Market structure

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Presidential Task Force on Market Mechanisms 1988

The written presentation of the Presidential Task Force on Market Mechanisms consists of two parts. The first is the Report, which contains a discussion of findings and recommendations. It is organized into eight chapters and an appendix.

Chapter One contains the introduction.

Chapter Two summarizes the various marketplaces in which equity instruments are traded, the instruments, the trading strategies used (index arbitrage, portfolio insurance and the like) and the regulation of the markets.

Chapter Three summarizes the "extended rise in stock market values that preceded the October market break.

Chapter Four contains a detailed analysis of the events of the October market break.

Chapter Five analyzes the performance of markets and market makers during the critical period.

Chapter Six describes the fundamental interconnections of events and performance among the various equity marketplaces.

Chapter Seven outlines the regulatory implications of the data and analysis contained in the earlier sections.

Chapter Eight presents conclusions and recommendations.

Finally, the Appendix discusses certain other regulatory issues the Task Force believes merit consideration but about which it makes no specific recommendations.

The second part of this written presentation consists of eight staff studies which contain the detailed information which the Task Force considered.

  1. The The Global Bull Market
  2. Historical Perspectives
  3. The October Market Break: October 14 through October 20
  4. The Effect of the Stock Market Decline on the Mutual Funds Industry
  5. Surveys of Market Participants and Other Interested Parties
  6. Performance of the Equity Market During the October Market Break and Regulatory Overview
  7. The Economic Impact of the Market Break
  8. A Comparison of 1929 and 1987

SEC's 2010 market structure roundtable

The Securities and Exchange Commission today announced the agenda and panelists for its June 2 public roundtable to examine securities market structure issues.

The roundtable will feature in-depth discussions of key market structure issues, including high frequency trading, undisplayed liquidity and the appropriate metrics for evaluating market structure performance.

Panelists include representatives of retail and institutional investors, issuers, exchanges, alternative trading systems, financial services firms, high frequency traders, and the academic community.

"The roundtable is part of an ongoing Commission effort we initiated last summer to review the structure of our markets and ensure that they are fair, transparent and efficient," said SEC Chairman Mary L. Schapiro, who announced the roundtable last month.

The Commission already has proposed rules that would:

  • Establish a consolidated audit trail system to help regulators keep pace with new technology and trading patterns in the markets.
  • Generally require that information about an investor's interest in buying or selling a stock be made available to the public, instead of just to a select group operating with a dark pool.
  • Effectively prohibit broker-dealers from providing their customers with unfiltered access to exchanges and alternative trading systems and ensure that broker-dealers implement appropriate risk controls.
  • Create a large trader reporting system to enhance the Commission's ability to identify large market participants, collect information on their trades, and analyze their trading activity.

The Commission in January also issued a concept release to solicit public comment on a wide variety of market structure topics. The release and comments received are available here.

The June 2 roundtable will be held at 9:30 a.m. in the auditorium at the SEC headquarters at 100 F Street N.E., Washington, D.C. The public is invited to observe the discussion, and seating will be available on a first-come, first-served basis. Reasonable accommodations for persons with disabilities attending this event in person can be arranged by submitting a request to at least three business days prior to the event. The event will be webcast live at and will be archived for later viewing.

SEC's 2009 market structure study

  • Source: "The Road to Investor Confidence" Chairman Mary Schapiro, U.S. Securities and Exchange Commission, SIFMA Annual Conference, New York, New York, October 27, 2009

Market Structure

As many of you know, we are already moving forward on our market structure initiative. In recent weeks, we have proposed rules that would address the inequities of flash orders and dark pools of liquidity.

Both of these undermine the integrity of the market by providing valuable pricing information to select market participants — information that is not widely available to the public. This in turn creates a risk of private markets and two-tiered access to information.

But I believe there is much more to do to bring about greater market transparency and fairness.

As regulators, we at the SEC are mindful of the extraordinary technological advances and the benefits they have brought over the years. But, we are also mindful of the potential for participants to exploit these advances in ways that harm, rather than help, investors.

