Market structure review

Quarterly cash equity market data

On 2 May 2013 ASIC published new quarterly series of data relating to Australia's cash equity markets.

The data consists of a set of indicators of market characteristics and efficiencies calculated by ASIC's market surveillance system. These indicators provide a quarterly snapshot of the whole of market landscape that is not otherwise available.

View the data

Read the information sheet about the data

Read the media release

Regulatory framework for retail trading of Commonwealth Government Securities

On 27 March 2013 ASIC issued amended market integrity rules and related guidance to help with the introduction of retail trading of Commonwealth Government Securities (CGS) depository interests on the Australian Securities Exchange (ASX).

We updated Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223) to reflect these changes. RG 223 provides guidance on how market operators and market participants can comply with their obligations under the competition market integrity rules.

Read the release on CGS

Previous release on CGS consultation

Report and consultation on dark liquidity and high-frequency trading

On 18 March 2013 we released a report and a consultation paper that examine the impact of dark liquidity and high-frequency trading on Australia's financial markets.

Report 331 Dark liquidity and high-frequency trading (REP 331) and Consultation Paper 202 Dark liquidity and high-frequency trading: Proposals (CP 202) focus on the quality of the market for capital raising and long term investment, and thus Australia's competitiveness as a regional financial centre.

Read the release on dark liquidity and high-frequency trading

Exceptions to the pre-trade transparency requirements

On 5 December 2012 we released the Information Sheet 164 ASIC market integrity rules: Exceptions to the pre-trade transparency requirements. This information sheet has now been superseded by RG 223.

Key announcements on market structure, dark liquidity and high frequency trading

On 20 November 2012 we made new market integrity rules to address risks emerging from developments in market structure, including growth in automated trading and the changing nature of dark liquidity.

The new market integrity rules will be phased in over an 18-month period.

The new amending instruments are:

ASIC Market Integrity Rules (ASX Market) Amendment 2012 (No. 3)
ASIC Market Integrity Rules (Chi-X Australia Market) Amendment 2012 (No. 3)
ASIC Market Integrity Rules (Competition in Exchange Markets) Amendment 2012 (No. 1)

We also released guidance:

updated Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223), to give guidance on the draft new or amended market integrity rules for extreme price movements, enhanced data for market surveillance, pre-trade and post-trade transparency
an addendum to Regulatory Guide 172 Australian market licences: Australian operators (RG 172) to give guidance on systems and controls for holders of an Australian market licence
Regulatory Guide 241 Electronic trading (RG 241) on the new rules relating to automated order processing, consolidated with the updating of guidance which is currently contained in ASX guidance notes, and
Report 311 Response to submissions on CP 179 and CP 184 Australian market structure: Draft market integrity rules and guidance (REP 311).

Read the media release on market structure, dark liquidity and high frequency trading

Crossing systems registered with ASIC

List of crossing systems registered with ASIC

Draft market integrity rules and guidance on automated trading

On 13 August 2012 ASIC published Consultation Paper 184 Australian market structure: Draft market integrity rules and guidance on automated trading (CP 184).

The proposed rules and guidance include:

draft new market integrity rules requiring direct control over filters and automated controls to suspend orders and/or systems;
draft rules that revise the process for certifying systems and reviewing changes at least yearly; and
draft regulatory guidance on automated trading, covering issues consulted on in CP 168, consolidated with updated guidance currently contained in ASX guidance notes. This includes guidance on testing of systems and filters/controls - the ability to manage highly automated trading, and stress testing of order flow.

Read the media release about CP 184

Retail trading in Commonwealth Government Securities

On 20 July 2012 we published Consultation Paper 181 Retail trading in Commonwealth Government Securities( Download CP 181). The paper contains proposals to extend the scope of and adapt rules from the competition market integrity rules for trading in Commonwealth Government securities (CGS) depository interests on public exchanges.

The proposals are part of the framework required to help implement the Australian Government’s initiative to facilitate retail trading of CGS depository interests on public exchanges on a non-exclusive basis.

Read the media release about CP 181

Further consultation on key market structure reforms

On 28 June 2012, we published a consultation paper (Consultation Paper 179 Australian market structure: Draft market integrity rules and guidance (CP 179)), draft market integrity rules and guidance on market structure reforms. This marks the next stage of an ongoing consultation process with industry on these reforms. ASIC announced its approach to the rules and guidance in April, and these proposed rules and guidance for consultation are consistent with that approach.

We have also published the feedback report on Consultation Paper 168 Australian equity market structure: Further proposals (CP 168), Report 290 Response to submissions on CP 168 Australian equity market structure: Further proposals (REP 290).

Read the media release about CP 179 and REP 290

Second-phase consultation paper on equity market structure issues

On 20 October 2011 we released Consultation Paper 168 Australian equity market structure: Further proposals (CP 168) seeking views on proposed market integrity rules relating to:

automated trading including high frequency trading;
volatility controls for extreme price movements;
enhanced data for supervision;
the product scope of best execution; and
pre-trade transparency and price formation in the market.

