The Australian Securities and Investments Commission (ASIC) has questioned why traders ignored alternative exchanges such as Chi-X Australia during last year’s market outage, highlighting their dependence on the Australian Securities Exchange (ASX).
In a statement, the regulator said the ASX’s November’s outage, which lasted for the majority of the day and was caused by the introduction of a new trading platform, led to “the deterioration of liquidity and widening bid-offer spreads”.
However, ASIC questioned why traders failed to use alternative exchanges to place trades or new client orders instead.
“There was uncertainty among participants and clients about the nature of the ASX system failure and what it meant for orders that had already been submitted to the ASX. It appears some participants and clients had limited access to other venues,” it said.
“Client order instructions and ASX-only data subscriptions also raised challenges for using other venues. Ultimately, concerns about liquidity and prices meant that only relatively moderate trading occurred on Chi-X.”
ASIC commissioner, Cathie Armour, said firms had failed to put in place sufficient arrangements to deal with a market outage and that ASIC would review how market participants had adjusted their contingency processes since the outage.
“The behaviour of market participants during this outage indicated too many firms are 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.
“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.”