Currently, the rules prohibit market participants from, directly or indirectly, making a cash payment to another person for their order flow, if the cash payment leads to the net cost being less than the value of the reported price for the transaction.
However, ASIC has identified that current regulation does not deal with certain payment-for-order-flow scenarios such as arrangements between non-market participant intermediaries.
The regulatory body will enter a period of consultation around proposed amendments to close the gap.
ASIC stated that while this phenomenon is not common within the Australian market, the growth of such arrangements overseas has become a cause of concern.
Concerns around payment-for-order-flow arrangements skyrocketed earlier this year following the impact seen on retail investors.
Notably, increased scrutiny was given to payment-for-order-flow practices in the US following brokerage firm Robinhood restricting trade on GameStop as a result of the order flow becoming unprofitable for their buyer earlier this year.
ASIC stated that all payment-for-order-flow arrangements create conflicts of interest that can lead to poor client outcomes.
The regulatory body also noted this practice can negatively impact market liquidity and pricing.
The consultation period will end on 3 November 2021. Should ASIC choose to proceed, the amended rules will be submitted for ministerial review.
