The two-stage approach to adopting market integrity rules taken by national regulator the Australian Securities and Investment Commission (ASIC), has been welcomed by agency broker and dark pool operator ITG, as it has opened the country to exchange competition while allowing further debate into more contentious issues.
On 3 March, following an initial review of feedback to its consultation ”CP-145, Australian market structure', which closed on 21 January, ASIC announced a timetable for introducing competition to the incumbent Australian Securities Exchange (ASX), with a focus on the launch of alternative venue Chi-X Australia as early as October of this year.
ASIC will seek government approval for the market integrity rules in April and subsequently recommend that Chi-X Australia be granted a market licence. Chi-X Australia will have around six months to meet the necessary requirements to launch its market.
However, there are other areas addressed in CP145 that are to be consulted on further. These include: changes to the minimum order value in dark pools and time priority requirements of lit over dark orders; order routing and post-trade reporting and controls over DMA, volatility, algorithms and client identification.
“This seems a sensible approach, and one that has won support from industry participants,” says Clare Rowsell, head of client relationship management and marketing, for Asia-Pacific at ITG. “As ASIC's summary of responses to CP145 revealed, there was a range of conflicting views on the ”phase 2' issues, perhaps no surprise given a variety of business models represented – and a considered response is essential given the complexity of some of the discussion topics.”
There has already been a significant delay for Chi-X Australia's launch, which first applied for a licence in the 2007-08 financial year, and was given government support for one in March 2010. AXE ECN, another venue that applied for a licence in the same period has since been shut down.
Over this period, enthusiasm for competition in the Australian market has grown, which Rowsell notes further supports ASIC's push for competition, despite the inclusion of conditions such as harmonisation of tick sizes and block rules across both ASX and Chi-X Australia, which limits them in some of the areas where alternative exchanges have competed in other countries. “A maker-taker pricing model has not been prohibited, but the ASIC summary did acknowledge some respondent's concerns in this area and included suitably vague wording that leaves the door open for a clampdown in future,” she notes.
With the scene set for competition in the country to take off, Rowsell believes that the only barrier to ASX's proposed takeover by the Singapore Exchange – political intervention – will soon fall.
“Many of the concerns raised by some anti-takeover independent politicians relate to ”national interest', but when the ASX has to go up against an international competitor within its own borders, this argument loses some of its strength,” she says. “Australian politicians may start to find that the fear of getting left behind in a global race to attract liquidity outweighs the fear of foreign ownership of the ASX.”