The best execution transitional period under ASIC Market Integrity Rule 3.1.1 ends on 1 March 2013. This update outlines what we expect participants to do.
Since 31 October 2011 participants have been required to take reasonable steps to obtain the best outcome for their clients. Some participants have done this by accessing ASX TradeMatch; others have also accessed Chi-X and/or ASX PureMatch.
The transitional period in MIR 3.1.1 allowed participants to meet best execution obligations solely on ASX TradeMatch without accessing other markets until 31 October 2012. In March this year, we announced an extension to the transitional period to 1 March 2013 to give participants more time. We do not expect to extend the transitional period again.
In preparation for the expiry of the transitional period, and given the growth in Chi X’s market share, participants should be actively assessing whether or not accessing Chi-X will deliver better outcomes for their clients on a consistent basis at a reasonable cost.
The nature of this assessment may vary depending on the size and complexity of the participant’s business. We understand there are a number of commercially available data analysis tools which may assist participants.
If the assessment indicates that accessing Chi-X consistently delivers better outcomes and the benefits outweigh the cost of access we expect participants to:
• implement appropriate systems and arrangements to access Chi-X. Access may be direct (i.e. as a member of Chi-X) or indirect (i.e. through another member of Chi-X);
• amend their best execution policies and procedures (MIR 3.2.1 and 3.2.2); and
• inform their clients about the change (MIR 3.3.1).
Where the assessment indicates that accessing Chi-X would not deliver better outcomes on a consistent basis at a reasonable cost, we do not expect participants to access Chi-X or amend their policies and procedures. However, we expect participants to continue to monitor whether they should access Chi-X or other markets in future.
We appreciate that accessing Chi-X or other markets may require system and process changes. We expect these changes to be implemented in a reasonable timeframe (within 3-6 months). For example, if a participant decides in September 2012 that it should access Chi-X, we expect changes to be implemented from 1 March 2013. Where there are constraints to implementing these changes in a reasonable timeframe participants should discuss this with ASIC early on.
ASIC will provide further information at a session being held by the Stockbrokers Association of Australia, in August