Australia's financial regulator, the Australian Securities and Investment Commission (ASIC) has revealed details of instances where it has asked market participants to amend their execution methods or review algorithmic strategies.
The report ”ASIC supervision of market participants: January to June 2011', which looks at key operational statistics and outcomes related to the regulator's market and participant supervisory functions, stated that there had been 22 separate pre-emptive supervision actions in the first six months of this year.
According to ASIC, such meetings with market participants help to play a preventative and proactive role in market supervision that is “essential in improving participant conduct and preventing potentially serious misconduct”.
Out of the 22 incidents, 14 were related to algorithmic trading and pre-trade risk issues, seven were related to execution strategy and one was classified as miscellaneous. This is compared to 14 incidents recorded in the last five months of 2010.
ASIC raised specific concerns with market participants relating to trading of index exchange-traded funds (ETFs) in instances where the ETF trades at a price significantly above or below the underlying index. ASIC says that several market participants installed new filters to ensure that index ETF trades – commonly used by retail clients – are verified before they hit the market.
ASIC assumed responsibility for market supervision in August 2010, taking over from national bourse the Australian Securities Exchange (ASX). The switch was widely regarded as a necessary pre-cursor to allow competing equity trading venues in Australia.
Chi-X Australia, the alternative market operated for Chi-X Global, is currently the only venue set to compete with the ASX, and is due to launch at the end of October.