The Industry Super Network (ISN) has proposed that ASX investors' orders be pooled into a series of 'call auctions' to improve the quality of the Australian sharemarket.
ISN director of regulatory policy Zak May said the proposal would bring buyers and sellers together in a coordinated way, which would reduce volatility, improve price discovery and protect against high frequency trading.
The market would be more resilient against liquidity crashes and systemic risk, according to May.
He said the call auction proposal would concentrate liquidity by aggregating orders over a period of time and executing them together at 'the call'. The maximum number of shares would be exchanged and cleared at a single price, May said.
"By bringing together all buy and sell orders coming in over a period of time into a single process, call auctions would create deeper pools of supply and demand.
"And by establishing a single price that reflects this larger pool of orders, the auctions would increase the quality and informativeness of market price signals, as well as liquidity," he said.
It would provide a more equal playing field for super funds in the face of high frequency trading, May said.
"In addition, our proposal includes a recommendation to randomise the duration of the auction and seal the bids into the auction, which would constrain the ability of certain market participants to get access to and act on information ahead of others," he said.
May said that although it differed from the ISN's proposal, the ASX used call auctions at the daily opening and closing of the market due to the robustness of the structure. The ISN's proposal is for short duration auction calls.
The ISN acknowledged the Government's adoption of its 2012 Treasury recommendation to recover increasing regulatory costs for market supervision based on message traffic rather than trades.
