The regulator has warned market participants to step up their game after it was forced to intervene at the height of the liquidity crisis.
On 13 March, the market exceeded the number of trades that could be reliably processed on a single day. At the time, ASIC issued directions to nine large market participants requiring them to limit the number of trades executed each day. While those levels haven’t been exceeded since, ASIC has warned that there is a “real risk” of a repeat if equity markets experience elevated trading volume again.
“We expect all equity market participants to take reasonable steps to ensure the number of trades matched from their orders [is] capable of being handled by their internal processing and risk management systems, and if applicable, their clearing and settlement operations; and support the fair and orderly operation of Australian equity markets,” ASIC said in a statement.
ASIC expects participants to adjust trading algorithms in order to minimise excessive use of very small orders, as well as performing intraday monitoring of trade counts and taking other actions “that reflect and support your awareness of market-wide capacity constraints”.
Markets weren’t compromised by the last spike in trading volumes due to the fact it occurred on a Friday, with a “significant backlog” of work undertaken over the weekend by exchanges and participants.
“If the number of trades executed continues to increase, it will put [a] strain on the processing and risk management capabilities of market infrastructure and market participants,” ASIC said in a statement at the time.
At the time, large market participants were ordered to reduce their number of executed trades by up to 25 per cent from the levels executed on 13 March.
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