IDSX Disciplinary & Enforcement Measures

PURPOSE

These Disciplinary & Enforcement Measures establish the framework under which International Digital Securities Exchange (IDSX or the Exchange) may investigate suspected breaches of the IDSX Rules and take disciplinary, protective or remedial action.

The objectives of this framework are to:

• maintain fair, orderly and transparent markets;
• protect investors and market participants;
• promote compliance with IDSX Rules;
• protect the integrity and security of IDSX market infrastructure;
• deter misconduct and repeated breaches;
• ensure proportionate and consistent enforcement action; and
• support IDSX’s regulatory obligations as a market operator.

These Measures apply in conjunction with the IDSX General Rules, Trading Rules, Market Participant Rules, Listing Rules, Market Surveillance Rules and other applicable IDSX rules, procedures and notices.

SCOPE

These Measures may apply to any person or entity subject to IDSX Rules, including:

• Issuers;
• Sponsors;
• Underwriters;
• Brokers;
• Trading Participants;
• Market Makers;
• authorised representatives;
• approved dealers or traders;
• directors, officers and responsible persons of a Market Participant;
• technology or connectivity participants where subject to IDSX requirements; and
• any other person who has agreed to comply with IDSX Rules.

IDSX may also take protective market action where conduct by a person who is not an IDSX Participant affects, or may affect, the integrity or orderly operation of the market.

GENERAL PRINCIPLES

IDSX will generally exercise its disciplinary and enforcement powers in accordance with the following principles.

CONDUCT GIVING RISE TO DISCIPLINARY ACTION

IDSX may commence disciplinary or enforcement action where it considers that a person may have:

SOURCES OF DISCIPLINARY MATTERS

A disciplinary matter may arise from:

• automated market surveillance;
• transaction monitoring;
• unusual trading alerts;
• participant reporting;
• issuer reporting;
• investor complaints;
• whistleblower information;
• blockchain or wallet monitoring;
• regulatory referrals;
• information received from another market operator;
• audit or inspection findings;
• technology or system monitoring; or
• any other information available to IDSX.

The commencement of an investigation does not mean that a breach has occurred.

PRELIMINARY REVIEW

Where IDSX identifies potential misconduct or non-compliance, it may conduct a preliminary review.

The preliminary review may include:

• reviewing orders and transactions;
• examining account activity;
• reviewing communications and records;
• analysing beneficial ownership;
• examining blockchain transactions;
• identifying connected accounts or wallets;
• reviewing issuer announcements;
• requesting information from Participants; and
• obtaining explanations from relevant persons.

Following the preliminary review, IDSX may:

• close the matter without further action;
• request further information;
• issue guidance or an informal compliance communication;
• require corrective action;
• commence a formal investigation;
• impose interim protective measures; or
• refer the matter to a competent authority.

INVESTIGATORY POWERS

To the extent permitted by IDSX Rules and applicable law, IDSX may require a Participant or other person subject to IDSX Rules to provide information reasonably required for regulatory purposes.

Such information may include:

• trading records;
• order records;
• client records;
• KYC information;
• beneficial ownership information;
• wallet addresses;
• blockchain transaction information;
• communications relating to transactions;
• internal compliance records;
• policies and procedures;
• financial records;
• system logs;
• audit records; and
• explanations from relevant employees, officers or representatives.

Participants must provide information that is complete, accurate and not misleading.

Failure to cooperate with an IDSX investigation may itself constitute a breach of IDSX Rules.

INTERIM PROTECTIVE MEASURES

IDSX may take immediate action before completion of an investigation where IDSX reasonably considers that such action is necessary to:

• protect investors;
• prevent continuing misconduct;
• preserve an orderly market;
• protect the integrity of IDSX systems;
• prevent dissipation or unauthorised transfer of digital securities where IDSX has lawful authority to impose such restrictions;
• address an operational or cybersecurity risk; or
• comply with a legal or regulatory requirement.

