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Nur-Sultan, Kazakhstan
CONTENTS
1. INTRODUCTION.
1.1. Introduction.
2. RULES APPLICABLE TO ALL AUTHORISED MARKET INSTITUTIONS.
2.1. Requirements in GEN.
2.2. Financial resources.
2.3. Conflicts of interest
2.4. Technology resources.
2.5. Business Rules.
2.6. Membership.
2.7. Direct Electronic Access.
2.8. Financial Crime and Market Abuse.
2.9. Safeguarding and administration of assets.
3. RULES APPLICABLE TO AUTHORISED INVESTMENT EXCHANGES.
3.1. Systems and Controls.
3.2. Admission of Securities to trading.
3.3. Suspending or removing Securities or Units in a Listed Fund from trading.
3.4. Transparency obligations.
3.5. Default management
3.6. Listing Rules.
4. RULES APPLICABLE TO AUTHORISED CLEARING HOUSES.
4.1. Admission of Securities or Units in a Listed Fund to Clearing.
4.2. Risk management
4.3. Credit and liquidity risk management
4.4. Settlement
4.5. Central securities depositories and exchange-of-value settlement systems.
4.6. Default management
5. SUPERVISION.
5.1. Introduction.
5.2. Information and notifications.
5.3. Financial and other information.
6. RULES APPLICABLE TO AN AUTHORISED DIGITAL ASSET TRADING FACILITY.
6.1. Main requirements relating to trading on the facility.
6.2. Requirement to prepare Rules.
6.3. Admission of Digital Assets to trading.
6.4. Suspending or removing Digital Assets from trading.
6.5. Transparency obligations.
6.6. Additional requirements on technology resources.
7. RULES APPLICABLE TO AN AUTHORISED CROWDFUNDING PLATFORM.
7.1. Application.
7.2. Permissible activities.
7.3. Requirements for Authorised Crowdfunding Platforms.
7.4. Additional Requirements for Loan Crowdfunding Platforms.
Guidance: Purpose and application of AMI
The rules and guidance in AMI complement Chapter 2 of Part 3 of the Framework Regulations (Licensing of Authorised Market Institutions) and Part 6 of the Framework Regulations (Capital Markets). AMI also contains rules in relation to the supervision of Authorised Market Institutions which complement the provisions in Part 8 of the Framework Regulations (Supervision of Authorised Persons) and Chapter 7 of the GEN rulebook (Supervision). The purpose of the rules and guidance in AMI is to set out:
· the licensing requirements, or standards, which an applicant must satisfy to be granted a Licence to carry on either of the Market Activities of Operating an Investment Exchange, Operating Digital Assets Trading Facility and Operating a Clearing House;
· the various regulatory functions that an Authorised Market Institution must perform in relation to admitting Securities or Units in a Listed Fund to trading, operating an Official List and enforcing its Business Rules; and
· the supervisory regime to which such an Authorised Market Institution will be subject on an ongoing basis, including requirements in respect of its relationship with the AFSA.
The application of the rules in AMI is as follows:
· Chapter 1 contains introductory provisions applicable to all Authorised Market Institutions.
· Chapter 2 contains rules and guidance applicable to all Authorised Market Institutions.
· Chapter 3 contains additional rules and guidance applicable to Authorised Investment Exchanges.
· Chapter 4 contains additional rules and guidance applicable to Authorised Clearing Houses (including Authorised Central Counterparties).
· Chapter 5 contains rules in relation to the supervision of Authorised Market Institutions.
· Chapter 6 contains additional rules and guidance applicable to Authorised Digital Assets Trading Facility.
· Chapter 7 contains additional rules and guidance applicable to Authorised Crowdfunding Platforms.
1. INTRODUCTION
1.1. Introduction
1.1.1. Definitions
(1) An Authorised Market Institution is a Centre Participant which has been licensed by the AFSA to carry on one or more Market Activities. An Authorised Market Institution can be an Authorised Investment Exchange, an Authorised Digital Asset Trading Facility, an Authorised Clearing House and/or an Authorised Crowdfunding Platform.
(2) An Authorised Investment Exchange is a Centre Participant which has been licensed by the AFSA to carry on the Market Activity of Operating an Investment Exchange.
