Trading firms must test algorithms before use and major changes, monitor orders, and be able to stop disruptive trading.
Australia’s securities regulator has amended its rules for trading firms, requiring stronger checks on automated trades, including those generated with AI. The changes apply to firms that submit trades in Australia’s securities and futures markets and take effect on March 18, 2028.
The Australian Securities and Investments Commission (ASIC) said trading is now almost entirely automated and the use of AI is increasing. Its new rules cover all automated trading algorithms, whether or not they use AI. The rules also require firms to monitor orders placed by people.
Firms must test algorithms before use
A trading firm may use an algorithm to handle its own trades or clients’ trades. Under the new rules, the firm must take reasonable steps to test an algorithm before using it, letting clients use it, or making a major change to it. The firm must test whether the algorithm might send orders that interfere with trading on an exchange or disrupt the exchange’s trading system. It must also have written procedures for developing, approving, and monitoring algorithms it uses or provides to clients, and keep compliance records for seven years. The algorithm requirements appear in both ASIC’s securities market rules and its futures market rules.
Some clients use their own algorithms to send orders through a trading firm. ASIC said it will issue guidance clarifying that the firm does not have to test an algorithm it did not provide to the client. The firm must still monitor orders sent through its trading system. ASIC also decided not to require firms to have outside companies test their algorithms or trading systems. No one who commented on ASIC’s draft rules supported that requirement, citing the high cost.
Firms must spot and stop disruptive orders
Trading firms must be able to immediately spot orders that could disrupt trading on an exchange. They must also review trading afterward for orders that may have made buying and selling look more active than it was or given a misleading picture of prices. Firms must keep records of flagged orders and their responses for seven years.
The rules require firms to maintain filters that block disruptive orders and controls that can immediately suspend or limit trading by a client or an algorithm the firm uses. The firm must retain direct control over its order filters, even when trading is automated.
A firm must not send a client’s order to an exchange if it has good reason to think the order would make trading look more active than it is or mislead others about prices. The rule also applies to AI-generated orders, even when no person directly intended that result.
A trading firm must review its system for sending orders to an exchange before it first uses the system and before making a substantial change to it. After the system goes live, the trading firm must review it at least once every 12 months. A review completed for a substantial change counts toward that yearly requirement. The annual review must assess the firm’s safeguards and include testing where necessary.
Before first using the system, a firm must also send ASIC a written statement saying whether it completed the review required before first use and has the order filters and trading controls the rules require. One of the firm’s officers must confirm the statement is accurate, and the firm cannot use the system until ASIC confirms in writing that the statement includes everything the rules require. ASIC can also direct a firm to have a qualified person certify whether its system meets the rules.
ASIC is also seeking comments on draft guidance explaining how firms should apply the new rules. ASIC proposes to combine three existing guides into two shorter ones. Comments are due November 5, 2026; the rules themselves begin March 18, 2028.
