ASIC reports on ASX equity market outage in September 2016

ASIC has released a report on the findings of its review of the ASX outage that affected the operation of the Australian equity market on 19 September 2016. It provides a whole-of-market perspective, with observations on how ASX and other important stakeholders responded on the day.

A general lack of confidence on the day resulted in trading drying up, with very little liquidity shifting to Chi-X’s competing market. A key benefit of market competition is the availability of an alternative market when ASX is unavailable. As part of ASIC’s review they identified changes that will better assist confident trading to continue as soon as possible when one part of the market is not performing as expected.

Cathie Armour

ASIC Commissioner Cathie Armour commented:

Well-functioning financial market infrastructure is critical to the integrity and reputation of the Australian equity market and the trust and confidence investors have in it. As the primary equities market in Australia, ASX has a critical role to play.

ASIC’s report makes a number of recommendations – for both ASX and market participants – designed to improve the resilience and robustness of the wider market and to promote confidence that any future incidents will be managed effectively. They include recommendations for ASX to:

  • map the dependencies that stakeholders have on ASX (e.g. listing function) and mitigate the effect of system failures on these stakeholders
  • review when it is appropriate for all or a subset of securities to be available for trading and consider whether the open rotation process is still necessary
  • strengthen business continuity and IT disaster recovery, including system testing and recovery procedures, and a repository of documentation
  • implement comprehensive and robust technology status monitoring, including automated data-integrity checking processes and system-monitoring alerts
  • enhance its key enterprise architecture documentation to more fully describe ‘current’ and ‘target’ states for business processes, systems, data and information flows
  • review its communication strategy, including mechanisms to communicate the status of infrastructure that other market operators are dependent on and for a ‘single source of truth’ for the wider market, and
  • review ASX’s operational risk arrangements, including the ‘four eyes’ principle, pre-open period and trade cancellation policy.

ASIC also identified areas where market users could contribute to a more resilient and robust market. Market participants should:

  • review their arrangements for dealing with market outages, including the operation of best execution policies, algorithms and smart order routers, and
  • arrangements for undertaking and reporting crossings, and
  • review their own system-preparedness for managing market outages, including participation in market operators’ business continuity testing.

ASX has already identified a number of actions to enhance its incident management capabilities and technology resilience.

ASIC will undertake a wider review in 2017 of the operational and technological risk management arrangements across ASX Group.

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