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Australia cracks down on HFT
16 August 2013
Australian rules over crossing systems and abusive trading practices
The Australian Securities & Investments Commission (Asic) has issued rules on dark liquidity and high-frequency trading.
The rules are designed to improve transparency and market confidence and will be phased in over the next nine months.
Dark liquidity rules deal mainly with Australian crossing systems while calling on providers to publish and report more information both publicly and to the Asic.
The regulator's actions on high-frequency trading are aimed at harmonising manipulative trading rules across the region and call on traders to consider whether their actions could be considered abusive.
Asic commissioner Cathie Armour said the rules would improve “the transparency and integrity of crossing systems”, as well as reducing market manipulation.
She added: “We expect the new rules will quickly lead to changes in the behaviour of market participants, building on the positive changes we have already seen with other recent rule changes and the work of Asic’s taskforces on dark liquidity and high frequency trading.
“For example, there has been a significant decline in the volume of dark liquidity (below block size) as a result of the meaningful price improvement rule introduced in May this year, and we have observed a considerable drop in small and fleeting orders.”
The rules for dark liquidity will be phased in over nine months.
From November 10 crossing system operators will be required to publish information about their crossing system online, such as the products traded and disclose the tick sizes that apply to exchange markets, as well as disclosing suspicious activity and allowing clients to opt out of using their crossing system.
From February 2014, crossing system operators must make disclosures to clients on the operation of the crossing system and have a common set of procedures in place that do not discriminate unfairly between users.
They must also notify users and the Asic about system issues “as soon as practicable” and protect confidential client information, as well as dealing with client orders fairly and in due turn. Market participants will also be prevented from receiving negative commissions.
Asic has put in place a waiver for requirements to monitor activity on their crossing system from November, with the measure applying from May 2014.
As of May 2014, crossing system operators are also required to identify in trade information for wholesale clients the crossing system and whether they traded as principal.
Existing systems and control requirements for automated order processing will be extended to crossing systems and crossing system operators, and crossing systems will also be publicly identified in course of sale reports.
On high frequency trading, new rules call on participants to consider extra factors that might create a false or misleading market.
These include the frequency and volume of orders placed, and the extent to which orders are cancelled or changed relative to the orders executed.
Manipulative trading rules across the Australasian region will be harmonised from February 2014, with market participants in the ASX 24 being required to comply the same anti-manipulative trading ruels in place on the ASX and Chi-X markets.