On 20 November 2012, the Minister for Financial Services and Superannuation announced new market integrity rules. Broadly, the rules are in response to technological innovations such as automated and high-frequency trading; as well as the increasing significance of dark liquidity (that is, liquidity which is not publically disclosed). More specifically, the rules provide for:
- greater controls and testing of trading algorithms;
- automated volatility controls;
- additional data reporting requirements to support enhanced market surveillance; and
- meaningful price improvement for some trades which are made in ‘dark pools’. Dark pools refer to a trading platform which does not publically disclose trading volumes or liquidity.
Some rules will be introduced over an 18 month period, and will require significant changes to processes by both market operators and participants. Market operators, such as ASX and CHI X will incur some transitional and ongoing compliance costs. Other market participants will be obligated to follow the dark pool, data reporting and algorithm controls and testing requirements. These costs are likely to be passed on to investors. These rules are expected to improve the price formation process and assist in managing market-wide risks, which may in turn enhance investor confidence. A Regulation Impact Statement was prepared by the Australian Securities and Investments Commission and assessed as adequate by the Office of Best Practice Regulation.
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