Interim measures may include:

• restricting order entry;
• restricting a particular trading function;
• cancelling open orders;
• suspending trading in a security;
• suspending a Participant’s trading access;
• restricting access to certain IDSX systems;
• imposing position, order or transaction limits;
• restricting particular accounts or authorised users;
• suspending issuance, deposit, withdrawal or transfer functionality where applicable and legally permissible; or
• imposing additional supervision requirements.

Interim measures are protective and do not constitute a final finding of misconduct.

NOTICE OF INVESTIGATION

Where IDSX commences a formal disciplinary investigation, IDSX may provide the relevant person with a written notice setting out:

• the conduct under investigation;
• the relevant IDSX Rules;
• the principal facts known to IDSX;
• any information or documents required;
• the applicable response period; and
• any interim restrictions imposed.

IDSX may delay or limit such notice where immediate disclosure could prejudice an investigation, market integrity, another regulatory investigation or the protection of investors.

OPPORTUNITY TO RESPOND

Before imposing a final disciplinary sanction, IDSX will generally give the affected person a reasonable opportunity to provide:

• written submissions;
• relevant evidence;
• explanations;
• mitigating circumstances; and
• proposed remediation.

IDSX may request further information or hold a meeting with the affected person.

Failure to respond does not prevent IDSX from determining the matter based on the information available.

FINDINGS

IDSX may determine, on the basis of the information available to it, whether a breach of IDSX Rules has occurred.

A disciplinary decision may identify:

• the relevant Rule;
• the conduct constituting the breach;
• relevant factual findings;
• aggravating or mitigating factors;
• the disciplinary measure imposed;
• required remediation;
• the effective date of the decision; and
• any review or appeal rights available under IDSX Rules.

AVAILABLE DISCIPLINARY MEASURES

Depending on the circumstances, IDSX may impose one or more of the following measures.

FACTORS RELEVANT TO SANCTIONS

When determining an appropriate disciplinary measure, IDSX may consider:

• seriousness of the breach;
• whether the conduct was intentional, reckless or negligent;
• duration of the breach;
• financial impact;
• impact on investors;
• impact on market integrity;
• whether the conduct created an artificial or misleading market;
• whether the person obtained a benefit;
• whether losses were caused to others;
• previous disciplinary history;
• repeated or systemic misconduct;
• effectiveness of internal controls;
• level of management involvement;
• cooperation with IDSX;
• speed and effectiveness of remediation;
• self-reporting;
• concealment or obstruction;
• disciplinary action taken by another authority; and
• any other relevant circumstances.

AGGRAVATING FACTORS

IDSX may regard the following as aggravating factors:

• deliberate misconduct;
• repeated breaches;
• concealment of evidence;
• provision of false information;
• destruction or alteration of records;
• obstruction of an investigation;
• senior management involvement;
• harm to vulnerable investors;
• significant financial benefit;
• coordinated misconduct;
• abuse of privileged market access; or
• failure to remediate after previous warnings.

MITIGATING FACTORS

IDSX may take into account:

• prompt self-reporting;
• genuine cooperation;
• early remediation;
• compensation or corrective action;
• isolated human error;
• effective compliance systems;
• absence of prior breaches; and
• other circumstances demonstrating reduced culpability or risk.

SERIOUS MISCONDUCT

IDSX may treat conduct as serious misconduct where it involves, or may involve:

• fraud;
• deliberate market manipulation;
• insider trading;
• theft or misappropriation of client assets;
• deliberate falsification of records;
• deliberate misleading disclosure;
• misuse of client money or property;
• serious AML/CFT or sanctions deficiencies;
• unauthorised securities creation or transfer;
• cybersecurity attacks;
• collusion between Participants;
• systemic abuse of IDSX infrastructure; or
• conduct presenting a serious risk to investors or market integrity.

Serious misconduct may result in immediate suspension, termination or referral to a competent authority.

REFERRAL TO REGULATORS AND OTHER AUTHORITIES

IDSX may refer matters to:

• the Financial Markets Authority;
• the New Zealand Police;
• another financial market regulator;
• an AML/CFT supervisor;
• a foreign regulator;
• another licensed market operator; or
• another competent authority,

where required by law or where IDSX considers referral appropriate.

