The Australian Securities Exchange (ASX) has again voiced concerns about the market structure transformation Australia has experienced over the past year, suggesting changes have not benefited investors.
Speaking at the bourse’s annual general meeting, ASX chairman Rick Holliday-Smith said: “While ASX has responded well to the new market structure, it is not clear that Australia’s financial markets and economy have benefited from the change. The promised benefits, as we observe them, have not been realised. There are also signs that the quality of Australia's equity market is deteriorating as a result of growth in high frequency trading and so called dark execution,” adding such trends should be a significant concern to retail investors, fund managers and Australia’s superannuation sector.
A year ago this month, the ASX was finally put under competitive pressure following the launch of alternative trading system Chi-X Australia. The new platform has sparked a number of changes to the trading environment, including new guidelines on automated trading that are currently being considered by the Australian Securities and Investment Commission (ASIC) and a requirement to consider the Chi-X venue as part of new best execution guidelines. ASIC is also looking into changes to dark pool trading, which could include a minimum threshold for when trades can be executed without pre-trade transparency.
The ASX recently suggested dark pools should provide meaningful price improvement of at least one tick or a mid-point cross for orders below ‘block size’, a threshold which would depend on the market capitalisation of the stock in question.
The exchange also said a minimum threshold of A$50,000 for dark orders, starting with a A$25,000 limit, should be imposed as soon as possible.
“ASX understands that the proposed measures will not be welcomed by some financial market participants,” said Holliday-Smith. “This is not surprising as our proposals are designed to have an impact. They are based on the principle that the interests of no single participant or group of participants should rank ahead of the quality of the public markets on which all investors rely.”
The ASX chairman also said it was surprising that the Australian government was considering opening up the country’s clearing and settlement infrastructure, suggesting it may not provide a benefit to end investors.
“There are good reasons why no other major single market has gone down the path of installing multiple clearing and settlement facilities,” he said. “Any net cost savings are likely to be minimal, risks for investors will increase and it is not likely to assist Australia’s position in Asia.”