ASIC have released their proposals for equity market structure regulatory framework, including how they will deal with the introduction of competition between exchange markets.
Consultation Paper 145 Australian equity market structure and Report 215Australian equity market structure reviews the trends happening in local and global equity markets; including how competition has been introduced between exchange markets, and changes due to increasing automation.
ASX – Singapore Exchange merger
The market issues raised by the potential merger of the ASX and the Singapore Exchange are distinct from the issues addressed in the consultation paper; however the regulatory framework will apply to all operators offering trading in equity market products, and participants operating in Australia.
ASIC’s proposals include:
Best execution obligations
- Brokers must take reasonable steps to ensure the best total consideration (may be interpreted as ‘price’) for their clients
- Professional clients and those transacting in sizes of more than $500,000 can nominate other objectives
- Market participants will be expected to:
- have policies and procedures in place to comply with the best practice obligation
- review the arrangements at least annually
- disclose to clients on which exchange the orders may be executed
- demonstrate compliance with execution arrangements
- publish statistics about routing decisions and execution quality
Pre-trade transparency:
- Brokers must display orders on a pre-trade transparent market, with exceptions for large orders (equal or greater to $20,000)
- Market operators must make pre-trade information continuously available
- Operators of dark pools must periodically report to ASIC on the nature and activity of trading on the pool
Post-trade transparency:
- Market participants to immediately report all trades to a market operator, subject to delay for large facilitated trades
- Market operators will be required to publish the information immediately, subject to delay
Market integrity measures:
- Market participants will be required to notify ASIC of suspicious activity
- Market participants will need to distinguish on orders and trade reports short sales
- ASIC is considering whether market-wide unique identifiers are necessary
Extreme price movements:
- Market operators will be required to have in place:
- Pre-trade controls to prevent the entry of anomalous orders
- Capability to automatically suspend trading in a single product and market-wide
- Arrangements for cancelling trades
Other proposals include:
- Market participants will be required to have in place controls and capacity to disable direct electronic access (DEA) clients’ access
- Market participants will have to ensure that all systems used by DEA clients are appropriately tested, continuously monitored and have a ‘kill-switch’
- Market operators must synchronise their clocks to a clock nominated by ASIC
- Market operators must use common participant identifiers and stock symbols
Penalties:
The consultation does not specify specific penalties for contravention of the proposed market integrity rules; however, ASIC is seeking feedback on the appropriate maximum penalty
Who will the proposals apply to?
- Australian market licence holders (market operators) that offer trading services in shares, managed investment schemes and CHESS Depository Interests (CDIs) admitted to quotation on the ASX
- Participants of markets in equity market products
- Frequent investors in and issuers of equity market products
ASIC has also stated that persons who access exchange markets through a market participant will also be affected by the proposals.
Feedback
The deadline for feedback to ASIC is 21 January 2011. Comments can be sent to:
Calissa Aldridge
Exchange Market Operators
email: marketstructure@asic.gov.au
Australian Securities and Investments Commission
GPO Box 9827
Sydney NSW 2001
How can Certainty help?
Certainty Compliance can work with you to ensure that your policies and procedures are updated to include all of ASIC’s new requirements. Please contact us on (02) 8324 5300 or email enquiries@certaintycompliance.com.aufor further information.
For further information:
ASIC media release 10-224MR
ASIC Consultation Paper 145 CP 145 Australian equity market structure: proposals
ASIC Report 215 REP 215 Australian equity market structure