Michael Aitken

There is no evidence that so called ‘circuit breakers’ can prevent a flash crash in the market, and they may even make things worse.

Under major reforms to be unveiled to the stock market, brokers will be required to install software that acts as a ‘kill switch’ if there is a threat to the market from computer trading systems, and prevent a ‘flash crash’, such as the one that wiped $US1 trillion off Wall Street in minutes last year.
There is considerable evidence that the circuit breakers reduce trading quality, and indeed they put you in the line of fire.

Alas, all regulators follow the same pattern in the face of a threat of a flash crash. Quite simply, a circuit breaker or a ‘kill switch’ simply makes all the markets close at the same time. What happens then is that all the cash dries up – we saw this when the New York exchange halted trading – and waits for the markets to reopen; it’s just a question of postponing what will naturally happen.

High speed automatic trading is now very popular, with one in five share transactions in Australia traded by computers using algorithms to calculate if a deal will make a profit. With so many computers trading, they are now competing to trade faster than other computers, and beat them to a better deal.

I feel regulators haven’t grasped the implications of halting trading if there is a crash, and just make a knee-jerk announcement that looks good, but achieves little.

Security regulators make decisions based on their perceived authority, not on the available evidence. What we need is evidence from markets that stay open. Alas most exchanges around the world, including in Australia, will follow the lead of the SEC who try to halt all the markets. It is very hard to get evidence in the first instance of what happens for leading markets when they do stay open if prices are falling sharply.

With a proliferation of high-speed trading expected with the launch of the alternative stock market Chi-X in Australia at the end of the month, I am dismayed to see regulators trying to control high-speed trading in this way.

There is no evidence that circuit breakers are good for trading, around the world or in Australia.

Professor Michael Aitken is the Chair of Capital Market Technologies at the Australian School of Business

Wolfgang Buehler

The European summit in Brussels will shortly be on us, and there are hopes that a solution to the crisis could finally be reached.

If the euro is to stay alive there has to be a change. However a positive outcome from change could be a shakeup of some European institutions which needed to change anyway.

The German Chancellor Angela Merkel says that European leaders will demonstrate strong support for a stable euro at the upcoming EU summit, but solving Europe’s debt crisis and the problems in Greece will take some considerable time.

The situation is particularly tough for Greece. If you look at the Greek economy it is not looking at all healthy. The estimate for economic growth this year is minus 5.3%. Now that’s not surprising, as the IMF, the European Central Bank (ECB), and the European Commission has imposed tough conditions on Greece. As a result private demand will go down, followed by a decrease in GDP. Only part of the blame for this recession can be placed with the Greek government; however the tough austerity measures are causing major economic problems and a huge impact for the Greek people.

The move by the ECB to buy Government bonds of troubled countries in the secondary market, to fight the government debt crises, has inflationary consequences if the liquidity is not taken out of the financial system once the crisis has eased. In any event it looks as if inflation is inevitable as the result of the ECB strategy to defend the euro exchange rates with major countries.

It is crucial to avoid a disorderly default by Greece with a contagion effect that might spill over to the US and Australia.

Even Australia will probably be impacted by the problems in the eurozone. For example if exports to Europe as a whole go down by half that would decrease Australian exports by about 5% because Europe takes about 10% of Australian exports. Plus, we would then have what is called a ‘second order’ effect, whereby China would also see an impact because it exports a huge amount of goods to Europe. Consequently the demand for minerals to Australia would also drop. We’re not out of the woods yet.

Wolfgang Buehler is a Professor of Banking and Finance at the Australian School of Business.

Michael Sherris

Australia needs new infrastructure. We need to fund it. And there are substantial assets in superannuation funds. Why don’t we combine the two?

Former Treasury secretary Ken Henry says that Australia’s infrastructure projects should be reformed in a way that will make them more attractive to superannuation funds that fear taking on too much risk.

There are vast assets in superannuation funds that can do a lot of good for Australia. These are a potential source of funding to finance the infrastructure that Australia badly needs.

These superannuation funds will increasingly be seeking assets that will allow them to provide retirement income streams to their members either directly or through retail products such as indexed life annuities.

