Australia: Chi-X and future developments in securities exchange regulation

Clayton Utz Insights
Last Updated: 30 September 2011
Article by Karen Evans-Cullen

Most Read Contributor in Australia, November 2017

Contributions to this article by Jasmine Sprange

Key Points:

The new rules for Chi-X are only the start of changes in securities exchange regulation.

Australia's securities exchange industry is currently undergoing a period of fundamental structural change characterised by innovations in trading technology, global trends towards the development of alternative execution venues (such as "dark pools"), and competition between financial markets for trade execution services.

Competition in the Australian exchange industry has been a long time coming, and started in earnest with the Australian Government announcing its in-principle support for competition between securities exchanges and the granting of an Australian market licence to Chi-X Australia Pty Ltd (Chi-X) in March 2010, which was followed by the transfer of ASX's regulatory and supervisory functions to ASIC. Chi-X was granted a licence to operate an equity trading market on 4 May 2011, and will commence operations on 31 October 2011, when the necessary ASIC rules to accommodate competition come into effect.

How does Chi-X affect you?

  • For brokers, traders, and data consolidators there are complex operational, systems and back office changes required to accommodate two markets, which have been underway for months;
  • For listed companies the impact will be relatively minimal. They will continue to liaise with ASX (and not Chi-X) in relation to listing and continuous disclosure issues, and the methodology for determining S&P/ ASX index inclusion won't change to take into account trading on Chi-X. On the positive side, Chi-X could result in improved liquidity in the shares of those entities that trade on both ASX and Chi-X.

How has securities exchange regulation changed to accommodate Chi-X? What are the practical implications?

There are new market integrity rules that provide a multilayered regulatory framework for exchange competition. The ASX MIRs are essentially the old ASX market rules, and address how the ASX and ASX24 markets will be conducted from an operational perspective. The Chi-X MIRs are specific to the Chi-X market, but are effectively the same as the ASX MIRs, except without the provisions that address derivatives products (as Chi-X will not trade derivatives).

The substantive changes to the way markets will operate are contained in the Competition MIRs. These rules are designed to deal with issues brought about by exchange competition.

From an exchange operational perspective the Competition MIRs ensure that ASX and Chi-X will have consistent trading hours (including synchronised watches), trading halts, and trading tick sizes, and that data providers will consolidate the data feeds from both exchanges to prevent the fragmentation of trading data. Chi-X will not be competing with ASX in relation to listings, and this means that issuers will continue to deal solely with ASX in relation to listing and continuous disclosure. Practically, this means that there will be no requirement for entities that are traded on both exchanges to lodge the same information twice. If a company is traded on both exchanges, and seeks to issue further securities, for example as part of a rights issue, it does not need to apply to both exchanges for quotation of those securities – only to ASX.

Market participants, such as brokers, are now obliged to take reasonable steps to obtain the best outcome for their clients (known as the best execution rule). The best outcome means different things for different clients. For retail clients it means best total consideration, for wholesale clients a range of factors (such as timing) may be relevant. The purpose of this rule is to create a regulatory incentive for brokers to direct orders to the venue that offers the best outcome for clients – which is important given the different pricing structure that will be adopted by the two exchanges, including the provision of rebates by Chi-X to brokers in certain circumstances. The best execution rule does not mandate that all participants connect to Chi-X – there are transitional rules that allow the rule to be complied with for the first 12 months through utilising ASX's TradeMatch. Overall, despite the compliance burden, the best execution rule should promote market integrity and investor confidence.

As noted above, the impact on most investors and companies traded on both exchanges will be, at least theoretically, greater liquidity for their shares. The compliance burden to accommodate exchange competition will fall primarily on brokers and the exchanges themselves. The introduction of Chi-X should have a neutral effect on market integrity, as both exchanges are required to provide information to ASIC to allow them to track issues such as market manipulation and insider trading, and are subject to the same pre and post trade transparency requirements and the same reporting requirements.

What's next in securities exchange regulation?

Exchange competition is only part of the story in relation to the development of the Australian exchange industry, and there are several key regulatory issues which are (or should be) next on the regulatory agenda:

  • the impact of high frequency trading (HFT): Specifically, whether ASIC has sufficient regulatory control to address the potential for "flash crashes" brought on by algorithmic trading strategies employed in HFT.
  • competition in clearing and settlement of trades: Although ASX currently retains its monopoly in clearing and settlement of trades, ASIC has signalled that it will accommodate competition in the clearing and settlement space. Practically, any new entrants to clearing and settlement will need to wait for the outcome of a review by the Council of Financial Regulators into the regulatory control that the government has over clearing and settlement, which was announced in the aftermath of the rejection of the ASX-SGX merger in May 2011.
  • dark pools: ASIC is also considering the regulation of "dark pools" – which are non pre-trade transparent execution venues[i]. A number of dark pools already operate in Australia, and they are common in overseas markets. The key issue with dark pools is that if a significant volume of trading shifts into dark pools, this can impact on the quality of price formation on public "lit" markets, such as those operated by ASX and Chi-X.

Australian securities market regulation will need to continue to evolve to accommodate broader market developments to ensure continuing confidence in Australian markets as a trading and listing venues. Listed entities and other market participants will need to keep abreast of the implications of these changes on their businesses and the market as a whole – a case of "watch this space".

[i]. More specifically, a dark pool is a private electronic transaction network, typically maintained by major banks, where stocks are bought and sold by clients of those banks. Because the matching of buyer and seller is done entirely within the control of the bank, the bid, offer and sale prices are not published to exchanges such as ASX or Chi-X. Typically dark pools charge lower transaction fees than established exchanges, and allow clients to protect disclosure of their trading strategies or to prevent large volume trades from creating major price moves in the public markets.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions