ASIC Reports on September ASX Equity Market Outage

ASIC today released a report on the findings of its review of the ASX outage that affected the operation of the Australian equity market on 19 September 2016, providing an overall market perspective, including observations on how ASX and other important stakeholders responded on the day.

The outage highlighted the fact that despite considerable market developments in Australia in recent years, ASX's trading system remains pivotal to the functioning of its Equities Equities Equities can be characterized as stocks or shares in a company that investors can buy or sell. When you buy a stock, you are in essence buying an equity, becoming a partial owner of shares in a specific company or fund.However, equities do not pay a fixed interest rate, and as such are not considered guaranteed income. As such, equity markets are often associated with risk.When a company issues bonds, it’s taking loans from buyers. When a company offers shares, on the other hand, it’s selling pa Equities can be characterized as stocks or shares in a company that investors can buy or sell. When you buy a stock, you are in essence buying an equity, becoming a partial owner of shares in a specific company or fund.However, equities do not pay a fixed interest rate, and as such are not considered guaranteed income. As such, equity markets are often associated with risk.When a company issues bonds, it’s taking loans from buyers. When a company offers shares, on the other hand, it’s selling pa Read this Term markets.

A key benefit of market competition is the availability of an alternative market when ASX is unavailable but a general lack of confidence on the day resulted in trading drying up, with very little Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term shifting to Chi-X’s competing market.

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As part of the review ASIC identified changes that will better assist confident trading to continue as soon as possible when one part of the market is not performing as expected.

ASIC Commissioner Cathie Armour commented: “Well-functioning financial market infrastructure is critical to the integrity and reputation of the Australian equity market and the trust and confidence investors have in it. As the primary equities market in Australia, ASX has a critical role to play.”

ASIC’s review found that, in responding to the outage, ASX broadly adhered to its existing procedures for incident management. There are, however, some areas where ASX could enhance its arrangements to support technology resilience and the robustness of the wider Australian equity market. In some important areas, market participants can also take action to support these improvements.

The report encompasses a wide range of recommendations for both ASX and market participants that are designed to improve resilience and promote confidence that any future incidents will be managed effectively.

ASX itself, along with many market participants, has already identified a number of actions to enhance its incident management capabilities and technology resilience.

ASIC’s report also foreshadows an intention to consult in 2017 on making market integrity rules on the technological and operational performance of market operators.

Background

On 19 September 2016, ASX’s equity trading system experienced a hardware failure which triggered events delaying the opening of the ASX market and causing it to close early.

It also affected the operation of the Chi-X market and caused considerable uncertainty among market users. After tweeting around midday that trading had been halted, a statement was issued: “ASX is working to rectify the issue and open the market in an orderly manner as soon as possible.”