Among the potential reforms suggested by Ken Henry is one that would see the Federal Government assume greater risk, with less pressure on the private sector, to reassure funds and their investors that infrastructure projects are safe investments, such as the latest proposals for the fast rail network on the east coast of Australia.

Super funds could pay for these proposals now. If these funds are to finance major infrastructure assets they should be seeking long term inflation linked annuity bonds to fill the limited market in indexed linked and long term securities in Australia. This would provide opportunities for the funds to offer income streams to members and have matching long term assets.

I would like to see this taken further. Ken Henry’s Tax Review proposed that the government should issue more long-term inflation linked longevity bonds, to support the development of a longevity insurance market. Now, if we were to be really innovative we may even be able to develop a longevity bond with payments linked to population survival rates to allow the funds to manage mortality risk, which would naturally compensate for the population living longer. This mortality risk is driving the growth of longevity swaps for defined benefit pension funds in the UK and Europe as well as attracting interest in the US.

Australia is one of many countries that has a rapidly ageing population. However there are few products that provide longevity insurance, which is protection against the risk of individuals living too long, running out of cash and then relying on the state. Using these longevity bonds, we could also fund key infrastructure projects in Australia, which are currently suffering from a lack of cash from risk-wary superannuation funds which have seen large losses on projects such as the Clem Jones tunnel in Brisbane.

Michael Sherris is a Professor of Actuarial Studies at the Australian School of Business.

Dale Boccabella

At the October Tax forum, to be held on October 4^th and 5^th 2011 in Canberra, experts and academics are to sit down and discuss taxation in Australia. Alas, with all the noise ahead of the Tax Forum, little attention has been focused on trusts.

I want to see them resolving the treatment of discretionary trusts.

Discretionary trusts (DTs) have become pervasive and they will grow in number. In addition to DTs being set up by living persons (principals), it has become common practice for many assets passing on death to be housed within a DT (testamentary trusts/discretionary will trusts). And, wealth that will pass to future generations in Australia over the next 20-years or so will be unprecedented.

So what makes DTs popular? To answer this we need some understanding of this “entity”. It is a trust. But unlike many other trusts (e.g. listed property trusts, listed share trusts), the [potential] beneficiaries do not have fixed entitlements to capital or income. Whether a beneficiary gets a distribution of capital or income is at the discretion of the trustee (legal owner of trust property) and/or those behind the trust. Accordingly, a beneficiary does not legally own anything until the trustee decides to make them a distribution.

The trustee is the legal owner of trust property, but trust property does not belong [beneficially] to the trustee. The trustee is often a “$2 company”. Often, trust property will have been transferred to the trust for no money by the people behind the trust (usually Mum and Dad). These people are likely to be potential beneficiaries along with the children, and a family company.

As well as being the only shareholders in the $2 trustee company, Mum and Dad may also be the appointers of the trust. Appointers have power to remove a trustee if they are not satisfied with the way the trustee is exercising his/her/its discretion.

What flows from all this? First, assets held within a DT are generally beyond the reach of creditors of the beneficiaries, and creditors of the principals who set up and transferred assets to the DT. This also means the trustee in bankruptcy of a beneficiary or the principals usually cannot access those DT assets. Further, the principle that creditors of a trust (e.g. suppliers of goods to trust) can, in certain circumstances, access the assets of beneficiaries of the trust, does not apply to a DT.

In terms of “divisible property” for the purpose of a family law proceeding (relationship breakdown), the Family Court can take into account assets held in a DT, but this is less likely where the DT’s assets existed before the failed relationship commenced.

Secondly, the DT allows the trustee flexibility to make income (and capital) allocations to beneficiaries based on their differing needs and capacities. For example, one of the children might currently be unemployed or sick and therefore a greater income allocation can be made to him/her for the current year. The DT also allows the trustee to defer or stagger a particular child’s entitlement because there is concern about the child’s big spending habits (spendthrift). It should be said though that it is rare that the flexibility of the DT is sought to deal with the differing capacities and needs of beneficiaries. Other less sophisticated legal arrangements can more than adequately deal with the differing needs and capacities scenario.

Thirdly, and this is usually the most important advantage sought, the DT allows for tax minimisation; substantial minimisation. The flexibility that has a genuine non-tax basis to it (see above) also provides the means to minimise tax by, for example, allocating a given taxable income across a number of taxpaying units (simple income splitting). In addition, the DT allows income allocations across tax years to take account of beneficiaries’ other tax profile that can change over years. There is also the advantage of streaming different income types to beneficiaries who can make best use of certain items of income, a technique the government has recently re-endorsed.