CP 168 builds on the findings of Consultation Paper 145 Australian equity market structure: Proposals (CP 145) issued in November 2010, which canvassed issues related to the introduction of competition to exchange markets in Australia and the release on 29 April 2011 of new market integrity rules for competition.

Read the media release about CP 168

New market integrity rules for competition in exchange markets

On 29 April 2011, we released new market integrity rules for competition in exchange markets. These rules are intended to mitigate the regulatory issues resulting from the introduction of competition in exchange markets for trading in equity market products.

We have only implemented those market integrity rules that are necessary for competition at this time. The market integrity rules for competition in exchange markets include:

requirements for market operator level order entry controls and a harmonised trade cancellation policy in the event of an extreme price movement
rules on achieving best execution for clients
pre-trade and post-trade transparency rules to promote the fairness and efficiency of our market and in particular to promote its liquidity and quality of price formation
reporting requirements for crossing systems
rules on making market data available and promoting accessibility of consolidated market data
information sharing requirements between market operators
rules on the coordination of time, identifiers and tick sizes across markets
a requirement that all transactions in equity market products are entered into under the rules of a licensed market (unless the transaction is a redemption or primary market action)
rules prohibiting trading during a trading halt; and
rules to allow market participants to aggregate transactions into a single confirmation.

These rules supplement existing ASIC Market Integrity Rules (ASX Market) 2010 and ASIC Market Integrity Rules (Chi-X Market) 2011.

Read:

the advisory, April 2011

copies of the market integrity rules and related regulatory guidance

FAQs - Competition market integrity rules and implementation issues, July 2011

Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223) provides background to the market integrity rules, outlines our expectations about how market operators and participants should comply with the new market integrity rules and provides practical good guidance recommendations for data consolidators and in relation to the more complex rules, such as best execution.

Download RG 223

The majority of the market integrity rules for competition in exchange markets commence on 31 October 2011. A small number of the market integrity rules for competition in exchange markets apply shortly after the market integrity rules are registered. They relate to the provision of information to ASIC about activity on crossing systems (that is, dark pools) to assist our market analysis and the provision of order and trade information to enable ASX, Chi-X and the industry to prepare for competition. The market integrity rules also provide transitional arrangements for some requirements, such as best execution.

Timetable for introduction of competition

On 3 March 2011, we released a timetable for the introduction of market competition, which included a summary of the intended market integrity rules.

ASIC provides direction on market structure reforms 3 April 2012

Read the advisory announcing our timetable for the introduction of market competition

Market changes limited for the commencement of competition

Market structure regulatory framework - consultation and submissions

On 4 November 2010, we released a consultation package on enhancing the regulation of Australia’s equity markets, including proposals to address risks associated with the introduction of competition between exchange markets and from recent market developments.

Read the advisory about the 2010 release

The consultation package included:

Consultation Paper 145 Australian equity market structure: Proposals (CP 145) which proposes market integrity rules to address some of the regulatory issues arising from market developments and the additional regulatory issues resulting from the introduction of competition
Report 215 Australian equity market structure (REP 215) which looks at recent and likely trends in global and Australian equity markets, including the lessons from other jurisdictions that have introduced competition between market operators.

Response to CP 145

Report 237 Response to submissions on Consultation Paper 145 Australian equity market structure: Proposal (REP 237) was issued on 29 April 2011. This report provides detailed information about the responses to CP 145 and outlines our response to the feedback.

We received 20 non-confidential submissions to CP 145

Further work to respond to wider market developments

In CP 145, we consulted on a number of proposed rules relating to broader market structure developments. We intend to use the benefit of the feedback from CP 145 to refine some of our proposals that respond to wider market developments (for example, relating to growth in non-pre-trade transparent pools of liquidity (dark pools) and the impact they are having on the public price formation process, automated electronic trading and volatility controls).

We intend as a matter of priority to consult further on these important issues and, subject to the outcomes of this consultation, aim to settle these additional rules in early 2012 (with sufficient lead time for transition and implementation).

The proposed additional market integrity rules relate to the following issues:

enhanced controls for automated electronic trading, including for algorithms to be appropriately tested and a mechanism to immediately disable them if necessary
enhanced controls for direct electronic access, including minimum client standards, a legally binding contract with clients and pre-trade controls
volatility controls to automatically limit market activity during extreme market movements
imposing requirements on market participants to demonstrate compliance with their best execution arrangements, including by publishing reports on order transmitting and imposing requirements on market operators to publish reports on execution quality
enhanced data requirements for ASIC’s surveillance capability, such as the identification of categories of clients, origin of order and off-order book matching mechanisms; and
exceptions to pre-trade transparency and mechanisms for promoting pre-trade transparency, particularly after further analysis of the impact of dark pools on price formation in the Australian marketplace. We also intend to review the post-trade transparency deferred publication regime.

We also intend to make market integrity rules on suspicious activity reporting and the mandatory identification of short sales as early as possible in 2011, as proposed in CP 145, with sufficient lead time for implementation.

More details will be provided in coming months.

See further ASIC consults on equity market structure issues, 11-225MR, 20 October 2011