The Australian Securities and Investments Commission (ASIC) is seeking to modernise its market integrity rules (MIRs) to adapt to evolving technological capabilities, calling for kill switches to be introduced in algorithmic trading.
The Australian regulator estimates that 85% of all trading on Australian listed equities markets is algorithmic. In the futures markets, this rises to 94% in SPI 200 futures and sits at 46% of all 3-year Treasury bond futures.
Kill switches, defined by ASIC as “controls to immediately suspend, limit or prohibit AOP and controls to immediately suspend, limit, prohibit or cancel trading messages”, are already required for market participants using automated order processing.
The Australian Securities Exchange (ASX), Cboe, National Stock Exchange of Australia (NSXA) and Sydney Stock Exchange (SSX) are subject to the rules.
“Extending the kill switch controls to trading algorithms will help to mitigate erroneous order entry and aberrant algorithmic programs which have the potential to result in a ‘flash crash’, without requiring the suspension of a trading participant’s trading system,” the regulator said.
As AI and machine learning (ML) are increasingly used in automated trading, ASIC states that guardrails are needed to protect markets from unexpected AL, ML and algo activity. Emerging risks connected to these technologies include exacerbated volatility and flash crashes prompted by unexpected outputs. Additionally, training programmes on biased data could lead to unfair or unethical trading practices, the regulator added.
Rule amendments aim to apply consistent obligations to trading systems used by market participants, broaden existing rules to govern algorithmic trading, improve consistency across rules for securities and futures markets, and reduce complexity and overprescriptiveness.
Beyond the consultation paper, ASIC has also shared its intentions to review and potentailyl add to existing rules requiring market operators to apply anomalous order thresholds and extreme trade ranges.
ASIC’s consultation follows similar regulatory efforts internationally, including the International Organisation of Securities Commissions’s (IOSCO) March report of accelerated AI use in algorithmic trading over the past four years – building on its 2021 recommendations around the development, testing and monitoring of AI and ML algorithms.
“We have reviewed the requirements in the European Union, United Kingdom, United States, Canada and Singapore to align our proposed rule amendments relating to algorithmic trading with international best practice,” ASIC stated.
ASIC is accepting comments on the consultation until 22 October. Amended rules will be made by 31 March 2026.
