On Monday morning, Australian regulator ASIC announced that it was taking steps to ensure that the Australian share market can remain resilient. It announced that it would limit trading.
What happened?
ASIC said that Australian equity markets have seen record trading volumes in the last two weeks.
However, there has been an exponential increase in the number of trades executed with a particularly large increase on Friday last week which caused a significant backlog of work over the weekend by ASX Ltd (ASX: ASX) and trading participants.
ASIC warned that if the number of trades keeps rising it would put a strain on the processing and risk management capabilities of the market infrastructure and market participants.
With that in mind, ASIC has required large equity market participants to limit the number of trades each day, limited by up to 25% of the levels executed on Friday. That means those participants and their clients will need to actively manage volumes.
What does it mean for regular investors?
ASIC said that it doesn't expect these limits to impact the ability of retail investors, like you and I, to execute trades.
So if you want to buy Commonwealth Bank of Australia (ASX: CBA) shares or Wesfarmers Ltd (ASX: WES) shares, you'll still be able to. But those high-frequency traders that are doing thousands of trades a minute will be limited. They're meant to, at least.
There was a 12% swing of the S&P/ASX 200 Index (ASX: XJO) on Friday, partly due to the extreme trading. This week could see more volatility.
