Keeping up with the times –changes to ASIC rules on trading systems and algorithms 

What you need to know

• ASIC has released Consultation Paper 386 Proposed amendments to the ASIC market integrity rules: Trading systems and automated trading (CP 386) seeking feedback on its proposals to amend the ASIC Market Integrity Rules (Securities Markets) 2017 (Securities MIRs) and the ASIC Market Integrity Rules (Futures) Markets 2017 (Futures MIRs) (together, the MIRs). These are the most significant changes to the MIRs on electronic trading since 2012.
• The primary focus of the proposals is to update the MIRs to reflect the increased use of automation, including algorithmic trading, in trading on Australian exchange markets. Many of these proposals largely reflect ASIC's current guidance in Regulatory Guide 241 Electronic Trading (RG 241), but would now be formalised as new obligations under the MIRs. The proposals, if implemented, will also lead to greater alignment and consistency between the Securities MIRs and the Futures MIRs.
• Key proposed amendments include:
  • Introducing a new definition of 'Trading Algorithm' and new rules around their use, including controls, testing and governance;
  • Introducing a new technology-neutral definition of 'Trading System' that will capture any system that participants use to submit trading messages, to which obligations around certification, testing and review processes would apply; and
  • Clarifying that the scope of the false and misleading appearance rules extends to conduct by any person, including when a participant's client is acting on behalf of another person.
• The proposals are designed to address changing market practices, technology and risks – including artificial intelligence, which has the potential to exacerbate market volatility or create 'flash crashes' – as trading systems and algorithmic trading strategies continue to evolve.
• Feedback on the consultation paper is due by 22 October 2025, with amended MIRs intended to be released by 31 March 2026.

What you need to do

• These proposals include significant changes to the MIRs. You should consider the amendments in detail and consider their practical implications on your business.
• Understand your current state of compliance, and what gaps you have that would need to be filled to meet the proposed changes.
• Consider making submissions to ASIC in response to this consultation, particularly on the appropriateness of newly defined terms such "Trading Algorithms" and "Trading Systems" as substantive obligations would attach to these activities.
• Assess the regulatory burden that might be associated with complying with the revised obligations and incorporate these considerations in any submissions you make, especially where you think they are onerous.
• Get in touch if you would like to discuss or better understand the implications of the proposed amendments.
• Start planning early. Understand what would be required to comply, and develop a high-level program plan to ensure compliance readiness can be achieved within the proposed 12 month transition period.
• Beyond these proposals, ASIC has also invited feedback or suggestions on the ways in which it could further simplify the MIRs. Take this opportunity to identify any other compliance pressure points and consider it they should be raised with ASIC.

Obligations relating to trading algorithms

Currently, there are no specific rules in the MIRs governing algorithmic trading. ASIC's guidance and expectations are set out in RG 241, which provides that trading participants should manage risks associated with algorithmic trading, including by stress testing programs and having robust controls to not affect the efficiency and integrity of the market.

In CP 386, ASIC proposes inserting a new definition of 'Trading Algorithm' into both the Securities MIRs and Futures MIRs, as "a computer algorithm which automatically determines with limited or no human intervention, one or more parameters of an Order such as whether to initiate an Order, the timing, price or quantity of the Order or how to manage the Order after its submission, but does not include systems or processes used only:

i. for the purposes of routing Orders to one or more Trading Platforms;

ii. for the submission of Orders involving no determination of any trading parameters;

iii. for producing confirmations of Orders; or

iv. for post-trade processing of executed transactions."

This definition would therefore capture algorithms that are responsible for determining the substantive parameters of an order (rather than the process by which the orders are submitted and managed).

Flowing on from this definition, ASIC proposes to introduce a number of new rules applying to the use of Trading Algorithms, including:

• requiring participants to have controls that enable immediate suspension, limitation or prohibition of any Trading Algorithms (i.e. the "kill switch");
• requiring participants to have controls and governance arrangements for the development, testing, approval, deployment and monitoring of all Trading Algorithms used by the participant or that the participant makes available to a client;
• requiring trading participants to test the trading algorithm before use for the first time and before implementing a material change to the algorithm; and
• extending ASIC's existing power to make directions to a trading participant about their use of Trading Algorithms.