As a result, we have been engaged in a thoughtful, deliberate and comprehensive review of market structure.

In addition to the actions already taken, we will seek public comment on dark liquidity in all of its forms, including dark pool alternative trading systems, internalization, dark order types on exchanges, and ECNs. And, we'll seek input on high frequency trading and the wide range of strategies that may fall within this vaguely defined category.

A related issue, on which we also expect to seek public comment, involves co-location — the process where exchanges allow some broker-dealers to place their servers in close proximity to the matching engine of the exchange. This could result in significant advantages, at least for certain traders for whom speed is of the essence. In the interim, we are making sure that exchanges offer these co-location services on terms that are fair and non-discriminatory and that are transparent to the public.

I also have asked the staff to review the rules governing ATSs to assess whether those rules are still appropriate for all the different types of ATSs that exist today — systems that may not have been foreseeable when our rules were adopted 10 years ago. But in addition, I have directed our staff to come up with actual market structure proposals as well.

One proposal will address the risk of sponsored access to exchanges. It will focus on arrangements that enable unfiltered access by non-regulated entities — in many cases, high frequency traders — to exchange systems. I liken it to giving your car keys to a friend who doesn't have a license and letting him drive unaccompanied.

The reason this raises concerns is that broker-dealers perform vital gatekeeper functions — functions that are essential to maintaining the integrity of the markets. We should not sacrifice the stability and fairness of the markets to give a trader a millisecond advantage.

I recognize some markets have been seeking to address this issue, but I also worry that competitive pressures could delay an effective solution — one that would apply across all markets to assure a level playing field for all investors.

A second proposal would shed greater light on the activities of high frequency traders.

Compared to a few years ago, the current volume of orders and trades, and the speed of order routing and trading, are almost unimaginable. The high frequency traders largely responsible for these developments now likely represent more than 50 percent of trading volume.

I believe we need a deeper understanding of the strategies and activities of high frequency traders and the potential impact on our markets and investors of so many transactions occurring so quickly. And we need to consider whether there are additional legislative authorities needed to address new types of market professionals whose activities may not be sufficiently regulated.

On January 14, 2010, the Securities and Exchange Commission (SEC”) voted to issue a concept release intended to elicit public comment on a broad range of questions relating to the efficiency and fairness of the public equity markets (the “Concept Release”).[1] The Concept Release revisited issues that the SEC raised and addressed nearly five years ago in a comprehensive set of market, trading and reporting rules codified in Regulation NMS. Shortly after publishing the Concept Release, the SEC also published a release proposing a new risk management rule requiring firms that sponsor trading access to exchanges and alternative trading systems (ATSs) to establish (and periodically evaluate) a system of controls intended to limit potential financial exposure and to ensure compliance with relevant regulatory requirements (the “Sponsored Access Release”).[2] These recent market-structure initiatives form part of the SEC’s ongoing review of the equity markets and follow two discrete SEC rule-making initiatives from 2009 currently under consideration.[3]

SEC Market Structure Review

The Concept Release conveyed the SEC’s concerns that current regulations intended to support and promote a competitive and an efficient national market system (an “NMS”) are not keeping pace with significant changes in trading technologies and trading practices. The SEC focused on current structural elements of the equity markets that generally speaking could (i) give regulatory and competitive advantages to professional market participants at the expense of other participants; (ii) lead to greater market fragmentation; and (iii) detract from goals of public price transparency. In particular, the SEC highlighted recent technological advances that are driving equity trading from trading on the floors of stock exchanges to computer screens and matching engines whose highly automated functions are decreasing order transmission and execution times to milliseconds, or even microseconds.

In light of new technologies and related trading strategies, long-term (and especially institutional) investors have been compelled to engage in a technological arms race in order to minimize the market impact and possible front-running of their trades. They have increasingly turned to their own trading algorithms or those of their market intermediaries, which divide large (or “parent”) orders and send the constituent smaller (or “child”) orders to a variety of market centers, both transparent and dark. These market forces, aided by changes in technology, have created a more complex and dispersed market ecosystem of high frequency traders, dark pools, server co-location and sponsored market access, all of which are designed to handle and capitalize on structural changes in the equity markets and the increased speed and volume capabilities of automated market centers.

