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The review comes six months after ASIC introduced the restrictions on so-called "dark trading", which are being closely-watched by European and US regulators who are grappling with a proliferation of dark liquidity in their own jurisdictions. Brokers and asset managers say that dark pools allow investors to trade safely, without signalling their hand to the market. But these share-trading venues have drawn regulatory scrutiny in the US, Europe and Asia Pacific due to fears that too much dark trading damages the mechanism by which stock prices are generated or "discovered" – a theory rejected by dark pool operators.
On May 26, ASIC implemented a rule-change which requires dark pools to beat the best price available in the public markets, known as "price improvement". The new requirement followed research by ASIC which concluded that spreads — the difference between the bid and the offer — in some of Australia's most liquid stocks were being adversely affected by the rise in dark liquidity.
Critics of dark pools have hailed ASIC as a trailblazer and many regulatory experts have said they are watching the impact of the new rules with interest. Speaking during a press briefing in Hong Kong last week, Mary Schapiro, formerly chair of the US Securities and Exchange Commission and now managing director and chair of the governance and markets practice at banking consultancy Promontory Financial Group, said the US should keep an eye on the Australian approach. She said: "This is such an interesting debate everywhere around the world, and I have been very interested to watch Australia and Canada that have been more aggressive in experimenting with different approaches to fragmentation and the migration of order flow into dark pools and try to look at impact on price discovery in their market."
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