ASIC finally responds to 2020 ASX market outage

ASIC’s recent report on the 2020 ASX market outage sets out ASIC’s expectations for market operators, market participants and large institutional investors that will ensure more participants and investors are able and willing to trade on alternate venues in the event of a future market outage.

The report notes what SAFAA’s members told us – that while Chi-X remained open for trading that day, it experienced very limited liquidity and trading activity due to the impact of the ASX outage. That in turn, affected the ability of market participants to submit new client orders to Chi-X.

ASIC expects market operators to:

  • Refine procedures for session states during market outages, including clear thresholds for moving out of an Enquire session state and towards one that accommodates participant interaction.
  • Review their communication protocol for market outages, including the scope of information and updates to be provided.
  • Develop a protocol for intraday checkpoints during a market outage, including a final cut-off time after which the market would not be re-opened. This should also consider whether purging some orders (ie. good-for-day), or the entire order book is appropriate.

ASX is required to consult with stakeholders and seek feedback from a broad range of market users before implementing changes.

ASIC has also set out expectations for market participants. While market participants are expected to have arrangements in place to submit new client orders to an alternative market, SAFAA welcomed clarification that this can be by way of third-party access arrangements rather than a requirement to be connected to an alternative exchange.

The report notes that trading on alternative trading venues must be in accordance with client instructions. The report also clarifies that client order priority obligations do not prevent participants from submitting new orders to an alternative trading venue, even if existing orders are unable to be matched or cancelled on another market due to an outage.

And market participants are encouraged to review best execution policies.

ASIC also expects market participants to develop business continuity plans and best execution policies that include extreme but plausible scenarios, such as market outages. The report flags that market integrity rule changes consulted on in accordance with ASIC Consultation Paper 314: Market Integrity Rules for technological and operational resilience will be made in early 2022.

ASIC has sent letters to a number of market participants requesting them to develop a response to its expectations.  ASIC will be engaging further with market participants in 2022 to review their response.

SAFAA has publicly welcomed the report and is pleased that ASIC has recognised the need for ASX to refine its policies and processes for providing participants with trade confirmations and order status, including playbooks and alternative systems and data formats. The uncertainty around whether orders had been filled, either partially or fully with attendant challenges in managing client expectations, was a key impact on market participants during the outage and was raised by SAFAA’s members in consultations after the outage.

SAFAA has pointed out publicly that while the circumstances surrounding every outage are different, improving these issues will hopefully provide much needed certainty and transparency for any future outage and help market participants meet their expectations.

This article is general information only.