The latest of our fragmentation forums landed in Sydney last week where around 150 industry executives got together to debate Australia’s future in the global fragmentation experiment. The event was well timed as the Australian Regulator, ASIC, published its long awaited consultation paper outlining its proposed new rules governing equities trading on the very same day. The ASIC proposals could be summarised as being based on MiFID-style best execution, sprinkled with some RegNMS reporting requirements and all wrapped up firmly in a mandated consolidated tape. ASIC should be commended for the thoroughness of its review and the thinking behind its recommendations. The paper provides an excellent backgrounder on the experiences of the US and Europe as well as comments on HFT and the Flash Crash.

ASIC also outlines its concerns over the impact of dark pool trading on price formation (a concern raised in the US and Europe, too). Some have argued that the larger block sizes traded off exchange reflect a completely different trading style/objective and so are not really relevant to the average trader. On the other hand, ASIC points out that price formation is not just a trading issue but also affects any stakeholder in a public listed company that wants an accurate assessment of their investment. The challenge, though, is to define exactly how much non-lit trading needs to take place in order to have a negative impact for either traders or longer term investors. On this point I am sure that ASIC will get plenty of comments.

Meanwhile, as other Asia/Pac regulators think about their approach to increasing market efficiency and innovation they may end up thanking ASIC for doing much of the heavy lifting for them.