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Australia plans 'kill switches' to curb HFT risks

21 November 2012  |  6280 views  |  0 Man hands on paper2

In a bid to curb high-frequency trading, Australia has unveiled plans for the introduction of 'kill switches' as part of a wider package of new market integrity rules.

With regulators in the US and Europe hammering out new rules designed to deal with a rapidly changing market dominated by the rise of HFT and dark pools, the Australian government has pushed ahead with its own measures.

By the middle of 2014, traders will be required to have direct control over algorithms, including 'kill switches' to immediately stop one if required and avoid a repeat of the infamous May 2010 US flash crash.

In addition, by next June there will be a requirement that dark pools offer "meaningful price improvement" over the lit market, with exemptions for block trades.

By November 2013 firms will also face additional data reporting requirements to help the Australian Securities and Investment Commission (Asic) in performing market surveillance.

For the country's two market operators, ASX and Chi X, there will be an immediate obligation to enforce an extreme trading range for trades in securities.

Bill Shorten, financial services and superannuation minister, says: "The Government is acting to ensure that investors have continued confidence in Australia's financial markets. I believe that these new rules will help to reduce the risk of market volatility from high frequency trading and provide increased investor protection for retail investors and others trading in dark pools."

Authorities may take further measures, with Asic setting up two task forces focussing on dark liquidity and HFT, which will report in March, and the treasury reviewing whether or not to introduce licensing for dark pools.

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