Friday, August 30, 2013

Australian Securities Regulator Adopts High Frequency and Dark Trading Regulations

After extensive internal analysis and consultation with industry, the Australian Securities and Investment Commission adopted market integrity rules on dark liquidity and high-frequency trading. Commissioner Cathie Armour said that the ASIC expects the new rules will quickly lead to changes in the behavior of market participants.

With regard to dark liquidity, crossing system operators must publish on a website information about their crossing system and make disclosures to clients on the operation of the crossing system. They must also identify in trade information for wholesale clients the crossing system and whether they traded as principal.

In addition, the tick sizes that apply to exchange markets will also apply to crossing systems. Crossing system operators must have a common set of procedures which do not unfairly discriminate between users and allow clients to opt out of using their crossing system. If suspicious activity is identified in a crossing system, it must be reported to the ASIC. Further, market participants must protect confidential client information and deal with client orders fairly and in due turn.

Regarding high frequency trading, market participants must consider additional circumstances in considering whether a false or misleading market has been created. They must also consider the frequency with which orders are placed, the volume of products that are the subject of each order, and the extent to which orders made are cancelled or amended relative to the orders executed.