In the SEC’s view, these technologies have enabled professional market participants to adopt a new generation of trading strategies that are capable of taking advantage of pricing inefficiencies, liquidity incentives and market momentum to an unprecedented degree, which raise questions for the SEC of the essential fairness of the equity markets and their linkages – a critically important focus of the Concept Release – into a unified NMS. In particular, the Concept Release framed the SEC’s specific focus on how long-term investors – those investors who provide risk capital as long-term owners of listed companies – currently fare in light of fully automated markets.

High Frequency Trading

The Concept Release discussed at length “high frequency trading” (HFT), characterizing it as a “dominant component of the current market structure [which] is likely to affect nearly all aspects of [the market’s] performance.”[4] The SEC acknowledged that HFT is an undefined and relatively new term typically used to refer to professional traders that, through high-speed computer programs, submit on a daily basis large numbers of non-marketable orders, a large percentage of which ultimately are cancelled.

The interaction of certain market forces has made HFT a dominant market force, which, by some estimates, accounts for 60% of the trading volume in NMS stocks.[5] Technology and modernizing rule changes – particularly decimalization and the “Order Handling Rules” under the Securities Exchange Act of 1934 (the “Exchange Act”) – have diminished bid-ask spreads, making it less profitable for professional trading firms to engage in traditional specialist or market maker functions. HFT firms have entered the void left by the declining numbers of traditional specialists and market makers, as those firms have exited the marketplace.[6] In contrast to specialists and market makers, HFT firms do not have “affirmative obligations” to buy and/or sell in order to facilitate orderly markets, even when a market is moving against them. Nor do they have “negative obligations” to refrain from stepping in front of customer orders or otherwise taking advantage of their knowledge of customer order flow. Because HFT firms do not have the advantages that time and place privileges give market makers and specialists, they argue that they should have no “affirmative obligations,” and because HFT firms typically trade solely in a proprietary capacity and thus have no customers, they also argue that they should have no “negative obligations.”[7] The Concept Release requested comment on whether HFT firms should bear the market-quality duties of affirmative and negative obligations, or if some other forms of regulation are needed.

HFT firms argue that their automated programs are more reliable providers of liquidity than specialists or market makers, and the Concept Release recognized the potential efficient pricing benefits and narrow bid-ask spreads that may be derived from HFT. The SEC observed, however, that HFT firms frequently provide liquidity through a style of trading that involves a high volume of orders, a very large proportion of which are cancelled (perhaps 90%), and most of which are non-marketable orders (i.e., not at the national best bid or offer) that are layered to detect and respond to not just displayed but also latent orders. The Concept Release requested comment on whether HFT provides valuable liquidity to the market, echoing criticisms that HFT firms provide “low quality” liquidity that contrasts with market makers’ and specialists’ affirmative obligations to buy and sell.[8]

Certain of the timing advantages recognized by HFT firms derive from their ability to enter into server co-location arrangements. Server co-location is a service provided by many market venues and third parties that host their matching engines, in which HFT firms rent “rack space” that enables them to place their trading computers’ servers in close physical proximity to the matching engine processor.[9] HFT firms need co-location in order to ensure that they have the shortest possible delay in receiving information and the shortest latency in placing and executing orders, given market centers’ time priority rules. In the Concept Release, the SEC requested comment on whether co-location (i) gives HFT firms unfair advantages in finding and capturing the best prices, (ii) enables HFT firms to provide liquidity more efficiently, and (iii) is the functional equivalent of the time and place privileges afforded specialists and market makers, such that imposing market quality obligations would be necessary.[10] Firms using co-location arrangements argue that it is fair and transparent, provided that there is consistent pricing and access for every firm that wants it, and that it levels the field by reducing latency to the same minimum for every firm that needs it.[11]