Nothing in these Measures limits any statutory reporting or notification obligation applying to IDSX.

COOPERATION WITH THE FMA

IDSX may provide the FMA with information relating to:

• disciplinary actions;
• suspected significant Rule breaches;
• suspected breaches of applicable financial markets legislation;
• investigations;
• Participants;
• Issuers;
• transactions;
• market surveillance findings; and
• other matters required by law.

IDSX may also preserve records and assist the FMA in connection with regulatory inquiries or investigations.

PUBLIC DISCLOSURE OF DISCIPLINARY ACTION

IDSX may publish disciplinary decisions where:

• publication is required by law;
• publication is necessary for market transparency;
• the matter is sufficiently serious;
• investor protection requires disclosure; or
• publication would promote compliance and deterrence.

A public disciplinary notice may identify:

• the person or entity concerned;
• the relevant Rule;
• a summary of the conduct;
• the findings;
• sanctions imposed; and
• remediation required.

IDSX may withhold or limit publication where appropriate, including where publication could:

• prejudice an investigation;
• breach legal confidentiality obligations;
• create disproportionate harm;
• identify protected clients; or
• conflict with a direction from a competent authority.

CONFIDENTIALITY

Investigations will generally be treated as confidential until IDSX determines that disclosure is required or appropriate.

Participants must not improperly disclose confidential investigation information where doing so could:

• interfere with an investigation;
• prejudice another person;
• compromise market integrity; or
• breach applicable law.

RECORDS

IDSX will maintain appropriate records of:

• surveillance alerts;
• investigations;
• information requests;
• submissions;
• disciplinary findings;
• sanctions;
• remediation;
• regulatory notifications; and
• related communications.

Records will be retained in accordance with applicable law and IDSX record-retention requirements.

REVIEW OR APPEAL

Where permitted under applicable IDSX Rules, a person subject to a disciplinary decision may request review or appeal of that decision.

The applicable procedure may specify:

• permitted grounds;
• filing requirements;
• time limits;
• whether the decision remains effective pending review;
• the reviewing body; and
• the powers available on review.

The existence of a review does not automatically suspend an interim measure or disciplinary sanction unless IDSX or the reviewing body determines otherwise.

EMERGENCY POWERS

Nothing in these Measures prevents IDSX from taking immediate action where an urgent risk exists.

IDSX may act without prior notice where reasonably necessary to:

• prevent material investor harm;
• preserve fair and orderly trading;
• respond to suspected manipulation;
• address cybersecurity threats;
• respond to operational failures;
• comply with a regulator or court order; or
• protect the integrity of IDSX systems.

Where practicable, IDSX will subsequently provide the affected person with notice and an opportunity to respond.

RELATIONSHIP WITH OTHER PROCEEDINGS

IDSX disciplinary proceedings may proceed independently of:

• civil proceedings;
• criminal proceedings;
• regulatory investigations;
• internal Participant investigations; or
• proceedings before another market operator.

IDSX may suspend, defer or coordinate its proceedings where appropriate.

Action taken by IDSX does not prevent the FMA or another competent authority from taking separate action under applicable law.

NO LIMITATION OF POWERS

These Measures do not limit any power available to IDSX under:

• the IDSX Rules;
• Participant agreements;
• Listing agreements;
• applicable legislation;
• regulatory conditions; or
• any other legally binding arrangement.

Where there is a conflict between these Measures and applicable law, applicable law prevails.

REGULATORY STATUS

IDSX is intended to operate subject to applicable New Zealand financial markets legislation and any licensing, exemption or regulatory requirements applicable to its activities.

Nothing in these Measures constitutes a representation that IDSX has any regulatory, judicial or governmental enforcement power beyond those available to it as a market operator under applicable law and its contractual and market rules.

AMENDMENTS

IDSX may amend these Measures from time to time.

Where an amendment constitutes a change to market rules requiring regulatory approval or notification, the amendment will take effect only in accordance with applicable New Zealand law and regulatory requirements.