ASIC: Technology And New Players Are Bringing Change To The Financial Markets

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The financial markets in Australia will see more change and disruption as technology and new players take a bigger role in an increasingly competitive, global and complex system.

New forms of trading are emerging overseas including some based on social networking technology, according to Oliver Harvey of ASIC (Australian Securities and Investments Commission) who spoke at a closed markets conference, FIX Trading Community, in Sydney.

For example, Squawker in Europe is an equity negotiation platform which allows for personal interaction between users and is reportedly free of algorithms and high-frequency trading.

ASIC is watching these and other overseas developments closely, awaiting their arrival here in some form.

“If used more widely by public markets, it may raise fairness concerns if some types of investors or market users are favoured over, or exclude, others in so-called liquidity clubs,” says Harvey, senior executive leader, Financial Markets Infrastructure, at ASIC.

These liquidity clubs operate as private markets within public markets, accessible only to a subset of users that meet certain preferred criteria.

“Along these lines, some overseas trading venues are starting to offer alternatives to the current market structure, to combat concerns in those jurisdictions about matters such as algorithmic and high-frequency trading,” he says.

Canada for example, has had to recently consider models from the Aequitas market, which have included proposals for an alteration of the traditional price-time queue priority to favour some users (such as institutional investors) over others (high-frequency traders).

“This proposal raises fundamental questions about how public markets operate, such as the principles of fairness and fair access to posted liquidity,” Harvey says.

Extraordinary changes have been unleashed on the global financial market place in just four years, and Australia is no exception.

In 2010, infrastructure for public capital raising was almost exclusively confined to the ASX with brokers predominantly trading ASX-listed securities on ASX’s secondary trading platform.

There were a small number of broker-operated dark pools, where private off-market buying and selling took place

New secondary markets have launched such as Chi-X to compete directly with ASX.

Harvey says other listing and quotation markets are likely to develop to compete with that part of ASX’s business, and other forms of capital raising such as crowdfunding are gaining traction overseas and starting to get more usage here.

And dark pools are competing more directly with exchange markets for liquidity.

“The result over the last several years, is a blurring of the lines between these exchanges and what you might describe as those ‘alternative’ markets,” he says

Before 2010 there were five crossing systems, or dark pools, in Australia and a further 17 have since been launched.

The ASX also has its own dark pool and Chi-X has hidden orders.

“We expect this to be an area of continued growth and innovation,” Harvey says.

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