The SEC also questioned whether some HFT strategies are expressly detrimental to the interests of long-term investors. The SEC focused in particular on “order anticipation” and “momentum ignition” strategies. “Order anticipation” strategies, as the SEC pointed out, are nothing new: professional traders have always tried to determine when and if an investor was moving into a market in enough size to move prices so that the professional could trade in front of the large order to its advantage. HFT has brought a new generation of information technology to bear, including sophisticated order pattern recognition software and the use of “pinging” orders – rapid-fire, non-marketable orders sent to a variety of market centers and canceled immediately if not taken – to try to detect the “footprints” left by a trading algorithm of a larger order, including a trade that has broken a large parent order into smaller child orders.[12] HFT firms argue that they need to use these techniques to move their orders out of the way of a market that is moving against them.[13] The SEC asked if HFT has made order-anticipation strategies a greater problem for long-term investors than has previously been the case.

The SEC also asked for comment on whether HFT can “ignite momentum” in a stock price by using the rapid submission and cancellation of orders to “spoof” other traders’ algorithms into aggressive trading or to set off other traders’ stop-loss orders. The SEC noted that such techniques could make stock prices more volatile: the SEC is searching for data that will help it to resolve its concern that the equity markets’ structure may encourage excessive volatility and thereby disproportionately reward short-term trading at the expense of long-term investing.

Sponsored Access

“Sponsored access” refers to an arrangement under which a broker-dealer allows a customer to use its market participant identifier to electronically access an exchange or ATS. In the Sponsored Access Release, the SEC described two varieties of sponsored access: (i) “direct” access, which means that the customer’s order flows through the broker-dealer’s systems before going to the market; and (ii) “unfiltered” or “naked” access, which means that the customer’s order goes directly to the market. Sponsored access provides advantages to customer order trading because it reduces latencies if the customer can directly access a trading venue, facilitates more rapid trading, and helps preserve the confidentiality of trading strategies. According to the SEC, direct access accounts for approximately 50% of average daily trading volume in the U.S. equities markets, and naked access accounts for approximately 38%.[14]

Many trading firms and hedge fund managers (“sponsored traders”) believe that they need sponsored access in order to compete with brokers’ proprietary trading desks in trading speed. In contrast, some broker-dealers’ proprietary traders claim that sponsored access gives unfair timing advantage to sponsored traders because these traders do not have to go through the brokers’ risk controls in contrast to proprietary traders.

The SEC believes that sponsored access, and particularly “naked access,” creates a number of systemic risks. For example, sponsored access trades could result in breaches of capital or credit limits that could threaten the financial stability of the sponsoring broker and its counterparties. Sponsored traders could submit erroneous orders, perhaps in large numbers, as a result of computer malfunction (especially in algorithmic trading systems) or human error, which could lead to increased price volatility. Sponsored traders might submit malicious orders intended to disrupt the market system, or they might fail to comply with SEC or exchange trading rules or fail to detect illegal conduct by their personnel. The SEC is able to cite examples of these sorts of problems but admitted that identified risks of sponsored access have not yet created systemic problems to markets, and the proposed sponsored-access rule, Rule 15c3-5 under the Exchange Act, is intended proactively to address potential risks to broker-dealers and the market.[15]

As proposed, Rule 15c3-5 would require broker-dealers with trading access to exchanges and ATSs to establish, maintain, document and evaluate annually a system of risk management controls that are reasonably designed to:

  • Systematically limit the broker-dealer’s financial exposure from market access.
  • The controls should prevent the entry of orders that exceed credit or capital thresholds or that appear to be erroneous.
  • Each broker would be required to set appropriate credit limits for each customer (on an aggregate and on a sector- or security-specific basis) and appropriate capital thresholds for its own proprietary trading.
  • Ensure regulatory compliance.

The controls should prevent failures to comply with pre-trade regulatory requirements (e.g., special order types, trading halts, Regulation SHO and Regulation NMS), prevent entry of orders whose trading is restricted, restrict systems access to authorized persons, and assure surveillance personnel are given immediate post-trade reports.

