The Australian Securities and Investments Commission (ASIC) has
announced that its new $43.7 million next generation market
surveillance system has become operational. The system, known as
Market Analysis Intelligence (MAI), will allow ASIC to monitor up
to one billion order changes per day. On this basis, MAI will have
sufficient capacity to monitor trades where algorithmic trading*
and high frequency trading** are becoming more prevalent in
What has changed?
This represents a significant upgrade in comparison to ASIC's
previous capabilities in detecting insider trading and other market
misconduct prohibitions. Under the old system, when a suspicious
trade occurred, ASIC would request that the broker provide a list
of their clients who participated in the trading of that security
on the day in question. ASIC would then undertake the
labour-intensive task of manually matching the suspicious trades
against the relevant individual/s provided by the broker. In
contrast, MAI will enable ASIC to monitor significant amounts of
data relating to a single investor in real time. This will allow
ASIC to determine more efficiently, and effectively, who in
particular is gaining from trades prior to company announcements
and, in doing so, targeting its resources to investigate
Will it work?
The introduction of MAI is a welcome development in protecting the
integrity of Australia's financial markets. Detection of
suspicious transactions in near real time is indicative of
ASIC's desire to put insider trading and other market
misconduct prohibitions under the microscope.
However, detection alone does not, of itself, lead to successful
prosecutions. What remains unclear is how MAI will assist ASIC (if
at all) in collecting evidence. Specifically, 'knowledge'
of an insider that has made a prohibited trade; that is, that a
person directly or indirectly traded in a financial product and
that person knew, or should reasonably have known, that the trade
was a result of insider information, is inherently difficult to
prove. This is an essential proof element in establishing insider
trading under the Corporations Act 2001 (Cth).
Whether the introduction of MAI will ultimately lead to ASIC
successfully bringing more prosecutions into insider trading or
other market misconduct prohibitions is uncertain. Having said
this, we would expect that the introduction of MAI will:
provide ASIC with the ability to increase the frequency of
targeting investigations into allegations of insider trading, as
well as other market abuse prohibitions, even if such
investigations are ultimately not pursued to court; and
be used along aside ASIC's other investigative tools (such
as obtaining telecommunication interception warrants and search
warrants in conjunction with the Australian Federal Police) that
may secure more successful prosecutions.
What does this mean for you?
We believe that listed entities will inevitably need to allocate
additional resources in order to respond to ASIC's
investigations of insider trading and other market misconduct
prohibitions - even if they are not directly involved. While this
may lead to increased compliance costs for listed entities, the
cost to market participants resulting from market abuse activities
far outweighs any additional administrative requirements and
associated compliance costs that may result from ASIC's new MAI
* Where trading orders are executed by brokers using an
algorithm containing pre-programmed trading instructions in
relation to certain variables (for eg. timing, price and quantity)
in relation to a tradable security which are usually executed
without human intervention.
** Where sophisticated technology and automated computer
algorithms are used by brokers to execute trading orders and where
such orders may only be held for a matter of seconds, or fractions
of a second, with the broker's computer trading in and out of
positions hundreds of thousands of times per day.
This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com
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ASIC chairman confirmed that ASIC will continue its tough stance against suspected insider trading.
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