10-227MR ASIC consults on equity market structure regulatory...

10-227MR ASIC consults on equity market structure regulatory framework

Thursday 4 November 2010

Summary of ASIC?s equity market structure proposals



Issue Proposal
Proposals in response to recent and likely market developments
Extreme price movements A market operator must have:

? pre-trade controls to prevent the entry of anomalous orders;
? capability to automatically suspend trading in a single product and market-wide; and
? transparent and predictable arrangements for cancelling trades.

Direct electronic access (DEA) A market participant must ensure DEA clients meet certain standards and should have a contract in place governing the market access arrangements. The market participant must have adequate controls (pre-trade filters) and capacity to disable clients? access.
Algorithmic trading A market participant must ensure that all systems used to generate orders by it and its DEA clients are appropriately tested, monitored continuously and have a ?kill-switch?.
Best execution

(also needed for competition) A market participant must take reasonable steps to obtain the best total consideration (may be interpreted as ?price?) for clients. Professional clients and clients transacting in sizes of $500,000 or more may nominate other objectives. Market participants:

? must have policies and procedures for complying with the best execution obligation;
? should review the arrangements at least annually;
? should disclose to clients the venues on which client orders may be executed. We are considering whether, for a transitional period, we should explicitly enable participants to meet best execution solely on ASX;
? should ensure incentives and bundled services do not adversely impact execution;
? must be able to demonstrate compliance with their execution arrangements; and
? should publish periodic statistics about order routing decisions.

Market operators should publish statistics about execution quality on their venues.
Pre-trade transparency

(also needed for competition) A market participant must display orders on a pre-trade transparent market unless the order is large in size, is equal or greater to $20,000 and there is price improvement, for undisclosed orders on a pre-trade transparent market, the size is equal or greater than $20,000 or where done outside the normal trading hours of all markets.
A market operator must make pre-trade information available continuously.
Operators of dark pools must periodically report to ASIC on the nature and activity of trading on the pool. This will enable ASIC to monitor developments.


Market integrity measures A market participant must:

? notify suspicious activity to ASIC;
? distinguish on orders and trade reports short sales; and
? for OTC transactions, flag on trade reports the identity of the venue (for ASIC only).

We are considering whether market-wide unique identifiers are necessary.

Proposals in response to competing exchange market operators in Australia
Post-trade transparency A market participant must immediately report all trades to a market operator, subject to delay for large facilitated trades. The executing or selling party should report.
A market operator must publish the information immediately, subject to the delay.

Consolidation of market data We intend to bring about an outcome of consolidated information being available to market users. We are considering a number of options: see Section K of CP 145.
Cooperation A market operator must comply with a multimarket protocol. The protocol will govern arrangements relating to trading halts and suspensions, and sharing of information.
Clocks A market operator must synchronise its clocks to a clock nominated by ASIC.
Identifiers A market operator must use common participant identifiers and stock symbols.
Tick size A market operator must implement common tick sizes (existing ASX tick sizes).
Trades under market rules Market participants must not transact by means other than under the rules of a market operator, subject to certain exceptions.
Trading during a trading halt A market participant must not trade on-order or off-order book during a market integrity related trading halt or suspension.
Trade confirmations If a single client order is executed in multiple fills and potentially across multiple markets, a market participant may aggregate the details into a single confirmation.