The procedures must be applied on an automated, pre-trade basis, which would effectively prohibit “naked” or unfiltered access.[16] These risk controls could not be outsourced or delegated to a third party, including the sponsored trader. Although certain compliance functions may be permissibly delegated, the SEC deliberately imposed the risk control obligations on the sponsoring broker-dealer itself to prevent regulatory arbitrage. SEC Chairman Schapiro described the rule as preventing brokers from “giving your car keys to a friend who doesn’t have a license and letting him drive unaccompanied” and instead requiring that the broker “not only must remain in the car, but he must also see to it that the person driving observes the rules before the car is ever put into drive.”[17] The rule will likely be adopted, given the SEC’s strong rhetoric and that the SEC has already approved a similar Nasdaq rule.


The SEC’s actions and its ongoing review of equity market structure have been spurred by Congressional pressure and media reports, which in turn derive from public outcry in which the nuances in a complex and interrelated market system have been lost. Nonetheless, these views are helping to shape the debate, and they likely will affect the SEC’s ultimate actions. Market participants should prepare themselves for a rough and unpredictable ride.


[1] “Concept Release on Equity Market Structure,” Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 F.R. 3594 (Jan. 21, 2010).

[2] “Risk Management Controls for Brokers or Dealers with Market Access,” Securities Exchange Act Release No. 61379 (Jan. 19, 2010), 75 F.R. 4007 (Jan. 26, 2010).

[3] On September 18, 2009, the SEC proposed to eliminate an exception from the quoting requirements of Regulation NMS that currently permits “flash orders.” See “Elimination of Flash Order Exception from Rule 602 of Regulation NMS,” Securities Exchange Act Release No. 60684 (Sept. 18, 2009), 74 F.R. 48632 (Sept. 23, 2009) (the “Flash Order Release”). On November 13, 2009, the SEC proposed rule amendments to Regulation NMS and Regulation ATS intended to promote pre- and post-trade transparency primarily for certain ATSs known colloquially as “dark pools.” See “Regulation of Non-Public Trading Interest,” Securities Exchange Act Release No. 60997 (Nov. 13, 2009), 74 F.R. 61208 (Nov. 23, 2010) (the “Dark Pool Release”).

[4] Concept Release at 3606.

[5] Peter Chapman, High-Frequency Traders Under Scrutiny, Traders Magazine (Nov. 2009) (“HFT Under Scrutiny”).

[6] Id.

[7] Will Acworth, Making Markets: A Conversation with Five High-Frequency Trading Firms, Futures Industry Magazine (Jan. 2010) at 21, 22, 24 (“Making Markets”).

[8] See HFT Under Scrutiny.

[9] Peter Chapman, SEC to Regulate Nasdaq’s Co-Location, Traders Magazine (Dec. 2009).

[10] Concept Release at 3610.

[11] See Acworth, Making Markets at 24; HFT Under Scrutiny.

[12] James Ramage, New Studies Assess High-Frequency Trading Impact, Traders Magazine Online News (Dec. 9, 2009).

[13] See Acworth, Making Markets at 24.

[14] See Sponsored Access Release at 4007-4008.

[15] See Sponsored Access Release at 4008-4009.

[16] See Sponsored Access Release at 4010.

[17] Statement at SEC Open Meeting – Market Access, Remarks of Mary Schapiro, Chairman, U.S. Securities and Exchange Commission (Jan. 13, 2010).

Approaches to market surveillance in emerging markets

Chapter 2: Approach of market surveillance in emerging markets


The forces of globalisation of markets, technological advancement, integrated trading activities and the increasing pace of market innovation have led to enhanced cross-border distribution of products and movement of market participants. With greater inter-linkages of markets worldwide comes the increasing challenge of detecting possible market misconduct. Corporate scandals3 seem to be larger in scale and more frequent in recent years. The complexity and inter-relationship of trades are more difficult to detect and identify. Rogue traders seem to have a better understanding of internal processes within sophisticated risk management systems. Therefore regulators globally have had to strengthen their surveillance, supervision and co-operative efforts to ensure they stay ahead of the game.