(3) An Authorised Clearing House is a Centre Participant which has been licensed by the AFSA to carry on the Market Activity of Operating a Clearing House.
(4) A central counterparty is a legal Person that interposes itself between the counterparties to the contracts traded on one or more financial markets, becoming the buyer to every seller and the seller to every buyer.
(5) An Authorised Central Counterparty is a central counterparty which is declared by an order made by the AFSA under these Rules for the time being in force to be an Authorised Central Counterparty.
(6) A Member of an Authorised Market Institution is a Person who is entitled, under an arrangement or agreement between him and the Authorised Market Institution, to use that institution’s facilities.
(7) An Authorised Digital Asset Trading Facility is a Centre Participant which has been licensed by the AFSA to carry on the Market Activity of Operating a Digital Asset Trading Facility.
(8) An Authorised Crowdfunding Platform is a Centre Participant which has been licensed by the AFSA to carry on the Market Activity of Operating a Loan Crowdfunding Platform and/or Operating an Investment Crowdfunding Platform.
1.1.2. Outsourcing
An Authorised Market Institution may satisfy the requirements applying to it under these Rules by making arrangements for functions to be performed on its behalf by any other Person. In such circumstances:
(a) An Authorised Market Institution must, before entering into any material outsourcing arrangements with a service provider, notify AFSA of such an arrangement.
(b) For the avoidance of doubt, the requirement in sub-paragraph (a) applies to any outsourcing arrangements which were not in existence at the time the Authorised Market Institution was granted a Licence.
(c) Outsourcing arrangements made by an Authorised Market Institution do not affect the responsibility of the Authorised Market Institution to satisfy the requirements applying to it, but there is in addition a requirement applying to the Authorised Market Institution that the Person who performs (or is to perform) the functions is a fit and proper Person who is able to perform them.
(d) An Authorised Market Institution that outsources any functions must comply with the outsourcing requirements in GEN.
2. RULES APPLICABLE TO ALL AUTHORISED MARKET INSTITUTIONS
2.1. Requirements in GEN
Guidance
An Authorised Market Institution is an Authorised Person to which the following provisions of GEN are applicable either directly or in respect of its officers and Employees who are Approved Individuals or Designated Individuals:
(a) GEN 2: Controlled and Designated Functions;
(b) GEN 3: Control of Authorised Persons;
(c) GEN 4: Core Principles;
(d) GEN 5: Systems and Controls;
(e) GEN 6: Supervision
Rules in this chapter supplement, and should be read in conjunction with, the Rules in GEN.
2.2. Financial resources
2.2.1. Minimum capital requirement
An Authorised Market Institution must hold the following minimum capital:
(a) an amount equal to 6 months' operational expenses; plus
(b) unless the AFSA directs otherwise, an additional amount of up to a further 6 months' operational expenses.
2.3. Conflicts of interest
2.3.1. Conflicts of interest – core obligation
An Authorised Market Institution must take reasonable steps, including the maintenance of adequate systems and controls, governance and internal policies and procedures, to ensure that the performance of its regulatory functions is not adversely affected by its commercial interests.
Guidance: regulatory functions of Authorised Market Institution
The regulatory functions of an Authorised Market Institution include, as appropriate:
· its obligations under AMI to monitor and enforce compliance with its membership rules, Business Rules, Direct Electronic Access Rules;
· its obligation to prevent, detect and report market abuse or financial crime; and
· its obligations in respect of admission of Securities or Units in a Listed Fund to an Official List, to Trading or to Clearing.
2.3.2. Conflicts of interest – identification and management
For the purposes of compliance with AMI 2.3.1, an Authorised Market Institution must:
(a) identify conflicts between the interests of the Authorised Market Institution, its shareholders, owners and operators and the interests of the Persons who make use of its facilities or the interests of the trading venues operated by it; and
(b) manage or disclose such conflicts so as to avoid adverse consequences for the sound functioning and operation of the trading venues operated by the Authorised Market Institution and for the Persons who make use of its facilities.
2.3.3. Conflicts of interest – personal account transactions
An Authorised Market Institution must establish and maintain adequate policies and procedures to ensure that its Employees do not undertake personal account transactions in Investments in a manner that creates or has the potential to create conflicts of interest.
