ASIC shelves dark pool order trigger and small order resting time

Greg Medcraft, the chairman of the Australian Securities and Investments Commission, (ASIC), has announced that Australian's regulatory body will not be proceeding for the time being with implementing a trigger for a minimum size threshold for dark trading.

Greg Medcraft, the chairman of the Australian Securities and Investments Commission, (ASIC), has announced that Australian’s regulatory body will not be proceeding for the time being with implementing a trigger for a minimum size threshold for dark trading. He was speaking last Thursday at a conference in Sydney, Australia.

ASIC introduced new dark pool rules for Australia on 26 May 2013. Medcraft says that there are already signs that the new regulations are starting to have an effect with early indications that lower volumes are being transacted in dark pools.

ASIC had originally suggested a trigger for a minimum size threshold for dark trading. The industry feedback received was to wait and assess the impact of the new price improvement rule. ASIC has agreed, and will not implement a trigger at this stage.

“Instead we will monitor price improvement and work with industry on triggers if there is further deterioration in spreads.” 

In addition, the proposal for a small order resting time has been moth-balled, at least for the time being. The original suggestion from ASIC had called for a 500 milli-second resting tme for orders less than A$500.

Speaking at a conference in Sydney at the end of last week, he said that having listened to the concerns of the financial industry, particularly regarding the costs and number of new compliance systems, the plan would be shelved.

He added. “However, I want to be very clear that we remain committed to ensuring investors have confidence in our markets and noise from excess messages remains at manageable levels. Our proposal remains ‘on the table’ should market noise return to problematic level.”

He didn’t name names, but said there were a small number of firms whose message volumes remained at significant levels.

Since March 2013, small and fleeting orders have reduced by 55%, from 3.6% to 1.6% of all untraded orders.

“The supervision levy has already reduced the volume of message traffic in our market, and while cost recovery is not a regulatory tool, the cost per message will increase by 37% from July. This is expected to further reduce messaging levels.”

He said that later this year ASIC will switch to a new market surveillance system that will be able to cope with the continued increase in high-frequency trading and algorithmic trading.

“It will give us enhanced capabilities to monitor the behaviour of algorithms and market participant messaging levels,” which he believes to be in the vicinity of one billion messages per day.

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