12-143MR ASIC consults further on key market structure reforms
Thursday 28 June 2012
ASIC today 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 has today published the proposed rules and guidance for consultation, consistent with that approach.
ASIC has 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).
ASIC Deputy Chairman Belinda Gibson said: 'When ensuring markets are fair and efficient it is important to balance innovation and maintain integrity. These proposals have come after lengthy consultation with industry, which began in November 2010, and achieve this desired outcome.
‘Financial markets are the engine room for the growth of our economy, and it is important that we are vigilant to maintain Australia's leading reputation.’
Comments on the consultation material are due by 6 August 2012.
The approach being taken by ASIC is as follows:
on market operator systems and controls – we have published draft guidance clarifying expectations on market operators’ systems and controls. This can be found in the draft addendum to Regulatory Guide 172 Australian market licences: Australian operators (RG 172)
on extreme price movements – we have amended the anomalous order threshold and extreme cancellation range rules, and extended those amended rules to the ASX SPI 200 Index Future: see draft rules in Chapter 2 of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011 and Section B of updated draft Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223)
on enhanced data for market supervision – we have drafted a rule requiring identification of a subset of the information proposed in CP 168: see Chapter 5A of the draft ASIC Market Integrity Rules (Competition) and Section H of updated draft RG 223, and
on pre-trade transparency, we have drafted a rule on price improvement and altered the block trade sizes as proposed. We are not proceeding with a new rule on a minimum size threshold for dark orders at this stage: see draft rules 4.2.1 and 4.2.3 of the ASIC Market Integrity Rules (Competition), and Section D of updated draft RG 223.
There are a small number of areas where we will continue to consult with industry with a view to publishing draft rules and guidance soon. In particular:
on automated trading participant controls – we propose to make no new rule on algorithm testing, a new rule requiring direct control over filters and the ability to disable order flow, amend existing rules to require annual review of systems, and publish guidance clarifying our expectations on trading system controls, testing of systems and additional minimum standards for direct market access. We are consolidating and updating the guidance currently in ASX guidance notes, and intend to publish draft rules and guidance early in the third quarter of 2012, and
on the format of s912E reports – we intend to publish guidance late in 2012 on the revised information and format of reports required, after further industry engagement.
Suspicious Activity Reporting and Short Sale Tagging
ASIC intends to make new market integrity rules for suspicious activity reporting and short sale tagging requirements, which will apply to trading on the ASX and Chi-X markets. The obligations associated with these rules will not commence until January 2013 and March 2014 respectively. ASIC consulted on these issues in 2010, and we will publish these rules and guidance shortly.
These new requirements bring the Australian market in line with international best practice, and reinforce ASIC’s strategic priorities of maintaining fair and efficient financial markets.
ASIC first consulted in relation to enhancing the regulation of Australia's equity markets in November 2010 with Consultation Paper 145 Australian equity market structure (CP 145). Since that time, we have worked with industry and stakeholders to ensure that regulatory responses to trends in global and domestic markets are appropriate.
A detailed comparison of the proposals foreshadowed in CP 168 with our intended approach can be found in Appendix 2 of REP 290.
More information on ASIC’s proposed regulatory framework and the background to the consultation process can be found in our backgrounder to 11-225MR.