2.3.4. Conflicts of interest – code of conduct
An Authorised Market Institution must establish a code of conduct that sets out the expected standards of behaviour for its Employees, including clear procedures for addressing conflicts of interest. Such a code must be binding on Employees.
2.4. Technology resources
2.4.1. Sufficient resources
An Authorised Market Institution must have sufficient technology resources to continually operate, maintain and supervise its facilities.
2.4.2. Confidentiality
The Authorised Market Institution must take reasonable steps to ensure that its information, records and data are secure and the confidentiality is maintained
2.4.3. Cyber-security
The Authorised Market Institution must take reasonable steps to ensure that its information technology systems are reliable and adequately protected from external attack or incident.
2.4.4. Resources of Members
(1) An Authorised Market Institution must ensure that its Members and other participants on its facilities have sufficient and secure technology resources which are compatible with its own.
(2) The requirements in (1) do not apply to:
(a) an Authorised Crowdfunding Platform (or its Clients); or
(b) the Member of an Authorised Digital Asset Trading Facility if the Member is a body corporate or an individual (natural person) that carries on the activity solely as principal.
2.4.5. On-going monitoring
For the purposes of meeting the requirement in AMI 2.4.1, an Authorised Market Institution must have adequate procedures and arrangements for the evaluation, selection and on-going maintenance and monitoring of information technology systems. Such procedures and arrangements must, at a minimum, provide for:
(a) problem management and system change;
(b) testing information technology systems before live operations in accordance with the requirements in AMI 2.4.6 and 2.4.7;
(c) real time monitoring and reporting on system performance, availability and integrity; and
(d) adequate measures to ensure:
(і) the information technology systems are resilient and not prone to failure;
(ii) business continuity in the event that an information technology system fails;
(iii) protection of the information technology systems from damage, tampering, misuse or unauthorised access; and
(iv) the integrity of data forming part of, or being processed through, information technology systems.
2.4.6. Testing of technology systems
An Authorised Market Institution must, before commencing live operation of its information technology systems or any updates thereto, use development and testing methodologies in line with internationally accepted testing standards in order to test the viability and effectiveness of such systems. For this purpose, the testing must be adequate for the Authorised Market Institution to obtain reasonable assurance that, among other things:
(a) the systems enable it to comply with all the applicable requirements, including legislation, on an on-going basis;
(b) the systems can continue to operate effectively in stressed market conditions;
(c) the systems have sufficient electronic capacity to accommodate reasonably foreseeable volumes of messaging and orders;
(d) the systems are adequately scalable in emergency conditions that might threaten the orderly and proper operations of its facility; and
(e) any risk management controls embedded within the systems, such as generating automatic error reports, work as intended.
2.4.7. Testing relating to Members’ technology systems
(1) An Authorised Market Institution must implement standardised conformance testing procedures to ensure that the systems which its Members are using to access facilities operated by it have a minimum level of functionality that is compatible with the Authorised Market Institution’s information technology systems and will not pose any threat to fair and orderly conduct of its facilities.
(2) An Authorised Market Institution must also require its Members, before commencing live operation of any electronic trading system, user interface or a trading algorithm, including any updates to such arrangements, to use adequate development and testing methodologies to test the viability and effectiveness of their systems, to include system resilience and security.
(3) For the purposes of (2), an Authorised Market Institution must require its Members:
(a) to adopt trading algorithm tests, including tests in a simulation environment which are commensurate with the risks that such a strategy may pose to itself and to the fair and orderly functioning of the facility operated by the Authorised Market Institution; and
(b) not to deploy trading algorithms in a live environment except in a controlled and cautious manner.
(4) The requirements in (1)-(3) do not apply to:
(a) an Authorised Crowdfunding Platform (or its Clients); or
(b) the Member of an Authorised Digital Asset Trading Facility if the Member is a body corporate or an individual (natural person) that carries on the activity solely as principal.
2.4.8. Regular review of systems and controls
(1) An Authorised Market Institution must undertake regular review and updates of its information technology systems and controls as appropriate to the nature, scale and complexity of its operations.
(2) For the purposes of (1), an Authorised Market Institution must adopt well defined and clearly documented development and testing methodologies which are in line with internationally accepted testing standards.
