ASIC recently released Consultation Paper 168 – Australian equity market structure: Further proposals (CP 168) which seeks views on proposed Market Integrity Rules applicable to Market Participants.

What does this mean for you?

There are a number of proposed changes to Market Participant obligations that relate 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

Automated trading

High Frequency Trading (HFT) and algorithmic trading continue to be a major regulatory focus in the wake of the ‘flash crash’ in the United States in May 2010. This section of the Paper proposes new MIRs that require Market Participants to test algorithmic trading systems. Further rule amendments require Market Participants to have direct and immediate control over all trading messages including real-time monitoring of their trading.

ASIC is proposing changes where a Market Participant uses Automated Order Processing systems (AOP systems are the process by which orders are registered in a market participant’s system without being manually keyed in by an individual). New rules would necessitate annual reviews and attestations to ASIC in relation to AOP systems as well as enhanced due-diligence of clients that use AOP systems.

Volatility controls

Following similar moves in other jurisdictions, proposed volatility controls on local markets would limit trading where prices move significantly in short period of time i.e. 15% in a 5 minute period for ASX200 securities and 250 points or more for the SPI Future.

Pre-trade transparency

ASIC are eager to ensure that the price discovery process is not impeded by the trend that is seeing an increase in the volume of trading conducted ‘in the dark’ i.e. off-market usually through a broker’s internal crossing system. Trading off-market is allowed under certain exceptions and ASIC have proposed amendments to two of these including introducing a tiered threshold block size crossings (previously $1m for all securities).

Best Execution

The recently introduced Best Execution obligation currently only applies to equity market products this will likely be expanded to cover Options, Interest Rate Securities, Warrants and AQUA products.

How can Certainty help?

Certainty Compliance can assist you in understanding all your regulatory obligations, and ensure you have systems, policies and procedures in place to comply with them. Please contact a consultant on (02) 8324 5300 or

For further information

Submissions are due to ASIC by 20 January 2012

More information is available on ASIC’s website, see 11-225MR ASIC consults on equity market structure issueshere