The Australian economy and equity market showed resiliency throughout the global financial crisis, avoiding the dramatic drops in trading volume seen in the United States and Europe, due to solid economic fundamentals and demand from its high-growth trading partner, China, according to research from Aite Group.

Australia’s unique leveraging of the emerging-market growth engine allowed the Australian market to avoid many of the pitfalls that affected the larger developed markets through the turmoil of the global financial crisis, Aite Group said.

There are substantial organic growth opportunities at the market level, but both vendors and participants should pay attention to the trading opportunities created by market structure evolution.
“The Australian market can be considered a study in dichotomy,” said Danielle Tierney, analyst in institutional securities & investments at Aite Group. “While it takes its place among the world’s developed markets in terms of political, economic, and social development, Australia’s economic fundamentals have been uniquely assisted by demand generated from emerging market growth.”

Aite Group’s research shows that the Australian market is the most recent financial center to experience the process of market fragmentation. To facilitate structural transformation, the Australian Securities and Investments Commission (ASIC) was compelled to carefully navigate such issues as best execution, consolidated market data, order routing, and changes to self-regulatory structure, according to Tierney. The ultimate outcome of certain aspects, such as consolidated market data, remains unclear.

“After more than a decade of concentrated growing trading volume within a single venue, the introduction of exchange competition incited an evolution in the Australian market structure,” Tierney said. “To facilitate smooth structural transformation, the Australian regulator undertook significantly expanded responsibilities and costs to prepare the market for fragmentation.”

ASIC this year released guidance on the rules which clarifies its expectations of market operators and participants. The rules cover dark liquidity and high-frequency trading.

On dark liquidity, the rules provide that crossing system transparency and disclosure – crossing system operators must publish information about their crossing system (e.g. products traded), and make disclosures to clients on the operation of the crossing system. Crossing system operators must have a common set of procedures which do not unfairly discriminate between users and allow clients to opt out of using their crossing system.

On HFT, the rules provide that market participants must consider additional circumstances in considering whether a false or misleading market has been created; the frequency with which orders are placed, the volume of products that are the subject of each order and the extent to which orders made are cancelled or amended relative to the orders executed.

Manipulative trading rules harmonized: market participants of the ASX 24 market will need to comply with new requirements to prevent manipulative trading, the same as currently apply to the ASX and Chi-X markets.