2.5. Business Rules
2.5.1. Requirement to prepare Business Rules
Save where the AFSA otherwise directs, an Authorised Market Institution must establish and maintain Business Rules governing relations between itself and the participants in the market, including but not limited to:
(a) Membership Rules, prepared in accordance with AMI 2.6, governing the admission of Members and any other Persons to whom access to its facilities is provided;
(b) Direct Electronic Access Rules, prepared in accordance with AMI 2.7, in case a Direct Electronic Access is available at the Authorised Market Institution, setting out the rules and conditions pursuant to which its Members may provide their clients with Direct Electronic Access to the Authorised Market Institution’s trading systems;
(c) Default Rules, prepared in accordance with either AMI 3.5 or AMI 4.6, governing action that may be taken in respect of unsettled Market Contracts in the event of a Member being, or appearing to be, unable to meet its obligations;
(d) Admission to Trading Rules, prepared in accordance with AMI 3.2 or AMI 6.3, or Admission to Clearing Rules, prepared in accordance with AMI 4.1, governing the admission of Securities, Units in a Listed Fund or Digital Assets to trading, or clearing and settlement, as appropriate to its facilities;
(e) Listing Rules, prepared in accordance with AMI 3.6, setting out the rules and conditions applicable to a Person who wishes to have Securities or Units in a Listed Fund included in an Official List; and
(f) any other matters necessary for the proper functioning of the Authorised Market Institution and the facilities operated by it.
The requirements in (c) and (e) do not apply to the Authorised Digital Asset Trading Facility.
2.5.2. Content and effect of Business Rules
An Authorised Market Institution’s Business Rules must:
(a) be based on objective criteria;
(b) be non-discriminatory;
(c) be clear and fair;
(d) set out the Members’ and other participants’ obligations:
(і) arising from the Authorised Market Institution’s constitution and other administrative arrangements;
(ii) when undertaking transactions on its facilities; and
(iii) relating to professional standards that must be imposed on staff and agents of the Members and other participants when undertaking transactions on its facilities;
(e) be made publicly available free of charge;
(f) contain provisions for the resolution of Members’ and other participants’ disputes and an appeal process from the decisions of the Authorised Market Institution, whether by an internal but independent body or otherwise; and
(g) contain disciplinary procedures, including any sanctions that may be imposed by the Authorised Market Institution against its Members and other participants.
2.5.3. Review, amendment and consultation
The Authorised Market Institution must ensure that appropriate procedures are adopted for it to keep its Business Rules under annual review and to amend them. The procedures must include procedures for consulting users of the Authorised Market Institution's facilities in appropriate cases.
2.5.4. Amendment of rules
Any amendment to an Authorised Market Institution's Business Rules must, prior to the amendment being effective, be:
(a) made available for market consultation for no less than 30 days; and
(b) approved by the AFSA.
2.5.5. Waiver of consultation requirement
The AFSA may waive or modify the requirement for market consultation in AMI 2.5.4(a) where it considers it necessary or desirable to do so, including but not limited to, cases of emergency, force majeure, typographical errors, minor administrative matters, or to comply with applicable laws.
2.5.6. Monitoring and enforcing compliance with Business Rules
The Authorised Market Institution must have effective arrangements for monitoring and enforcing compliance with its Business Rules including procedures for:
(a) prompt investigation of complaints made to the Authorised Market Institution about the conduct of Persons in the course of using the Authorised Market Institution's facilities; and
(b) where appropriate, disciplinary action resulting in financial and other types of penalties.
2.5.7. Financial penalties
Where arrangements made pursuant to AMI 2.5.6 include provision for requiring the payment of financial penalties, they must include arrangements for ensuring that any amount so paid is applied only in one or more of the following ways:
(a) towards meeting expenses incurred by the Authorised Market Institution in the course of the investigation of the breach or course of conduct in respect of which the penalty is paid, or in the course of any appeal against the decision of the Authorised Market Institution in relation to that breach or course of conduct; or
(b) for the benefit of users of the Authorised Market Institution's facilities.
2.5.8. Appeals
Arrangements made pursuant to AMI 2.5.6 must include provision for fair, independent and impartial resolution of appeals against decisions of the Authorised Market Institution.