There are many other tax advantages from a DT including allowing income allocations to children under 18-years of age to be taxed at the adult tax rate schedule where the DT arose under a will (testamentary trust). Normally, under-18s are taxed at a penalty rate of tax on their unearned income.

The advantages of DTs are quite substantial. No other entity comes close to offering all the advantages of the DT; some offer one or two advantages of the DT. And of course, one person’s advantage is another person’s disadvantage. For example, suppliers to DTs may have trouble getting payment for debts, and minimized tax through DTs must be made up by other taxpayers or government services must be reduced.

Are there any disadvantages to those using a DT? The main one is the danger of a “rogue trustee”. That is, the trustee might exercise their discretion in a way contrary to the wishes of the principals who set up the DT. With careful legal drafting, including wise selection of appointers, safeguards against this can be provided.

It is one of life’s twists that DTs can also breed suspicion and “distrust” amongst “beneficiaries” who would otherwise (fixed trust) expect an entitlement. The reason is that entitlements under a DT are contingent on the trustee’s discretion so that a beneficiary may be at the whim of the trustee, and those controlling the trustee.

The cost of financial planners, tax advisors, lawyers, etc, in setting up a DT and properly maintaining it can also become expensive as an effective DT must be kept-up-to date with changes in the circumstances of relevant parties. Indeed, these professionals are doing, and will continue to do, a solid trade in DTs.

By and large though, the disadvantages to those who can avail themselves of a DT are not significant and are overwhelmed by the advantages. And, no other entity (e.g. fixed trust, company) comes close to offering the same or similar tax and non-tax advantages.

As far as tax goes, various government inquiries have endorsed the current tax treatment of DTs. Indeed, the Assistant Treasurer, the Hon Bill Shorten MP told a Tax Institute conference recently: “We don’t believe trusts are any form of tax avoidance. We see trusts as a legitimate feature of how Australians conduct their financial affairs.” The tax advisors listening must have had a quiet chuckle; they need to be quiet because a loud chuckle may prompt the Assistant Treasurer to actually check the basis for that ridiculous statement.

Equally important are the non-tax advantages. To my knowledge, there has not been a systematic and comprehensive inquiry on the asset protection aspects (code for not paying debts), property division aspects, etc, of DTs. However, there has been isolated reform in various areas that has reduced the abusive use of the DT (e.g. pensioners cannot house assets in a DT and avoid having those assets counted for asset and income testing purposes).

The pervasive use of the DT has snuck up on society. The time for a comprehensive review of the advantages and disadvantages of DTs has come. At the moment, many Australians are gorging themselves on the advantages of DTs, and similar advantages are not available to others.

Dale Boccabella is an Associate Professor at the Australian School of Taxation and Business Law.

Fariborz Moshirian

The IMF has downgraded the economic outlook for 2012 much more than expected, including the forecasts for Australia, as global financial turmoil in the US and Europe is starting to impact on the Asian economies.
The recent World Economic Outlook report released by the IMF states that ‘The global economy is in a dangerous new phase. Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing’.

However the International Monetary Fund (IMF) may be too pessimistic in downgrading its growth forecasts for the Australian and global economy.

During the Global Financial Crisis, the G20 leaders’ summits were used to coordinate economic and financial issues amongst all member countries. However, despite some progress being made within the G20 framework, the progress has been disappointing. The current global financial turmoil requires a more coordinated effort between all G20 member countries, particularly the G2 – the US and China. However, the progress has been disappointing and the next leaders’ summit in November may be too late to muster the desperately needed coordinated approach for the current global financial turmoil.
The IMF has cut its Australian growth forecasts from 2% to 1.8% for 2011 and trimmed the growth forecast to 3.3% for 2012.

Every time we get the forecast from the IMF we need to be cautious. This is simply because the Reserve Bank and the Australian Treasury have more resources, and more insight about the Australian economy. We also need to look at the forecasts in a dynamic process rather than in a static environment, where for instance, in the next two to three years, we do not know the massive amount of demand which might come to Australia from China, India and other parts of Asia.
The IMF’s forecast for 2011 is now roughly in line with the Reserve Bank of Australia’s own forecast of 2%, however the IMF is now much more pessimistic about next year than the RBA, which has forecast above-trend growth of 4.5%, compared to the IMF at 3.3%.

