3.1.1. Fair and orderly trading

An Authorised Investment Exchange must ensure that it has transparent rules and procedures to provide for fair and orderly trading and to establish objective criteria for the efficient execution of orders.

3.1.1-1. Price and position limits in respect of Commodity Derivatives

An Authorised Investment Exchange must ensure that the risks to fair and orderly trading, arising from sharp price movements, are mitigated for Commodity Derivatives.

3.1.1-2. Price Limits

An Authorised Investment Exchange may impose price limits in relation to a Commodity Derivative to mitigate the risks to fair and orderly trading arising from sharp movements in the price of the Commodity Derivative.

3.1.1-3. Position Limits

An Authorised Investment Exchange must, in respect of a Commodity Derivative, implement position limits for the purposes of mitigating the risk of Market Abuse.

Guidance

An Authorised Investment Exchange should:

1. consider the impact on its Commodity Derivative market from changes in the underlying market and set its position limits accordingly;
2. ensure that its position limits are not exceeded by any Member, its affiliates or other participant trading in the Derivative, including through the acquisition of additional positions;
3. require that its Members and other participants report their positions on a regular basis and on the occurrence of certain relevant events;
4. include provisions in its Business Rules which impose appropriate obligations on Members and other participants, to ensure their compliance with its position limit obligations;
5. immediately notify the AFSA when a position limit threshold is exceeded, detailing:

1. the reason why such a large position is being held;
2. how the holding of the position furthers the participant’s or Member’s trading strategy; and
3. whether the position is being used for hedging and the relevant contracts being hedged against;

6. on request by the AFSA, immediately make available the information collected by the Authorised Investment Exchange for the purposes of monitoring and enforcing the position limit obligations of its Members and other participants; and
7. have in place appropriate internal governance arrangements to ensure its position limits are effective in mitigating relevant risks, including the risks relating to Market Abuse.

3.1.2. Execution of orders

An Authorised Investment Exchange must have non-discretionary rules for the execution of orders.

3.1.3. Publicly available data on quality of executions

An Authorised Investment Exchange must make available to the public, without any charges, data relating to the quality of execution of transactions on the Authorised Investment Exchange on at least an annual basis. Reports must include details about price, costs, speed and likelihood of execution for individual Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments.

3.1.4. Market making arrangements

An Authorised Investment Exchange must:

• (a) have written agreements with all Members pursuing a Market Making Strategy by using its facilities (Market Making Agreements); and
• (b) have schemes, appropriate to the nature and scale of a trading venue, to ensure that a sufficient number of Members enter into Market Making Agreements which require them to post firm quotes at competitive prices with the result of providing liquidity to the market on a regular and predictable basis; and
• (c) monitor and enforce compliance with the Market Making Agreements;
• (d) inform the AFSA of the content of its Market Making Agreements; and
• (e) provide the AFSA with any information it requests which it reasonably requires to satisfy itself that the Market Making Agreements comply with sub-paragraph 3.1.4.

3.1.5. Trading controls

An Authorised Investment Exchange must be able to:

• (a) reject orders that exceed its pre-determined volume and price thresholds, or that are clearly erroneous;
• (b) temporarily halt or constrain trading on its facilities if necessary or desirable to maintain an orderly market; and
• (c) cancel, vary, or correct any order resulting from an erroneous order entry and/or the malfunctioning of the system of a Member or of the Authorised Investment Exchange.

3.1.6. Tick size regimes

The Authorised Investment Exchange must adopt a tick size regime in respect of each type of Security, Unit in a Listed Fund, Commodity Derivatives, or Environmental Instruments traded on each trading venue operated by it. The tick size regime must:

• (a) be calibrated to reflect the liquidity profile of such Investments in different markets and the average bid-ask spread taking into account the desirability of enabling reasonably stable prices without unduly constraining further narrowing of spreads; and
• (b) be able to adapt the tick size for each such Investment appropriately.

3.1.7. Short selling and position management

(a) An Authorised Investment Exchange must have in place effective systems, controls and procedures to monitor and manage:

1. (i) Short selling in shares, debentures and any other similar Investments; and
2. (ii) Risks arising from position concentrations.

(b) For the purposes of (a), an Authorised Investment Exchange must have adequate powers over its Members to mitigate the probability and impact of risk to the orderly functioning of its facilities arising from unsettled positions in Securities or Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments.

(c) Short selling for the purposes of this Rule constitutes the sale of a share, debenture or other similar Investments by a Person who does not own the share, debenture or other similar Investment at the point of entering into the contract to sell.

3.1.8. Liquidity incentive schemes

An Authorised Investment Exchange must not introduce a liquidity incentive scheme or any other scheme for encouraging bids on a trading venue or to increase the volume of business transacted unless it has obtained the AFSA’s prior written approval for the scheme.

3.1.9. Settlement and Clearing facilitation services

An Authorised Investment Exchange must ensure that satisfactory arrangements are made for securing the timely discharge (whether by performance, compromise or otherwise), Clearing and settlement of the rights and liabilities of the parties to transactions effected on the Authorised Investment Exchange (being rights and liabilities in relation to those transactions).