The Australian Securities and Investments Commission (ASIC) has released its annual assessment of the Australian Securities Exchange (ASX), the first since the regulator assumed market supervision powers on 1 August 2010.
The report sets out areas of attention that ASX has agreed to address, including improving its communication with ASIC and market participants over technology changes; its approach to discussing and recording compliance matters with issuers and its processes around futures contract monitoring; and the need for a new set of measures that take account of ASX’s changed role in the supervision of trading.
Before the transfer of market supervision from the ASX to ASIC on 1 August 2010 the Corporations Act required ASX to have adequate arrangements for supervising its market. This included arrangements for handling conflicts, monitoring the conduct of market participants, and enforcing compliance with the market’s operating rules.
Prior to this date, ASIC produced reports on ASX but had no official responsibility for frontline supervision. Supervisory powers were transferred from the ASX to ASIC in August 2010, ahead of the introduction of competition from alternative venues, such as Chi-X Australia, which launched on 31 October 2011.
Under ASIC’s previous review, which covered the year ending November 2010, ASX had agreed to review matters related to algorithmic trading, including preventing electronic access to the market in the event of a malfunctioning algo, as well as establishing an ASX-ASIC working group to help provide better disclosure for investors. In its most recent review, ASIC concluded that ASX had taken “satisfactory” measures to comply with its obligations.
While ASIC was satisfied with the Australian bourse’s response to its previous assessment, it placed an emphasis on improving the exchange’s disclosure relating to its technology.
ASX introduced major changes over the last 12 months aimed at strengthening its position ahead of the arrival of Chi-X Australia. In particular, ASX developed its low-latency PureMatch trading platform geared towards high-frequency trading, which is due to launch on 28 November.
While the latest ASIC report focuses on ASX’s deployment of technology, it does not cover the ASX market outage on 27 October 2011, which occurred after ASIC completed the review. “The outage will be covered in the next assessment, which is currently underway,” stated the ASIC report.
ASIC is also consulting on a number of market reforms via its CP168 paper. The document considers the possibility of introducing market making contracts for liquidity providers, pre-trade transparency thresholds for block trades and price improvement requirements for dark trades below block size. The paper also addresses the potential for dark trading, proposing a threshold of A$50,000 for all passive dark orders, if non-displayed liquidity below block size grows by 50% in three years.