We can trust IMF to the extent that their data and information that they are providing is reliable. Against that, I would probably say that the IMF forecast was probably a little bit too pessimistic. So my feeling would be that it’s likely to be somewhere in between. I think that at the end of the day all of this highlights that sooner or later the Government will have to announce a tougher stance in terms of the Budget, both in terms of either raising taxes or cutting spending.

The whole policy of IMF prior to the global financial crisis was to liberalise the market, particularly in emerging economies. Now they are still playing catch up, particularly with all the contagion in Europe. While we should be concerned about the position in Greece and Portugal, our investment banks are in a better position, and we have far less debt. It is unlikely that the contagion will have much impact, other than giving our share prices a rollercoaster ride. The IMF would like to see the US and Europe implement both a short term stimulus and have a plan for the long term budget balance. However, given the size of public debt, such a policy may not be easy to implement.

Fariborz Moshirian is a Professor of Finance at the Australian School of Business.

Jerry Parwada

While the big equity markets of Europe, the US and even Australia have struggled since the global financial crisis, investors have increasingly found that there are profits to be made in emerging and also the new frontier markets.

The story of Brazil is now well known, but new mutual funds and also hedge funds have been investing in countries as diverse as Romania, Kenya, Kazakhstan and Nigeria.

The economic forecasts for some of these markets are certainly bullish. By 2015 the BRICS group of Brazil, Russia, India and South Africa is expected to account for almost one quarter of global GDP, up from 8 percent in 2000.

Sub-Saharan Africa has not featured strongly on many investment radars but over the next five years seven of the region’s economies are expected to be among the top ten economies measured by growth.

This year the Zambian and Nigerian economies are both expected to grow by 6.8 percent, Mozambique by 7.5 percent, Ethiopia by 8.5 percent, and Ghana by 13.7 percent.

These are encouraging forecasts, but if the emerging and frontier markets are to remain a beacon of light for global markets some structural issues need to be addressed if the phenomena is to be sustainable.

The boom in many of these markets is being accompanied by strong inflationary pressures which, if left unchecked, will undermine the markets and create havoc in the individual domestic economies.

Already, we are seeing very high food price inflation in many of these countries, driven in part by the substitution of staple food for the production of biofuels. The moment food production is substituted for fuel production food will rise in price and inflation is the result.

These are the kinds of investments which deliver returns to investors while creating difficulties for the local population. These are transient money flows which may be damaging to the very growth potential that make the emerging markets so attractive.

If the inflows are too unbalanced, the phenomena will become more speculative than sustainable and beyond that will also foment political instability. More prudent Governments might deliberately slow down growth to curtail inflationary pressures.

The hedge funds, mutual funds and private equity groups investing in these markets and also local industries such as biofuels are stateless entities driven entirely by profits and are difficult to regulate in terms of how they invest. If a nation tries to protect itself from speculative investment through regulation, the funds will simply go elsewhere.

There is, however, a solution and it is in the hands of multi-lateral agencies such as the World Bank and its finance arm, the International Finance Corporation, and regional development banks such as the Asian Development Bank and the African Development Bank. These agencies have the ability to balance the growth story with intelligent investing and counter-balance the more speculative inflows from the likes of the hedge funds.

Portfolio and inflows of Foreign Direct Investment are much better directed to projects that genuinely improve productivity. This is the only kind of money flow which is permanent in any way.

Zimbabwe, for example, has a crying need for import substitution after the political turmoil of the last decade has decimated its agricultural sector. Zimbabwe, once the farm of southern Africa, is now importing food from neighbouring countries.

The IFC could increase its partnerships with local organizations in such an economy and successfully contribute to the production of food. Partly due to the flow of hard currency remittances from expatriates, many of these countries are dollarized in one way or another so food can be sold at competitive prices, removing the need for massive subsidisation.

Such initiatives would not only help feed the local population, but they would also lessen the pressure for inflation which is the biggest economic danger.

