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20-334MR Update on ASIC’s review of November’s ASX Trade outage
ASIC continues to assess the impact of the ASX Trade outage and subsequent issues with its Centre Point dark-pool trade matching service, order cancellations and a delay to clearing and settlement that occurred during the week of 16 November 2020.
ASIC is engaging with market operators, participants, investors and other stakeholders on the impact of the incident.
The immediate impact was the deterioration of liquidity and widening bid-offer spreads as many participants and their clients were unable (or chose not) to trade through alternative trading mechanisms. 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. 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 is particularly focused on why more trading did not occur on other venues such as Chi-X, especially new client orders that were received after trading on ASX was suspended at 10:24am on 16 November.
ASIC is also concerned that some participants did not appear to have business continuity arrangements to trade when ASX Centre Point was unavailable—even when the main ASX ‘lit’ order book and Chi-X were available. There were some participants that had designed their systems with the multi-market structure in mind and had the flexibility to use other venues.
ASIC Commissioner Cathie Armour said, ‘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,’ Commissioner Armour said.
In 2021, ASIC will review how market participants have adapted their systems and processes in response to the outage and will work with the industry to identify what, if any, broader market adjustments might be necessary to reduce the impact of any future incidents.
ASIC will consider whether the failure by any market participants to already have in place arrangements to access an alternative venue is consistent with their obligations under the market integrity rules and their best-execution duty to their clients.
ASIC has also commenced an investigation into whether ASX met its obligations under its Australian Market Licence, including whether it has sufficient financial, technological and human resources to operate its markets. ASIC views incidents of this nature with significant concern and, in conjunction with the Reserve Bank of Australia (RBA) as a co-supervisor of the ASX Group, have informed ASX of their expectation that an independent review be conducted in the first half of 2021.