ASX news occasionally contains stories of market players who’ve been up to no good or have rubbed regulators the wrong way.

But for those investors with exposure to the S&P/ASX 200 Index (ASX: XJO), there is plenty to smile about.

A recent survey by the Australian Investment Securities Commission (ASIC) has gleaned some unique insights into the ASX’s “cleanliness”.

ASIC’s review highlights that Australia’s equity markets are squeaky clean where it matters most. This is good ASX news for those invested in Australia.

Here’s a look at the report’s findings.

Market cleanliness and integrity

ASIC’s findings confirm that Australian share markets continue to uphold a high standard of integrity.

The review, covering the period from 1 November 2018 to 30 April 2024, found Australia’s share market consistently outperformed international peers in terms of market cleanliness.

By the way, market cleanliness is measured as “the number of anomalous accounts as a percentage of total accounts that traded a particular security prior to a material, price-sensitive announcement (MPSA)”.

The report found that Australia continued to be “one of the cleanest markets in the world compared to our international peers”.

The review did note two periods of temporary deterioration: during the COVID-19 pandemic in 2020–2021 and in late 2023. It said:

In 2020–2021 during the COVID-19 pandemic, we observed:

• extreme price volatility and share price movements associated with a significant increase in trading volumes
• rapid growth in retail investor participation, ‘meme’ stock trading and social media commentary about investing. This may have contributed to an increase in market misconduct, including insider trading and ‘pump and dump’ activity, and
• trading by many new or reactivated trading accounts, which may be viewed as anomalous if their first trade occurred shortly before an MPSA.

In 2023 ASIC believes the breakdown in cleanliness was due to an increase in merger and acquisition (M&A) activity.

Key findings are good ASX news

The review found an improving trend in market cleanliness over the past decade. On average, only 0.56% of accounts and 4.75% of trading volumes were found to be “anomalous”.

It also found that speculation around M&A activity could be a factor in detetoriating market integrity. Part of this was how investors reacted to ASX news on these deals.

M&A announcements were less clean than non-M&A announcements and positive announcements were less clean than negative announcements…

…In 2023, the deterioration in market cleanliness may have been a function of increased corporate transaction activity and an increase in media reports ahead of some MPSAs. In response, we took a range of actions to support market integrity.

Despite this, findings showed that Australia had the lowest rate of M&A “deal leaks” compared to our global peers.

These are instances of M&A deal announcements that were preceded by questionable price movements beforehand.

In total, we were 55% lower than the international group average of leaks from 2009–2022.

What’s next?

The good ASX news doesn’t end there. ASIC plans to expand its market cleanliness efforts to include private and debt markets. It aims to address the growing intersections between public and private investments.

By using new technology such as artificial intelligence (AI) and machine learning, ASIC also aims to enhance its capability to detect insider trading.

ASIC chair Joe Longo said that enforcing securities laws was “essential” to a well-functioning system. Longo added the “use of cutting-edge technology” would be critical in the future.

Enforcing insider trading laws and prosecuting criminals is essential to ensuring a fair, strong and efficient financial system for all Australians.

ASX news takeout

Australia’s equity markets are among the cleanest globally, reflecting a strong commitment to market integrity.

ASIC’s proactive measures ensure that the markets remain fair and efficient. This is the benefit of operating in a regulated system.

This is excellent ASX news for investors and businesses alike, reinforcing confidence in the ASX as a robust financial marketplace.