments in software and the increased ability of persons to trade on electronic market making platforms, which often mimic financial markets, means there will be an increased regulatory focus on those market making activities. Developments may include amending the definition of 'financial market' to include certain market making activities.
Clearing and settlement facilities
You must have a licence to operate a clearing and settlement facility.
What is a clearing and settlement facility?
A clearing and settlement facility is defined (s768A) as a facility that provides a regular mechanism for parties to transactions relating to financial products to meet obligations owed to each other that arise from entering into those transactions – for example, a facility that provides a regular mechanism for stockbrokers to pay for shares they buy, and to be paid for shares they sell, and for records of those transactions to be processed to facilitate registration of the new ownership of the shares.
Exceptions to this definition include:
- where a person is acting as principal in a transaction;
- conducting treasury operations within a corporate group; and
- operating a facility for the exchange and settlement of non-cash payments between providers of non-cash payment facilities.
Exemptions
The Minister may exempt a facility from the licensing requirements if the Minister believes there is no satisfactory policy reason for regulating it as a clearing and settlement facility.
What is the licensee's role?
The licensee must:
- ensure that the facility is run in a fair and effective manner;
- do everything necessary to reduce systemic risk; and
- have adequate arrangements for enforcing compliance with its operating rules and handling conflicts of interest.