This chapter focuses on a broad overview of the approaches of market surveillance in emerging markets, and aims to provide a better understanding of the current surveillance landscape in emerging markets.

2.1 Objective of Market Surveillance

Market integrity is a core regulatory objective of securities regulators, and is critical for the well-functioning of any capital market. Having a transparent set of trading rules which are effectively enforced where parties have access to the same amount of information contemporaneously is critical in any market. The integrity of the market is maintained through a combination of surveillance, inspection, investigation and enforcement of relevant laws and rules.

Market surveillance, in particular, plays a significant role in anticipating the potential vulnerabilities to a capital market. It is seen as a pre-emptive measure aimed at detecting and deterring potential market abuse and avoiding disruptions to the market from anomalous trading activity, including market and price manipulation, insider trading, market rigging and front running.

2.2 Responsibility for conducting market surveillance

The survey shows that market surveillance is either conducted by the regulator, the exchange or both the regulator and the exchange in parallel. In some instances, the surveillance function is outsourced to an independent Self-Regulatory Organisation (SRO), with the regulator and the exchange focusing on other regulatory functions and market development initiatives. This however, we note, is less prevalent in emerging market jurisdictions where SROs tend to be at a nascent stage of development.

The survey findings show that in two-thirds of emerging market respondents, market surveillance is conducted by both the regulator and the exchange over the equity market. In jurisdictions where this occurs, the regulator exercises both an oversight role over the exchange‟s conduct of surveillance functions to ensure it performs its functions effectively and conducts parallel monitoring in tandem with the exchange The findings further indicate that surveillance units at the regulator and the exchange tend to focus on different aspects of monitoring the market. The regulator conducts market surveillance largely to detect breaches of the law, while the exchange‟s emphasis is on breaches of its rules and regulations. However, where suspected breaches of the law have been detected, the exchange tends to refer these cases to the regulator for further action.

Where parallel monitoring is conducted by both the regulator and the exchange, the survey findings show that the regulator typically conducts surveillance the next trading day4, while the exchange conducts surveillance on a real-time basis. The latter includes monitoring price and volume movements in the market, broker positions, risk management and settlement processes. The survey shows there is close coordination and information-sharing mechanisms in place between the regulator and exchange.

Many emerging market exchanges report to the regulator on a daily basis, including where there are observations on limit-down counters, unusual movement in trading or where enforcement action has been taken. In emerging markets such as India where there are 19 exchanges in the country, in order to promote effective and interaction between the regulator and these exchanges on surveillance, an Inter-Exchange Market Surveillance Group was established.

The group, headed by the Securities and Exchange Board of India (SEBI) discusses the implementation of weekly caps, daily price bands, as well as deliberates on market trends and other related issues. Similarly in Pakistan, an Inter Exchange Surveillance Committee (IESC) was established with representatives from three stock exchanges in the country, together with the Securities Exchange Commission of Pakistan for effective coordination of surveillance activities.

As highlighted earlier, there are instances where the surveillance function is outsourced to an SRO, but this is less common in emerging markets as compared to the more developed markets. Where surveillance is outsourced to an SRO, the regulators exercise proper oversight arrangements over the SRO to ensure fair and orderly markets.

The Toronto Stock Exchange and TSX Venture Exchange outsourced market surveillance to an SRO recognised by the OSC, the Investment Industry Regulatory Organization of Canada (IIROC), which monitors all trading on both exchanges. The IIROC uses real-time surveillance systems to ensure that transactions are done in compliance with market integrity rules.

With a third party handling both surveillance and participant discipline, TSX Markets' professionals focus more on providing exceptional trading products and service to domestic and international participants. In the US, two SROs, namely NYSE Regulation5 and the Financial Industry Regulatory Authority (FINRA6) have entered into agreement with ten7 U.S. exchanges to strengthen investor protection by consolidating the surveillance, investigation and enforcement of insider trading in securities.

