Upgrade For ASIC’s Market Surveillance System

The Federal Government has announced a budget commitment for ASIC to invest in a market surveillance system allowing it to plan for a future that includes greatly increased message traffic, new technologies and trading techniques, increased competition between trading venues and the increasing globalisation of capital markets.

The market surveillance system will improve on technology which was originally designed for a single market – not multi market – and not across markets with different products. The system will allow for greater capacity and capability, as well as cope with the increase in HFT and algorithmic trading. The enhanced market surveillance system will have superior capabilities to search data records and identify suspicious trading, by connecting patterns and relationships, which is beneficial in detecting insider trading relationships, and consistent with ASIC’s strategic priority of maintaining fair and efficient financial markets. With Australia now achieving some of the highest levels of share ownership, market integrity and efficiency is an ASIC priority, and the new system promotes this through the prevention, detection and deterrence of market misconduct.

Stock markets are the engine room for economic growth in Australia. The new surveillance system will promote the integrity of our stock markets through the prevention, detection and deterrence of market misconduct. This in turn, will contribute to the confidence of investors, and the efficiency of our capital markets.

The cost of the enhanced surveillance system reflects the increase in the cost of supervision due to the increase in the complexity of trading methods used in our market with the advent of competition and the dispersed trading venues (the licensed exchange markets and dark pools operated by the large investment banks). The funding has been provided on the basis of full cost recovery from the industry.

The model for cost recovery is a matter for Treasury who, we understand, will take advice from the government. It has also established the Cost Recovery Panel of industry representatives that will advise the government on issues regarding recovery of the cost of market supervision. As a percentage of market turnover, the actual cost of market supervision is favourable compared with overseas jurisdictions. The funding cost itself we expect will be smoothed out to minimise impact, and will be outweighed by the medium to long-term benefits of competition, and of well regulated fair and efficient markets.

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