Published On: Thu, Oct 20th, 2011

ASIC Consults on Equity Market Structure Issues

ASIC released October 20 a second-phase consultation paper on equity market structure issues arising from recent and anticipated developments in Australia’s financial markets.

Consultation Paper 168 Australian equity market structure: Further proposals (CP 168) seeks views on proposed market integrity rules relating to:

o automated trading including high frequency trading;
o volatility controls for extreme price movements;
o enhanced data for supervision;
o the product scope of best execution; and
o pre-trade transparency and price formation in the market.

This follows ASIC’s confirmation that market competition can commence from 31 October 2011. Furthermore, it builds on the findings of Consultation Paper 145 Australian equity market structure: Proposals (CP 145) issued in November 2010, which canvassed issues related to the introduction of competition to exchange markets in Australia and the release on 29 April 2011 of new market integrity rules for competition. These rules provide a robust, regulatory framework to enable the introduction of competition and are intended to manage existing regulatory issues such as dark pools, high frequency trading, automatic trading entry and order entry controls.

ASIC has been monitoring the development of these and other emerging issues in the domestic and global context. We sought initial industry feedback during the consultation process for CP 145. Different responses are emerging in different markets and ASIC is considering their applicability to Australia’s financial markets and thus the appropriate rules to apply here. The trend to increased automation and associated trading activities has been occurring in the market for some years and ASIC recognises competition will increase this activity. ASIC’s CP 168 proposes enhancements to supplement the robust regime already in place.

ASIC Deputy Chairman Belinda Gibson said: ‘ASIC’s priority is ensuring fair and efficient markets and we have been addressing issues arising from the automated trading environment since we assumed responsibility for market supervision in August 2010.

‘We have an efficient regulatory framework with controls in place to enable competition. The next step is to consider how emerging trading issues will impact our market over the coming years and enhance our framework accordingly. It is appropriate to address these issues in a multimarket environment, now competition is imminent. We are proposing a framework to maximise opportunities for innovation while maintaining market integrity,’ she said.

Submissions to CP 168 close on 20 January 2012.

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