Industry Super Network (ISN) has proposed a new structure for listed equities in an effort to improve the quality of the Australian share market.
The proposal will see investors' orders pooled into a series of 'call auctions' to be held frequently throughout the day.
The move is expected to bring buyers and sellers together, resulting in reduced volatility, improved price discovery, and protection against the increasing practice of high frequency trading. It is also expected to make the market more resilient in the face of liquidity crashes and systemic risk.
"Industry super funds invest for the long term, seeking to obtain superior net returns for their members. As providers of patient capital to listed companies, we have a strong interest in a fair and orderly share market," ISN director of regulatory policy Zak May said.
"The proposed call auction structure would ensure that investors could have confidence that they are transacting in a fair system and at a fair price that reflected all the available information at the time," he said.
He explained that the call auction proposal would concentrate liquidity by aggregating orders over a period of time and executing them together 'at the call'. The auction would clear at a single price, at which the maximum number of shares would be exchanged.
"By bringing together all buy and sell orders coming in over a period of time into a single process, call auctions would create deeper pools of supply and demand. And by establishing a single price that reflects this larger pool of orders, the auctions would increase the quality and 'informativeness' of market price signals, as well as liquidity," Mr May said.
The proposal is also expected to help address ongoing concerns regarding high frequency trading.
"Our proposal differs from [ASX call auctions] in that they would be of relatively short duration and used for trading throughout the day, not just at the opening and the close. This would allow transactions to take place frequently, while also reducing volatility and providing the liquidity and other benefits of the call auction structure," he said.
ISN has presented its proposal to Federal Treasury as part of its submission on the Australian Securities and Investments Commission (ASIC) Market Supervision Cost Recovery Arrangements and welcomes further inquiry into how the Australian financial system and regulatory oversight can be improved.
