Securities regulators in Australia are the latest to tackle concerns about the risks that may arise amid changes in market structure, from phenomena such as dark liquidity and high frequency trading.
The Australian Securities and Investments Commission (ASIC) announced Wednesday that it has made new rules to address risks emerging from developments in market structure, including growth in automated trading and the changing nature of dark liquidity.
Among other things, it is introducing new volatility controls; tightening rules to require direct control over filters and orders; requiring meaningful price improvement and a tiered threshold for block trades; mandating controls for trades relying on the pre-trade transparency exception; and enhancing regulatory data requirements.
“Developments in trading and market structure domestically and abroad are rapidly shifting the landscape of the Australian market, and we see a trend towards more frequent, smaller trades, away from public markets, with implications for the price formation process,” said ASIC chairman, Greg Medcraft.
Medcraft added that the rules, which will be phased in over 18 months, “… address issues ASIC considers necessary to maintain fair, orderly and transparent equity markets.”
The ASIC has also established two taskforces to consider dark liquidity and high-frequency trading (HFT) further, which it says will promote market integrity by identifying and taking actions against possible misconduct in the dark and through HFT. They are also studying both these areas and will advise the commission on whether further reforms are necessary.
The regulator says that the types of reforms that are likely to be considered include whether the minimum order threshold for dark trading should be increased; enhanced conflict management controls; rules for trade monitoring; and enhanced disclosure by crossing system operators to clients; and, for HFT, reconsidering order to trade ratios; minimum order size; and a review of tick sizes.
“The dark liquidity taskforce will consider the delivery of efficient price formation, informing investors about how their orders are executed, and promoting confidence in the integrity of the market. The HFT taskforce will analyse the prevalence, nature and impact of HFT in our market and abroad, and assess whether the current framework is adequate for HFT,” it says.
The taskforces intend to publish their recommendations in the first quarter of 2013. ASIC expects to advise on any subsequent rule proposals in the second quarter of 2013.