NEW DARK POOL TRANSPARENCY RULES INTRODUCED.

By Mark Smith, Tuesday, 6 August 2013 12:10pm

New rules affecting dark pools and high frequency trading (HFT) have been introduced in a bid to improve transparency.

Minister Assisting for Financial Services and Superannuation David Bradbury announced a package of market integrity rules just prior to parliament being pro-rogued that directed at better protecting investors and the stability of Australia’s financial markets.

Bradbury said the announcement came in response to issues identified by the Australian Securities and Investments Commission (ASIC)’s dark pools and high frequency trading taskforces.

“These rules provide improved investor protection in dark pools by requiring dark pool operators to improve transparency of their market’s operation and restricting preferential treatment for some investors. The rules also improve market integrity by harmonising market manipulation rules across licensed markets,” he said.

“The Government is acting to ensure that investors have continued confidence in Australia’s financial markets. These new rules address investor concerns while also ensuring the benefits continue, such as investor choice and competition to lit markets from dark pools, and liquidity benefits from high frequency trading.”

The new rules were refined after industry consultation by ASIC.

The rules, which were refined following industry consultation by the regulator, include public disclosure of information so that market users can understand how their orders may be handled and executed.

They require details on the operation of the dark pool to be disclosed to clients and for dark pools to operate under a common set of procedures which do not unfairly discriminate between users.

Investor must also be given the choice to opt-out of trading in the dark pool, existing rules surrounding automated processing of orders have been extended and rules to manage conflict of interests have also been introduced. Negative commissions as payment for order flows have also been banned.

These rules will come into force in stages over a nine month period. ASIC will also issue guidance to clarify the new rules and expectations of market operators and participants.

A complete list of the new rules will be available on ASIC’s website once they have been registered.

The rules build upon those approved in November 2012 to improve investor protection and market stability.

“We are already seeing benefits from those rules. For example the meaningful price improvement rule approved last year has resulted in a 40% drop in below block size trading in dark pools in its first month of operation,” Bradbury said.

“In addition to these new rules, the Government is continuing to consider the appropriate regulation of dark pools and whether they should become licensed financial markets as part of Treasury’s ongoing Australian market licence review.”

See on www.financialstandard.com.au or on Scoop.it – Best Execution