The Australian Securities and Investments Commission (ASIC) has released new market integrity rules on dark pools and high-frequency trading (HFT). The new rules will be applied in stages during the next nine months. It is the latest in a series of regulatory announcements from the Australian regulator.
ASIC says its next step will be to release guidelines on automated trading and market manipulation later this year.
“While we are working through the detail of these changes, our position is that ASIC has developed the market integrity rules taking account of the various views of market participants,” said David Lynch executive director of the Australian Financial Markets Association. “The final package of measures is in line with industry expectations and makes sensible incremental improvements in a number of areas.”
Market reaction is that the unfolding regulation was predictable, given that expectations have been telegraphed by ASIC for a year.
“This announcement confirms previous submissions,”
said David Horsfield, the managing
director and CEO of the Stockbrokers Association of Australia.
ASIC says it has observed a decline in the volume orders below block size within dark pools as a result of the meaningful price improvement rule that was introduced on 26 May this year. It also perceives a fall in small and fleeting orders.
In future, Australian dark pool operators will have to publish online details of their crossing system, (for example, the products that it trades) and explain how it operates.
Tick sizes that apply to exchange markets will also apply to crossing systems. Crossing system operators are required to have a common set of procedures which do not discriminate between users and also allow clients to opt out of using their dark pool.
Operators must monitor their dark pool and if suspicious activity is spotted, it must be reported to ASIC. The current control requirements for automated order processing will extend to crossing systems. Lastly, market participants will be prevented from receiving negative commissions, by which ASIC means occasions whenever a market participant pays more to buy order flow than the commission it receives.
For HFT, any entity that is a direct member of an exchange will be required to take into consideration the individual circumstances when evaluating whether a false or misleading market has been created, the frequency with which orders are placed, their volume, and the extent to which orders made are later cancelled or amended.
Manipulative trading rules are to be harmonised. To that end, market participants of the ASX 24 market, (the Australian trading platform that is open round the clock), will need to comply with new requirements in order to prevent manipulative trading, the same requirements that currently apply to the Australian Stock Exchange and Chi-X Australia markets.