In a bid to slow the frenetic pace of equity trading and as part of the Australian Government’s response to the novel coronavirus (COVID-19), the Australian Securities and Investment Council (ASIC) has asked traders to police themselves.
Accordingly, ASIC has issued directions under the ASIC Market Integrity Rules to a number of large equity market participants, requiring those participants to limit the number of trades executed each day until further notice. These directions require those firms to reduce their number of executed trades by up to 25% from the levels executed on Friday, March 13.
“This action will require high volume participants and their clients to actively manage their volumes. We do not expect these limits to impact the ability of retail consumers to execute trades,” the ASIC said in a bulletin. “ASIC will continue to closely monitor market conditions and take action where needed to ensure markets remain fair and orderly.”
As the Australian equity markets have seen record trading volumes in the last two weeks. ASIC, along with the other Council of Financial Regulators agencies, have been closely monitoring financial markets to ensure they remain fair and orderly. Australian markets have been strong and resilient over this period, and this action is pre-emptive and intended to maintain those high standards.
The ASIC noted that in addition to increasing volumes, Australia’s equity markets have seen exponential increases in the number of trades executed, with a particularly large increase in trades last Friday, 13 March. “While there was no disruption to market operations on Friday, there was a significant backlog of work required to be undertaken over the weekend by the exchanges and trading participants. If the number of trades executed continues to increase, it will put strain on the processing and risk management capabilities of market infrastructure and market participants.”
Responding to the emergency trading rules issued by ASIC, Daniel Schlaepfer, CEO of global day trading firm Select Vantage said this was a bad idea and hampered the efficient operation of the markets.
“Emergency rules announced today by the Australian Securities and Investments Commission (ASIC) to cut equity trades by a quarter are a step in the wrong direction,” Schlaepfer said. “They will only undermine public trust in the markets just at the very moment when that trust is so badly needed to keep markets – and the global economy – moving.”
He added that the emergency rules are ASIC’s attempt to cope with large trading volumes as more market makers work from home in response to the COVID-19 pandemic. But these rules are likely to be ineffective in practice, being nigh-on impossible to implement and monitor effectively.
“It is certainly not be clear to market participants whether and how they are meant to comply with the measures, and this uncertainty will only serve to damage the integrity of markets,” Schlaepfer said. “At times like this, open and frank dialogue with market participants is more essential than ever.”