ASIC sets out best ex assessment criteria

Ahead of the full introduction of new best execution requirements on 1 March 2013, Australia’s regulator has advised market participants of how they should conduct their review of best ex processes and policies.

Ahead of the full introduction of new best execution requirements on 1 March 2013, Australia’s regulator has advised market participants of how they should conduct their review of best ex processes and policies, but the watchdog has not required brokers to connect to alternative venue Chi-X Australia.

In preparation for best execution rules, the Australian Securities and Investment Commission (ASIC) is advising market participants to actively assess whether accessing Chi-X delivers better outcomes for clients “on a consistent basis at a reasonable cost”.

If the assessment showed Chi-X Australia consistently delivered better outcomes and the benefits outweighed access costs, ASIC said it expected participants to implement appropriate systems and arrangements to access Chi-X Australia, amend their best execution policies and procedures, and inform their clients about the change.

But the watchdog is not demanding participants connect to the alternate venue.

“Where the assessment indicates that accessing Chi-X would not deliver better outcomes on a consistent basis at a reasonable cost, we do not expect participants to access Chi-X or amend their policies and procedures,” the commission wrote in a market supervision update this week. “However, we expect participants to continue to monitor whether they should access Chi-X or other markets in future.”

Since 31 October 2011, the Australian market has operated within a transitional period where participants have only been required to take “reasonable steps to obtain the best outcome for their clients” without fully committing to the new regime.

New best execution rules have been necessary since the introduction of Chi-X Australia last October as a competitor to the incumbent Australian Securities Exchange (ASX).

ASIC, originally set the transition period deadline for 31 October 2012 but subsequently moved it back four months.

Ahead of the launch of Chi-X Australia, ASX also introduced new venues which may fulfil best execution criteria. These comprise: ASX Trade, a market for traditional market participants based on Nasdaq OMX’s Genium INET technology; Volume Match, for block trading flow; and Pure Match, which is geared towards high-frequency trading participants.

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