Published On: Fri, Mar 4th, 2011

ASIC Announces Timetable For The Introduction of Market Competition

ASIC today announced its timetable for the introduction of market competition and released a summary of the intended market integrity rule framework that would apply. The timetable also sets out the steps required for the commencement of operation of Chi-X Australia – the current market licence applicant.

This will give effect to the Government’s policy to support competition between exchange markets in Australia.

ASIC Commissioner, Shane Tregillis, said, ‘Industry has told us it wants a timetable and an early indication of the regulatory framework in order to plan and allocate resources. The feedback is that at least six months is needed from when ASIC issues its final market integrity rules for competition. The timetable released today reflects this. The timetable also depends on market operators and market participants taking all necessary steps to get ready for competition over the coming period.’

We intend to issue the final market integrity rules for competition in April 2011. At the same time, we will inform the market of their operative date which will be sometime later in 2011. The framework takes into account the comments we received to Consultation Paper 145 Australian equity market structure: Proposals and reflects the minimum rules that we consider necessary for the introduction of competition in Australia (CP 145).

We consulted on a number of other important rules relating to broader market structure developments. We intend to further consult with the aim of settling these additional rules in early 2012 (with sufficient lead time for transition and implementation).

The timetable also sets out the steps ASIC, Chi-X and the industry need to take to enable Chi-X to commence operations in the Australian market, reflecting Chi-X’s plans to have a phased ‘soft launch’.

Market operators and participants will need to prepare for a multi-market environment. Some of the steps industry will need to take prior to Chi-X’s commencement include:

* ASX and Chi-X will need to make operating rule and system changes, put in place procedures for simultaneously halting trading, for use of common stock and broker identifiers and for the sharing of certain data, and link to the nominated clock for synchronisation;
* Chi-X will need to connect to market participants, CHESS, data vendors and ASIC (for the provision of real-time order and trade data for surveillance purposes);
* participants will need to prepare to comply with the best execution obligation. Those intending to connect to Chi-X will need to amend their order routing and back office systems and prepare to comply with Chi-X operating rules, the new common market integrity rules, and the new market integrity rules specifically for the Chi-X market;
* Chi-X will need access to clearing and settlement services; and
* data vendors will need to connect to Chi-X, consolidate ASX and Chi-X data feeds and make the consolidated feeds available to clients.

ASIC will continue to work closely with market operators and market participants during the coming months, including on industry testing and related issues to ensure a smooth transition to competition takes place. We will be talking over the coming weeks to industry about how best ASIC can facilitate this.

ASIC wishes to thank the more than 40 organisations and individuals who provided us with feedback on CP 145 and discussed with us their views in over 60 meetings over the last couple of months.

Timetable for introduction of market competition
This timetable provides a timeframe in which the Government’s commitment to supporting competition between financial markets operating in Australia will be implemented. The timetable anticipates that market integrity rules (MIRs) required for the supervision of competing markets will be in place by April 2011.

As the Government granted in-principle approval to Chi-X as the current applicant to provide trading services in competition to ASX, the timetable includes an indicative timing for the testing of cross market connections in preparation for Chi-X’s entry.

In addition to stakeholders being adequately prepared for Chi-X’s entry, this timetable is contingent on a number of preconditions being met prior to the introduction of competition, including the Government’s consideration of funding in the current budget process to support ASIC’s regulatory role in a multi-market environment. Other key preconditions are:
* Chi-X updates its market licence application so it is full and complete, including having appropriate clearing and settlement arrangements in place and final operating rules;
* Chi-X satisfies ASIC that prior to commencing formal operations it has met any requirements under its licence relating to appropriate financial resources, staffing, and system testing;
* the commencement of the Chi-X market will be phased in. That is, not all ASX participants will be connected to Chi-X at its commencement of operation; and
* Fees regulations for the recovery of ASIC costs to supervise multiple markets are introduced after Treasury consultation with industry and prior to the introduction of competition.

January 2011
ASIC Consultation Paper 145 on Australian equity market structure formally closed on 21 January

March 2011
ASIC releases draft MIRs specifically for the Chi-X market1 for 3 week consultation (until late-March)

April 2011
ASIC provides final advice to the Minister on new common MIRs for the introduction of market competition2
Following consultation, ASIC provides its final recommendation to the Minister relating to the granting of a market licence to Chi-X (including any preconditions for formal commencement of operations under its licence) and the MIRs specifically for the Chi-X market
On receipt of formal Ministerial approval, ASIC issues final new common MIRs for the introduction of market competition and related guidance (including details of transitional arrangements)
On the Minister’s granting of a licence to Chi-X, ASIC publishes the licence and the final MIRs specifically for the Chi-X market

July 2011
ASIC consults on consequential amendments to MIRs for the ASX market resulting from the common MIRs

Sept/ Oct 2011
Chi-X confirms and provides assurances in a form satisfactory to ASIC that all necessary connections to participants, CHESS, data vendors, ASX and ASIC are in place and have been successfully tested
Chi-X participants confirm to ASIC that their systems are ready and have been
successfully tested, including connection to Chi-X, order routing and back office systems, and they comply with Chi-X operating rules, the MIRs specifically for Chi-X market and the common rules for ASX and Chi-X markets
ASX and Chi-X confirm to ASIC that all cooperation arrangements are in place in accordance with ASIC’s requirements

Oct/ Nov 2011
ASIC issues consequential amendments to the MIRs specifically for the ASX market
Subject to Chi-X satisfying ASIC that all preconditions for commencement of operations

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