ASIC CLASS RULE WAIVER [CW 12/233]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
ASIC Market Integrity Rules (Competition in Exchange Markets) 2011
The Australian Securities and Investments Commission (ASIC) makes this instrument under Rule 1.2.1(1) of the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011 (the Competition Rules).
Under that Rule, ASIC may relieve any person or class of persons from the obligation to comply with a provision of the Competition Rules.
1. Background
In April 2011, ASIC made the Competition Rules, which form part of the regulatory framework for competition between exchange markets.
The Competition Rules apply to a participant (Participant) of a financial market (Market) on or through which offers to acquire or dispose of certain financial products (defined in Rule 1.4.3 of the Competition Rules as Equity Market Products) are made or accepted, the operator of which is licensed under subsection 795B(1) of the Corporations Act 2001. These Markets currently include the financial markets operated by ASX Limited (ASX) and Chi-X Australia Pty Ltd (Chi-X).
Rule 4.1.1(1) of the Competition Rules provides that, subject to Rule 4.1.1(2), a Participant must not enter into a transaction in an Equity Market Product unless the transaction is entered into by matching of a “Pre-Trade Transparent” order (being an order for which information such as price and volume is made available before execution) on an order book of a Market. Rule 4.1.1(1) reflects the importance of pre-trade transparency to the price formation process and fair and efficient markets. Rule 4.1.1(1) applies to conduct by Participants from 31 October 2011.
Rule 4.1.1(2) of the Competition Rules lists the exceptions to the requirements of Rule 4.1.1(1). Participants are not required to comply with Rule 4.1.1(1) in relation to, among other things, “Trades At or Within the Spread”, as defined in Rule 1.4.3 of the Competition Rules.
2. Purpose of the class rule waiver
"Trade At or Within the Spread" excluding PureMatch
The “Trade At or Within the Spread” exception in Competition Rules 4.1.1(2)(c) and 4.2.3 accommodates crossings entered into other than on an order book of a Market, on the basis of the “Best Available Bid” and “Best Available Offer” at the time the crossing is entered into.
The “Best Available Bid” and “Best Available Offer” are the highest pre-trade transparent bid and lowest pre-trade transparent offer available across all pre-trade transparent order books (also known as the “national best bid and offer” or “NBBO”). This includes ASX's TradeMatch and PureMatch order books and Chi-X's order book.
On 11 July 2011, ASIC announced in Competition FAQ A2 Pre-trade transparency exception – MIR4.2.3 'at or within the spread': What order information must participants consider in determining whether a trade is able to rely on this exception? (FAQ A2) that ASIC will not expect Participants to include PureMatch data in their compilation of the “Best Available Bid” and “Best Available Offer” for the purpose of this exception until 1 March 2012. This was to address issues raised by Participants concerning timing and system implications of including PureMatch data into their compilation of the consolidated “Best Available Bid” and “Best Available Offer”.
On 27 October 2011, ASIC made Class Rule Waiver [CW 11/1103] (the Class Rule Waiver). Paragraph 5 of the Class Rule Waiver provided relief to Participants to allow Participants to enter into a crossing on the basis of the “Best Available Bid” and “Best Available Offer” across all order books not including PureMatch, for a transitional period from 31 October 2011 to 1 March 2012 (inclusive).
On 23 February 2012, ASIC updated Competition FAQ A2 to report that ASIC would, prior to 1 March 2012, extend the relief in paragraph 5 of the Class Rule Waiver. The relief will be extended to reflect the fact that PureMatch has not currently obtained the anticipated minimal liquidity since the commencement of its operations.
ASIC intends to revoke the relief in paragraph 5 of the Class Rule Waiver once PureMatch has reached a liquidity level, on average over 10 consecutive trading days, of 0.2% of the total on-market trading volume in those securities quoted on PureMatch. ASIC will allow a period of three months before revoking the relief.
ASIC intends to continue discussions with industry about the connection of new order books to the compilation of the “Best Available Bid” and “Best Available Offer” for the purposes of the exception in Competition Rule 4.1.2(c) and 4.2.3.
3. Operation of the class rule waiver
Class Rule Waiver [CW 12/233] varies [CW 11/1103] by removing the words “during the period from 31 October 2011 to 1 March 2012 (inclusive),”.
4. Statement of Compatibility with Human Rights
This statement is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 because it does not engage any of the applicable rights or freedoms.
5. Consultation
ASIC consulted generally with relevant industry stakeholders before amending this Class Rule Waiver.