The requirements in AMI 2.5 do not apply to an Authorised Crowdfunding Platform.
2.6. Membership
2.6.1. Persons eligible for Membership
(1) An Authorised Market Institution, except an Authorised Digital Asset Trading Facility, may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and who is either:
(a) an Authorised Firm whose Licence permits it to carry on the Regulated Activities of Dealing in Investments; or
(b) a Recognised Non-AIFC Member.
(2) An Authorised Digital Asset Trading Facility may only admit as a Member a Person who satisfies admission criteria set out in its Membership Rules and which is:
(a) an Authorised Firm whose Licence permits it to carry on the Regulated Activities of Dealing in Investments;
(b) a Recognised Non-AIFC Member; or
(c) a body corporate or an individual (natural person) which carries on the activity solely as principal.
2.6.2. Admission criteria
An Authorised Market Institution must ensure that access to its facilities is subject to criteria designed to protect the orderly functioning of the market and the interests of investors.
2.6.3. Membership Rules
The Membership Rules of an Authorised Market Institution must specify the obligations imposed on users or Members of its facilities arising from:
(a) the constitution and administration of the Authorised Market Institution;
(b) where appropriate rules relating to transactions on its trading venues;
(c) admission criteria for Members;
(d) where appropriate rules and procedures for clearing and settlement of transactions; and
(e) where appropriate rules and procedures for the prevention of Market Abuse, money laundering and Financial Crime in accordance with AMI 2.8.
2.6.4. Undertaking to comply with AFSA rules
An Authorised Market Institution may not admit a Recognised Non-AIFC Member as a Member unless it:
(a) agrees in writing to submit unconditionally to the jurisdiction of the AFSA in relation to any matters which arise out of or which relate to its use of the facilities of the Authorised Market Institution;
(b) agrees in writing to submit unconditionally to the jurisdiction of the AIFC Courts in relation to any disputes, or other proceedings in the AIFC, which arise out of or relate to its use of the facilities of the Authorised Market Institution;
(c) agrees in writing to subject itself to the AIFC laws in relation to its use of the facilities of the Authorised Market Institution; and
(d) where the Recognised Non-AIFC Member is incorporated outside the Republic of Kazakhstan, appoints and maintains at all times, an agent for service of process in the AIFC.
Guidance
(1) Service of process is the procedure by which a party to a lawsuit (Claimant) gives an appropriate notice of initial legal action (Claim Form) to another party (Defendant), in an effort to exercise jurisdiction over that Person so as to enable that Person to respond to the proceeding before the court. Notice is furnished by delivering a set of court documents (called «process») to the Person to be served. Service of a Claim Form is defined in clause 4.9 of the AIFC Court Rules. Acknowledgement of process and consequences of not filing an acknowledgment of service are defined in clause 7.4 of the AIFC Court Rules. Methods of service are defined in Part 5 of the AIFC Court Rules.
(2) An agent for service of process is a service provider having legal and real presence in the AIFC.
(3) The main role of agent for service of process is to receive service of process in the AIFC on behalf of a Person, acknowledge the service of process, and forward the process to such Person once it is received.
2.6.5. Lists of users or Members
The Authorised Market Institution must make arrangements regularly to provide the AFSA with a list of its Members.
The requirements in AMI 2.6 do not apply to an Authorised Crowdfunding Platform.
2.7. Direct Electronic Access
2.7.1. Direct Electronic Access
Direct Electronic Access means any arrangement, such as the use of the Member's trading code, through which a Member or the clients of that Member are able to transmit electronically orders relating to Securities, Units in a Listed Fund or Digital Asset directly to the facility provided by the Authorised Market Institution and includes arrangements which involve the use by a Person of the infrastructure of the Authorised Digital Asset Trading Facility or the Member or participant or client or any connecting system provided by the Authorised Digital Asset Trading Facility or Member or participant or client, to transmit the orders and arrangements where such an infrastructure is not used by a Person.
Guidance:
A Person who is permitted to have Direct Electronic Access to an Authorised Market Institution's facilities through a Member is not, by virtue of such permission, a Member of the Authorised Market Institution.
2.7.2. Direct electronic access – general conditions
An Authorised Market Institution may only permit a Member specified in AMI 2.6.1(1)(a) and (b) to provide its clients Direct Electronic Access to the Authorised Market Institution's facilities where the clients meet the suitability criteria established by the Member in order to meet the requirements in AMI 2.7.3.
