ASIC's review into broker dark pools comes as
investigations by market regulators into the operations of dark
pool trading venues gain momentum worldwide.
ASIC has announced that over the next 12 months it will conduct
a review of some broker dark pools.
"Dark pools" refers to orders on a market that are not
pre-trade transparent. These can occur outside public exchange
markets, meaning the trade is not known to the rest of the market
before the orders are matched as executed trades. From a
regulator's perspective, dark trades undermine the integrity of
The announcement of an ASIC review into broker dark pools comes
as investigations by market regulators into the operations of dark
pool trading venues gain momentum worldwide. In recent months,
firms such as UBS, Credit Suisse and Deutsche Bank have been issued
with requests from regulators to provide details about their dark
liquidity trading venues. Further, in June 2014, the New York
Attorney General issued a Summons to Barclays alleging fraud in
connection with the marketing and operation of its dark pool.
ASIC expects the Australian market to be protected from such
conduct owing to the introduction of new market integrity rules in
2013. These changes included:
amending the "at or within the spread'" exception
to pre-trade transparency, to require dark trades in smaller sizes
(below block size) to provide meaningful price improvement (of one
tick or at midpoint); and
changing the "block trade" exception to pre-trade
transparency, from a static $1 million to a tiered threshold
structure of $1 million for the most liquid equity market products,
$500,000 for comparatively liquid equity market products and
$200,000 for all other equity market products;
requiring greater transparency by operators of crossing
A recent report for ASIC concluded that the new rules applicable
to dark pool trades were working effectively, and that the new
market rules had had the desired effect of improving fairness in
ASIC stated that, while it did not propose to introduce further
changes to the policy and rules on dark liquidity it would
"continue to monitor market developments". The
just-announced review appears to be part of this ongoing monitoring
Details as to scope of the proposed ASIC review of the
broker dark pools have not yet been released. We will provide
further information regarding the review once it is publicly
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.
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Members of our team were invited to attend a licensing liaison meeting at ASIC's offices in Sydney last Thursday.
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