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ASIC issues rebuke to financial firms on ASX outage

Sarah Kendell
— 1 minute read

The corporate regulator is continuing to investigate the impacts of the ASX outage in November and has flagged concerns around why more firms were not able to trade on alternative exchanges, suggesting this may have been a breach of their best execution duty to clients.

In a statement, ASIC said it was “engaging with market operators, participants, investors and other stakeholders on the impact of the incident”, which had led to decreased liquidity and widening bid-offer spreads as many market participants were not able to trade through alternative mechanisms.

“It appears some participants and clients had limited access to other venues,” ASIC said. 

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“Client order instructions and ASX-only data subscriptions also raised challenges for using other venues.”

ASIC said “only moderate trading” had occurred on the alternative securities exchange platform Chi-X, which raised questions around why market participants were so reliant on a single exchange.

“ASIC is particularly focused on why more trading did not occur on other venues such as Chi-X, especially new client orders that were received after trading on ASX was suspended at 10:24am on 16 November,” the regulator said.

“ASIC is also concerned that some participants did not appear to have business continuity arrangements to trade when ASX Centre Point was unavailable – even when the main ASX ‘lit’ order book and Chi-X were available.”

ASIC commissioner Cathie Armour said it was clear from engaging with market participants after the outage that too many were reliant on the ASX to trade listed securities.

“With a fully functioning alternative venue available, we are examining why far more trading did not occur on Chi-X on the day of the outage,” Ms Armour said.

“ASIC expects participants to review their arrangements for dealing with market outages and disruptions and make necessary adjustments to their order routing and execution algorithms to reduce their reliance on any one market operator or order book.

“Participants’ duties to their clients, including the obligation to take reasonable steps to obtain best execution, do not fall away where there has been a market outage or disruption.”

The regulator said it would work with firms in the new year to “identify what, if any, broader market adjustments might be necessary to reduce the impact of any future incidents”.

Additionally, ASIC said it was investigating whether the ASX met its obligations under its market licence, “including whether it has sufficient financial, technological and human resources to operate its markets”. 

 

ASIC issues rebuke to financial firms on ASX outage
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