Australia’s Capital Markets Cooperative Research Centre (CMCRC), has produced evidence that the minimum price improvement rule on dark pools, introduced by ASIC in May last year, has yielded benefits.
The rule was introduced to ensure that if liquidity moved away from the lit markets, it would not be to the detriment of the quality of the lit markets.
The CMCRC uses a new technology it has developed, which it has named the ‘Market Quality Dashboard’. It attempts to address regulatory requirements that ensure market design changes improve the market fairness and efficiency of a market place.
“While the Dashboard does not yet take the place of quality academic research, it does provide policy makers with a quick and effective idea of whether a policy change has had impact and the nature of the impact on market fairness and efficiency,” said the Centre’s CEO, Professor Michael Aitken. “The technology can also be used to study market design change in any market of the world allowing us to anticipate the impact of changes on our markets that have been introduced elsewhere.”
In the case of the dark pool rule change, his results, which he displayed on a Youtube video, showed a significant drop in the activity on dark markets (starting from a week before the change), with the number of stocks traded on the ASX dark market dropping by a half.
Along with the drop in activity, effective spreads on the dark markets fell, suggesting to Aitken that efficiency has gone up in these markets with no change in either the fairness or efficiency of the lit markets. He concluded that the rule change has likely been positive for the quality of Australia’s equity markets.