The agreement allows NYSE Regulation and FINRA to implement across markets their state of the art insider trading surveillance and investigation programs for all listed securities in the US. As a result, potential insider traders, regardless of where they trade in the US, will be more readily identified in this new, more unified structure.

2.3 Surveillance systems and mechanisms

With millions of trades transmitted electronically every minute, surveillance mechanisms to detect any irregularities must also be equally developed. Survey responses show that emerging market regulators and authorities rely on a combination of systems from relatively simple tools often built and maintained in-house by the internal information technology department to more sophisticated real-time market surveillance systems developed by third-party vendors. These tools can be written to spot trading patterns that are difficult to detect manually.

One of the common features of surveillance systems used by emerging markets are automated surveillance tools that analyse trading patterns and are installed with a comprehensive alerts management system. These tools are able to track the positions of alleged large readers, and detect market manipulation, front-running, fraud and trade practice violations.

The majority of respondents in the survey agree that real-time alerts allow the identification and detection of unusual trading activities at a very early stage. The common parameters used by emerging market regulators and exchanges include abnormal price and volume movements, concentration of trading, large open interest, front running, insider trading, wash trades and synchronised trades. These alerts are triggered when trading activities exceed parameters that have been defined by authorities. On a broader aspect, other considerations taken on board by regulators include the types of industry, the price range of counters and the types of products traded. For example, the trading of bonds is considered to be less volatile than exchange traded funds and warrants.

European "pre-trade" transparency initiatives

"The Markets in Financial Instruments Directive (MiFID) allows competent authorities to waive the obligation for operators of Regulated Markets and Multilateral Trading Facilities (MTFs) regarding pre-trade transparency requirements for shares1 in respect of certain market models, types of orders and sizes of orders. MiFID allows competent authorities to grant four types of waivers which are contained in Articles 18 and 20 of the Commission Regulation 1287/2006 (MiFID Implementing Regulation). Possible waivers apply to:

  • Systems where the price is determined by reference to a price generated by another system. This waiver can be granted only for systems where the reference price is widely published and regarded generally by market participants as a reliable reference price. Systems that formalise negotiated transactions, provided the transaction:
    • Takes place at or within the current volume-weighted spread reflected on the order book or the quotes of market makers in that share or, where the share is not traded continuously, within a percentage of a suitable reference price set in advance by the operator of the Regulated Market or MTF; or
    • Is subject to conditions other than the current market price of the share (e.g. a volume weighted average price transaction). Orders that are held in an order management facility maintained by a Regulated Market or MTF pending those orders being disclosed to the market. *Transactions which are large in scale. An order shall be considered to be large in scale compared with normal market size if it is equal to or larger than the minimum size of order specified in Table 2 in Annex II of the MiFID Implementing Regulation.
  • Where an operator of a Regulated Market or an MTF seeks to rely on a pre-trade transparency waiver, the arrangements will be considered at CESR level at the initiative of the relevant CESR Member. This is consistent with CESR‟s role to achieve supervisory convergence and is without prejudice to any policy work that CESR might conduct in this area. CESR‟s consideration of the arrangements covered in this document has been based solely on the information provided to it by the relevant CESR Member. According to the existing legal framework, the responsibility for the final decision on the waivers lies with the national competent authorities.

Australia to consolidate market oversight at regulator

"The Government will tomorrow introduce legislation into Parliament that will reform the way financial markets in Australia are supervised.

In doing so, the Bill will enhance the integrity of Australia’s financial markets and contribute to the goal of making Australia a financial hub.

“The decision to transfer responsibility for supervision of Australia’s financial markets to ASIC is a significant one which will stand the operation of Australian financial markets in good stead into the future,” Mr Bowen said.

The Bill contains three key measures:

  • The Bill removes the obligation on Australian market licensees to supervise their markets.
  • The Bill provides ASIC with the function of supervising domestic Australian market licensees.
  • The Bill provides ASIC with additional powers, including the power to make rules with respect to trading on such markets and additional powers to enforce such rules.

Global underwriting market sizes


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