2.7.3. Direct electronic access – criteria, standards and arrangements
An Authorised Market Institution which permits its Members to have direct electronic access to its trading facilities or permits its Members to allow their clients to have Direct Electronic Access to its trading facilities must:
(a) ensure that a Member allowing its clients to have direct electronic access to the trading facilities of an Authorised Market Institution is an Authorised Person;
(b) set appropriate standards regarding risk controls and thresholds on trading through Direct Electronic Access;
(c) be able to identify orders and trades made through Direct Electronic Access;
(d) be able to distinguish and, if necessary, stop orders or trades made by a client using Direct Electronic Access provided by the Member without affecting the other orders or trades made or executed by that Member; and
(e) have arrangements in place to suspend or terminate the provision of Direct Electronic Access in the case of non-compliance with this sub-paragraph.
2.7.4. Direct electronic access rules
An Authorised Market Institution operating a trading venue which permits Direct Electronic Access through it systems must set out and publish the rules and conditions pursuant to which its Members specified in AMI 2.6.1(1)(a) and (b) may provide Direct Electronic Access to their clients. Those rules and conditions must at least cover the specific requirements set out below:
(a) A Member must retain responsibility for the orders and trades executed by the clients who are using Direct Electronic Access.
(b) A Member must have adequate mechanisms to prevent the clients placing or executing orders using Direct Electronic Access in a manner that would result in the Member exceeding its position or margin limits.
(c) A Member must conduct annually or on request from AFSA a due diligence assessment of its prospective Direct Electronic Access clients to ensure they meet the rules of the trading venue to which it offers access.
(d) The due diligence assessment referred to in sub-paragraph (c) above must cover:
(і) the governance and ownership structure of the prospective Direct Electronic Access client;
(ii) the types of strategies to be undertaken by the prospective Direct Electronic Access client;
(iii) the operational set-up, the systems, the pre-trade and post-trade controls and the real-time monitoring of the prospective Direct Electronic Access client;
(iv) the responsibilities within the prospective Direct Electronic Access client for dealing with actions and errors;
(v) the historical trading pattern and behaviour of the prospective Direct Electronic Access client;
(vi) the level of expected trading and order volume of the prospective Direct Electronic Access client;
(vii) the ability of the prospective Direct Electronic Access client to meet its financial obligations to the Direct Electronic Access provider; and
(viii) the disciplinary history of the prospective Direct Electronic Access client, where available.
(e) A Member offering Direct Electronic Access allowing clients to use third-party trading software for accessing trading venues must ensure that the software includes pre-trade controls.
The requirements in AMI 2.7 do not apply to an Authorised Crowdfunding Platform.
2.8. Financial Crime and Market Abuse
2.8.1. Financial Crime
Financial Crime means any kind of conduct relating to money or to financial services or markets that would amount to criminal conduct under law of Republic of Kazakhstan (whether or not such conduct takes place in the Republic of Kazakhstan), including any offence involving:
(a) fraud or dishonesty;
(b) misconduct in, or misuse of information relating to, a financial market;
(c) handling the proceeds of crime; or
(d) the financing of terrorism.
2.8.2. Measures to prevent, detect and report market abuse or Financial Crime
An Authorised Market Institution must:
(a) ensure that appropriate measures (including the monitoring of transactions effected on or through the Authorised Market Institution’s facilities) are adopted to reduce the extent to which the Authorised Market Institution’s facilities can be used for a purpose connected with Market Abuse, Financial Crime or money laundering, and to facilitate their detection and monitor their incidence; and
(b) immediately report to the AFSA any suspected Market Abuse, Financial Crime or money laundering, along with full details of that information in writing.
2.8.3. Whistleblowing
An Authorised Market Institution must have appropriate procedures and protections for requiring its Employees to disclose any information to the AFSA in a manner which does not expose them to any disadvantage as a result of so doing.
2.9. Safeguarding and administration of assets
2.9.1. Safeguarding and administration of users’ assets
An Authorised Market Institution must ensure that where its facilities include making provision for the safeguarding and administration of assets belonging to users of those facilities, satisfactory arrangements are made for that purpose with an appropriate custodian or settlement facility and clear terms of agreement between the users of the facility and the Authorised Market Institution.
