Interpac Business and Migration Solutions Melbourne Australia

(November 23, 2011)

The Australian Securities and Investments Commission had concerns about the technology underpinning the Australian Securities Exchange prior to the October outage that halted trade for most of a day.

In its ninth annual Market Assessment report of the ASX Group released today, ASIC listed a series of actions to be taken involving ASX's technology including more frequent communication about upgrades and changes to the trading platform.

"ASIC had concerns with the deployment of ASX's technological resources during the period of review," ASIC said.

Not only has the nature of share trading grown more complex with the new technologies, new entrants such as Chi-X are adding to the pressure on Australia's largest exchange.

Under new agreements to deal with ASIC's technology concerns, ASX will be required to publicise notice periods for even minor IT changes.

ASIC said that since the ASX upgraded its 24-hour trading platform ASX Trade24 and ASX Trade system in the year to August 2011 "there were nine incidents across both trading platforms, which led to varying degrees of market unavailability and disruption."

Most of the incidences occurred within six months of the technological upgrades.

The worst, according to ASIC, was a spread calculation issue on the ASX Trade 24 platform which occurred on October 27, 2010, and two issues around trade confirmation for the ASX Trade in February and March 2011, "which affected all users of ASX Trade."

"These issues led to varying degrees of market outage," said the report.

However, the issues didn't prevent ASX from meeting its regulatory obligations during the period covered in the report, ASIC said.

Major outage

ASIC noted, however, that this year's annual assessment concluded before the October 27 market debacle this year, which halted trade for all but two hours on what was expected to be a busy options-expiry session.

"ASIC completed its review before the market outage," it said in a release. "It will be included in the next assessment along with a more detailed review of how the changes ASX has made as a result of the transfer of market supervision are now operating in practice. The next assessment is underway."

The agreements given by the ASX to ASIC on the annual assessment centre primarily on the exchange's communication both with ASIC and market participants "about major and minor technical changes, improvements to ASX communications with industry and its approach to determining participant readiness."

"A recent theme in conversations between ASX Group and ASIC, and between ASX Group and its participants, has been how to manage the heightened technical and operational challenges faced by participants in a rapidly evolving market," ASIC said.

The exchange will also have to standardise any communication about technology changes to any market participants. ASX will also have to determine how prepared participants are for ASX changes based on any divisions within the companies.

ASX will also have to adjust their monitoring of the ASX 24 futures contracts because under the current monitoring the ASX may not be able to "identify individual large positions across multiple participant accounts and, as a consequence, fail to identify circumstances that have the potential to lead to a disorderly market or to Corporations Act or market integrity rule breaches that ASX Group would be expected to refer to ASIC."

"The agreed actions are designed to better ensure that the release and management of ASX technology projects are done in a way that limits undue disruption to market users," ASIC said.