ASIC amends prohibition on payment for order flow
The Australian Securities and Investments Commission (ASIC) today announced amendments to the prohibition on payment for order flow (PFOF) to address certain regulatory gaps.
ASIC has extended the existing prohibition on payment for order flow in Part 5.4B of the Securities Markets Rules to cover, from 10 June 2022, when a market participant sells client order flow and payment for order flow that occurs amongst other market intermediaries.
These amendments are a proactive measure to avoid the emergence of payment for order flow arrangements in Australia.
According to the rules:
(1) Where a Market Participant handles or executes an Order as a result of an arrangement with another person (the other person) to direct Orders to the Market Participant, the Market Participant must not, indirectly or directly, make a cash payment to the other person for the opportunity to handle or execute those Orders if the cash payment leads to the net cost, calculated as set out in subrule (2), being less than the value of the Reported Price for the transactions the subject of the Orders.
(2) The calculation of the net cost for the purposes of subrule (1) must be done as follows:
Net cost = (Commission less the dollar value of any cash payment to the other person) + Reported Price
where:
Commission means the dollar value of any payment received by the Market Participant (including commission received from a client of the other person) for the opportunity to handle or execute the other person’s Orders; and
Reported Price means the total dollar value of the transaction or transactions the subject of the other person’s Order or Orders as executed on a Market or, if applicable, reported to a Market operator under Rule 6.3.1, or if applicable, set out in a confirmation provided to the other person under Rule 3.4.2.