2.9.2. Custody and investment risk
(1) An Authorised Market Institution must have effective means to address risks relating to:
(a) custody of its own assets, in accordance with (2), if it is an Authorised Clearing House;
(b) investments, in accordance with (3), if it is an Authorised Investment Exchange; or
(c) Digital Assets, if it is an Authorised Digital Asset Trading Facility.
(2) For the purposes of (1)(a), an Authorised Clearing House must:
(a) hold its own assets with entities which are licensed for holding deposits or providing custody, as judged appropriate by the AFSA or a Financial Services Regulator acceptable to the AFSA;
(b) be able to have prompt access to its assets when required; and
(c) regularly evaluate and understand its exposures to entities which hold its assets.
(3) For the purposes of (1)(b), an Authorised Investment Exchange must ensure that:
(a) it has an investment strategy which is consistent with its overall risk-management strategy and is fully disclosed to its Members and other participants using its facilities;
(b) its investments comprise instruments with minimal credit, market, and liquidity risks; and
(c) its investments are secured by, or represent claims on, high-quality obligors, allowing for quick liquidation with little, if any, adverse price effect.
3. RULES APPLICABLE TO AUTHORISED INVESTMENT EXCHANGES
3.1. Systems and Controls
3.1.1. Fair and orderly trading
An Authorised Investment Exchange must ensure that it has transparent rules and procedures to provide for fair and orderly trading and to establish objective criteria for the efficient execution of orders.
3.1.2. Execution of orders
An Authorised Investment Exchange must have non-discretionary rules for the execution of orders.
3.1.3. Publicly available data on quality of executions
An Authorised Investment Exchange must make available to the public, without any charges, data relating to the quality of execution of transactions on the Authorised Investment Exchange on at least an annual basis. Reports must include details about price, costs, speed and likelihood of execution for individual Securities or Units in a Listed Fund.
3.1.4. Market making arrangements
An Authorised Investment Exchange must:
(a) have written agreements with all Members pursuing a Market Making Strategy by using its facilities (Market Making Agreements); and
(b) have schemes, appropriate to the nature and scale of a trading venue, to ensure that a sufficient number of Members enter into Market Making Agreements which require them to post firm quotes at competitive prices with the result of providing liquidity to the market on a regular and predictable basis; and
(c) monitor and enforce compliance with the Market Making Agreements;
(d) inform the AFSA of the content of its Market Making Agreements; and
(e) provide the AFSA with any information it requests which it reasonably requires to satisfy itself that the Market Making Agreements comply with sub-paragraph 3.1.4.
3.1.5. Trading controls
An Authorised Investment Exchange must be able to:
(a) reject orders that exceed its pre-determined volume and price thresholds, or that are clearly erroneous;
(b) temporarily halt or constrain trading on its facilities if necessary or desirable to maintain an orderly market; and
(c) cancel, vary, or correct any order resulting from an erroneous order entry and/or the malfunctioning of the system of a Member or of the Authorised Investment Exchange
3.1.6. Tick size regimes
The Authorised Investment Exchange must adopt a tick size regime in respect of each type of Security or Unit in a Listed Fund traded on each trading venue operated by it. The tick size regime must:
(a) be calibrated to reflect the liquidity profile of such Investments in different markets and the average bid-ask spread taking into account the desirability of enabling reasonably stable prices without unduly constraining further narrowing of spreads; and
(b) be able to adapt the tick size for each such Investment appropriately.
3.1.7. Short selling and position management
(a) An Authorised Investment Exchange must have in place effective systems, controls and procedures to monitor and manage:
(і) Short selling in shares, debentures and any other similar Investments; and
(ii) Risks arising from position concentrations.
(b) For the purposes of (a), an Authorised Investment Exchange must have adequate powers over its Members to mitigate the probability and impact of risk to the orderly functioning of its facilities arising from unsettled positions in Securities or Units in a Listed Fund.
(c) Short selling for the purposes of this Rule constitutes the sale of a share, debenture or other similar Investments by a Person who does not own the share, debenture or other similar Investment at the point of entering into the contract to sell.