Technology-neutral definition of 'Trading System'

The current Securities MIRs contain separate obligations on designated trading representatives (DTRs) and automated order processing (AOP). The Futures MIRs do not contain these concepts at all. CP 386 proposes to remove the distinction between DTRs and AOP, and introduces a single set of obligations for 'Trading Systems', which is defined broadly as "any system for submitting Trading Messages into a Trading Platform". This means that the relevant obligations under the MIRs would apply regardless of the system or process through which trading messages are submitted.

Under the proposed amendments:

• the existing requirements for DTRs will be extended to any representative of a Trading Participant that submits a trading message into a trading platform; and
• the current obligations for AOP will be extended to all trading messages.

ASIC is also proposing to codify existing guidance in RG 241 about 'Trading Systems' by:

• introducing explicit requirements for initial certification, testing, material change review and annual review of Trading Systems (in place of AOP); and
• introducing a requirement to implement and maintain an adequate monitoring system to monitor real-time and post-trade trading messages. Note that the proposal for trading participants to monitor real-time trading messages extends beyond the existing position in RG 241, which requires trading participants to "monitor in real time, or close to real time, all trading submitted to a market" (emphasis added).

To facilitate transition to the new rules, ASIC states that it has adopted a limited no-action position so that trading participants do not need to submit an AOP Annual Notification to ASIC from November 2025, subject to keeping an internal written statement from one director that nothing has come to its attention during the 12 months before the AOP Annual Review Date that would indicate it is unable to comply with Part 5.6 of the Securities MIRs.

Clarifying the false or misleading rules – looking through the intermediary

Under the MIRs, a participant must not submit orders on account of any other person where, taking into account the circumstances of the order, a participant ought reasonably suspect that the person has placed the order with the intention of creating a false or misleading appearance of active trading in any financial product or with respect to the market for, or the price of, any financial product.

The application of this rule in the context of intermediated arrangements is not always straightforward. CP 386 proposes to amend the rule to:

• clarify that the scope of the rule extends to submitting an order on account of any other person, including when that person is acting on behalf of another person – e.g. a client of an offshore broker executing through the participant; and
• clarify that the list of matters that a participant must have regard to when considering the circumstances of an order is non-exhaustive.

Removal of limits and connection rules in the Futures MIRs

In addition to the changes discussed above, CP 386 also proposes removing existing Futures MIR 2.2.1, which requires participants to demonstrate prudent risk management procedures by setting and documenting appropriate predetermined order and/or position limits and maximum price change limits on house and client accounts. These rules are a legacy from the SFE days, which are no longer fit for purpose. The proposal is to replace these provisions with new Part 2.2A and Part 2.2B, which replicate Part 5.5 and Part 5.6 of the Securities MIRs. These deal with organisational and technical resources and trading system requirements (as amended by the proposals in CP 386), which apply in addition to the operational and technological resilience requirements introduced into the MIRs in 2023.

ASIC also proposes to introduce into the Futures MIRs an obligation on the participant not to do anything that results in a market not being both fair and orderly, or fail to do anything that has that effect. This rule has long been a feature of the Securities MIRs, and ASIC considers that this would further promote consistency between the two rulebooks.

Implementing the proposed obligations

ASIC is proposing a 12 month transition period for the commencement of the proposed amendments to the Securities MIRs and Futures MIRs, on the basis that it expects many participants will already have in place the controls proposed in CP 386.

However, given some of the proposed changes – including the suggested monitoring of real-time trading messages (rather than the existing 'close to real-time') – will require runway for appropriate implementation, participants would be well positioned to consider the changes that may be needed under the new rulebooks and plan early to ensure compliance within the slated transition period.

Next steps

ASIC is seeking feedback on CP 386 by 22 October 2025 with amended rules and a feedback paper to be released by 31 March 2026.

We recommend that participants:

• consider reviewing CP 386 and the proposed updates to the MIRs in full to consider how the amendments may impact them;
• assess their current state of compliance, and the gaps that would need to be filled to meet the proposed changes; and
• start planning early to develop a high-level program plan to ensure compliance readiness can be achieved by the proposed commencement of April 2027.

If you would like to discuss what the proposed changes mean for your business, please feel free to contact us.

Other Author: Vivien Lin, Lawyer.