Australian Regulator Provides Direction on Market Structure Reforms

Australian Securities and Investments Commission (ASIC), capital market regulator in Australia announced it has refined its proposals for market structure reform and issued a timetable for implementing the regulatory framework. 

Based on feedback on the key issues impacting market structure outlined in Consultation Paper 168 Australian equity market structure: Further proposals (CP 168), ASIC has revised its proposals, to:

• On automated trading – make no new rule on algorithm testing, make a new rule for kill switch capabilities, amend existing rules to require annual review of systems; and publish guidance clarifying our expectations on trading system controls, testing of systems and additional minimum standards for direct market access.
• On extreme price movements – amend existing anomalous order threshold and extreme cancellation range rules, and extend those amended rules (as adopted) to the ASX SPI 200 index futures contract.
• On enhanced data for surveillance – make a new rule requiring identification of some information (but not all of the information mentioned in CP 168 recognising cost to industry); make no change to current clock synchronisation rules; publish guidance on format of information provided to ASIC.
• On best execution – make no change to current obligations.
• On pre-trade transparency – make the new rule on price improvement and alter the block sizes as proposed and make no new rule on a minimum size threshold for dark orders. However, we plan to consult further with industry on these plans and potential triggers for future application of a minimum size threshold for dark orders.

ASIC Deputy Chairman Belinda Gibson said, ‘One of ASIC’s objectives is to ensure financial markets are fair and efficient. Therefore we have sought feedback from industry on our original proposals to reform market structure and reviewed our position in light of that feedback. We plan to make changes where necessary so market prices can be transparent and our market will be robust through inevitable periods of volatility. 

 

‘The improved framework should lead to a more internationally competitive market with confident and informed investors and efficient capital formation. ASIC is concerned to ensure that we have the flexibility to maintain this competitive market regulatory model. 

 

‘Along with industry feedback, we have considered recent market developments here and overseas including the increasingly automated nature of trading and the trend towards more frequent, smaller trades, away from public markets,’ she said.
The timetable for implementing the regulatory framework is:

Continue industry consultation and prepare draft market integrity rules and guidance	April / May 2012
Release revised draft market integrity rules and guidance for four week consultation with an analysis of potential impacts Publish feedback report to CP 168	June 2012
Make final market integrity rules and release final  guidance and regulation impact statement (subject to Ministerial consent)	September / October 2012
Final rules take effect	Staggered implementation to end Q1 2014