The Capital Markets Cooperative Research Centre (CMCRC) has released a new video dealing with the impact of the introduction of the minimum price improvement rule introduced by ASIC on 26 May 2012.
The rule was introduced to ensure that if liquidity moved away from the lit markets it was not to the detriment of the quality of the lit market in particular.
The CMCRC’s work uses the Market Quality Dashboard (MQD). MQD is a new technology developed by the CMCRC address the universal mandate of regulators to ensure that market design changes enhance, but as a minimum, do not detract from, the fairness and efficiency of a market place.
“MQD is designed to produce a basic result in a matter of hours,” said Professor Aitken. Speaking about the outputs of the process Professor Aitken noted that “While MQD doesn’t take the place of quality academic research, at least not yet, it does provide policy makers with a quick and effective idea of whether a policy change has had impact and the nature of the impact on market fairness and efficiency. The technology can also be used to study market design change in any market of the world allowing us to anticipate the impact of changes on our markets that have been introduced elsewhere.
In the case of the Dark Pool rule change, the results show a significant drop in the activity on dark markets (starting a week before the change) with the number of stocks traded on the ASX dark market dropping by a half.
Notwithstanding this drop in activity, effective spreads on the dark markets (representing transaction costs) go down suggesting efficiency has gone up in these markets with no change in either the fairness or efficiency of the lit markets.
This suggests that the rule change has likely been positive for the quality of Australia’s equity markets.
See Professor Aitken’s video on ASIC’s dark pool rule implementation here: https://www.youtube.com/watch?v=lgmX0ggNOP8
