On the face of trading yesterday the ASX got through the day without any repeat of Monday’s glitch that shut the market for all but the first 24 minutes of the six-hour session.
Will it do the same today after problems emerged around 6 pm last night that were sufficient to see ASX Ltd’s licence to run a stockmarket is now under threat.
Overnight futures trading had the market looking at a 6 point rise this morning (just before 7.30am after being up 21 points at 7am), as Wall Street floundered into and out of the red.
In fact Wall Street, after struggling into the green just after 7am, lurched back into the red and was looking at moderate losses by 7.30 am in a distinct change of heart.
Oil rose, gold eased a touch and Wall Street trading was confused because of the hope about what COVID-19 vaccines promise next year and the growing misery of record infections of the virus right now.
Tuesday saw the ASX 200 jump 0.7% to reach 6,530.4 at the open as investors rushed to get their orders in following Monday’s troubled session. That early rush faded as the day wore on and the ended the day up just 0.2% at 6,498.2.
But 63 minutes after the 10 am open, a problem emerged in the price matching system that underpins much of the trading, according to a statement from market regulator ASIC just before 6pm Tuesday. (https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-289mr-trading-on-asx-equities-market-today/)
“This morning at 11:03am ASX Limited (ASX) provided a system status update indicating that it had become aware of data issues with the ASX Centre Point matching system. At 11:17, ASX further advised that ‘[u]ntil further notice ASX Centre Point execution prices will be based on the ASX-lit best bid and offer only.’ That is, Chi-X bids and offers would not be used,” ASIC’s release started.
(ASIC explained in the release that ASX Centre Point is an anonymous mid-point trade matching system. Centre Point normally operates by matching orders at the mid-point or other permitted price steps inside the National Best Bid and Offer (NBBO). The NBBO is ordinarily calculated by ingesting pricing data from ‘lit’ markets – that is ASX and Chi-X.)
The upshot of this is that now ASIC (and no doubt with input from the Council of Regulators, led by the Reserve Bank) is now looking at whether the two days of problems is a breach of ASX’s licence.
“ASIC is concerned that there have been further issues with infrastructure at ASX and are working with stakeholders to ensure that any impact on the fair, orderly and transparent operation of the markets is minimised.
“ASIC is actively assessing ASX’s compliance with its market licence obligations and is considering further actions to ensure the adequacy of ASX’s human, financial and technological resources to operate its markets in an orderly manner,” ASIC’s statement concluded.
The trigger for the statement was the collapse of the matching system and the fact that ASX decided not to tell anyone and only to draw on data from its own market, and not the Chi-X market as well (it’s a small rival market designed for high speed traders). ASX is supposed to use both markets for information for its price point system.
That, ASIC said meant that “By not considering Chi-X bids and offers, transactions conducted on Centre Point may no longer constitute a Trade with Price Improvement under Rule 6.2.3 of the ASIC Market Integrity Rules (Securities Markets) 2017. As a result, orders may no longer fall within the exceptions to the requirement to enter into transactions by matching on a Pre-Trade Transparent Order Book (Rule 6.1.1).”
That means many of yesterday’s trades could be doubtful legally.
“ASIC has not instructed ASX to suspend the operation of Centre Point, and nor have we instructed Market Participants not to use Centre Point. This was to ensure the markets remained orderly,“ the ASIC statement said – a comment that raises questions as to whether ASX acted unilaterally to end the use of Chi-X data.
“However, participants should have sufficient flexibility to enable routing of orders to alternative venues. ASIC expects Market Participants that have not already done so to take reasonable steps to remove their reliance on Centre Point swiftly and safely, the ASIX statement added.
So does that mean more market instability.
