Proposal calls for A$1 mn fines for failure to identify origins of all trades
The Australian Securities and Investments Commission (ASIC) has proposed a series of fines, tests and controls to help regulate high-frequency trading and prevent trading fiascos such as the mistaken orders that cost US market maker Knight Capital Group $440 mn earlier this month.
The proposals would impose stricter guidelines for certifying software used for automated trading, require direct control over pre-trade filters that allow market participants to cancel trades before they take place, and establish a set of guidelines for regular testing of the trading software, including filters, controls and order flow.
‘Recent events overseas are a reminder of the speed and automation of markets and the importance of robust controls over those systems,’ says Belinda Gibson, ASIC’s deputy chair, in a statement put out by the commission.
‘This type of trading, and algorithms generally, continue to be of concern. The measures we are proposing will strengthen our protection against the type of disruption we have seen recently in other markets.’
The proposals would also impose fines of A$1 mn ($1.06 mn) on those who fail to ensure their trading messages don’t ‘interfere with the efficiency of the market or the proper functioning of a trading platform’.
Other proposals would regulate who can access the automated trading systems, establish minimum electronic security measures and establish detailed testing procedures.
ASIC also calls for fines of A$1 mn for ‘creating a false or misleading appearance of active trading’, failing to comply with automated order processing requirements or failing to maintain systems that can identify the origins of all orders and trading messages at all times.
Fines of A$100,000 would be levied for implementing changes to an automated trading system without having it reviewed by ‘an appropriately qualified person’, for not having an annual review and for not promptly addressing other ASIC requirements in a timely manner.
The 97-page consultation paper, which is the result of a two-year study on automated trading and dark pools of loosely regulated, largely automated trading, is open to debate until September 14. The new guidelines are scheduled to be released in October.
The Australian proposals come as the SEC begins considering new rules of its own following the errant trading on August 1 that forced market maker Knight Capital Group to seek financial rescue.
The SEC is considering regulations that, like the Australian proposals, would impose testing standards on trading firms before they go live with new trading software and require them to publicly disclose any software glitches, according to undisclosed sources cited by the Financial Times.