The boom in emerging and frontier markets will only be a positive for the countries themselves if it is balanced and sustainable. And if it is sustainable it will be a positive for the global economy over a long period and prove to be more than an investment fad.

Associate Professor Jerry Parwada is Head of the School of Banking & Finance at the Australian School of Business.

Michael Peters

New legislation is intended to more closely regulate the duties and pay arrangement of financial planners.

However I would argue that more regulation is not the answer.

Financial Services Minister Bill Shorten’s new legislation has been largely supported by the financial services industry however the chant coming from government once again is ‘when in doubt regulate’.  It will only increase costs, make it less accessible and is unlikely to provide better advice.

Under the legislation, known as Future of Financial Advice (FOFA), financial planners will be obligated to renew contractual arrangements with clients every two years from the beginning of July next year.

It is proposed that what are called ‘fiduciary duties’ are to be codified, however most of what the law will require is good business practice, so why make it law? Why not put it in a code of behaviour endorsed by ASIC and enforced by the ACCC like other professions such as travel agents?

As proposed the legislation will also offer more powers for the financial regulator, ASIC, which will be given additional power to intervene earlier, as well as allowing the regulator to ban financial planners in certain circumstances.

Why are we using regulation to make people feel immune from the market place – which will sometimes lose them money?

People will still miss out on their bet on the stock market or interest rates, and that is quite simply how markets work. Protecting people from themselves through more regulation does not mean people will not lose money. Instead, it means those with money are likely to get access to better advice than those who cannot afford it.

Under the legislation, brokers would have to restructure remuneration arrangements on margin lending, cash management and banking products, and other product solutions sold to retail clients such as managed funds.

There is enough law to regulate planners and advisers; it’s just a matter of enforcing these rules, rather than making more law.

Michael Peters is a Lecturer in Business Law and Taxation at the Australian School of Business

Michael Sherris

There is a large cost to insurance companies of Tropical Storm Irene which has hit America’s north west, and the much larger Tropical Storm Nanmadol which is pounding the coast of China right now.

These two vast tropical storms have shown how unpredictable and potentially damaging these weather events can be. Insurance companies – and those that re-insure them – are now counting the cost. Alas, it seems we’ll all have to pay the price, even those a long way from the storm.

Tropical Storm Irene has killed 38 people, and insurance claims could top seven billion dollars, according to the Consumer Federation of America.

It’s not long since we experienced the massive flooding from Cyclone Yasi in Queensland and we saw the massive damage these events can cause. Even though Irene became a severe tropical storm rather than a hurricane, the costs will be substantial because of the populated area that it affected. The insurance industry will pick up a significant amount of the cost, however considerable losses will be incurred by individuals who will not be covered by insurance.

Claims for wind damage are expected to be one sixth of the total sum from Hurricane Katrina in 2005, and claims for flood damage one tenth, the Consumer Federation of America estimated.

As populations increasingly move into areas such as the East Coast, including Florida in the US, the potential exposure to loses from natural catastrophe events increases, even if the risk of these events happening may not be increasing. Nevertheless, theories on climate change do suggest that these events could be increasing in severity and frequency so this only adds to the risk.

Meanwhile overnight torrential rains and fierce winds have hit south-east Taiwan causing extensive disruption, as Tropical Storm Nanmadol swept over the island, and now heads for China.

There are many disasters that can hit dense areas of population. If we just look over the Tasman, even earthquake risk can be seen to be something that can cause massive economic losses. The Christchurch earthquake highlighted this. Insurance companies have taken significant losses and a number of insurers are struggling financially as a result.

The insurance industry is already reeling after 2010 was the second worst year for natural disasters since 1980. There were 950 incidents with insured losses amounting to about 37 billion dollars. Natural catastrophes in Australia and Oceania made up about 16 percent of global losses last year, the costliest being September’s Christchurch earthquake.

I feel it is vital to remember that disasters like this may hit home in Australia. This still remains an issue deserving attention. Australia is not immune from natural catastrophes yet individuals still have significant exposures to these losses that in many cases are not insured.

After the Queensland floods, premiums rose for all Australians, even in non-flood prone areas, because insurers pool risks by averaging losses across all policyholders. As supply falls and demand increases, premiums increase. In this case demand is increasing due to the catastrophic events, and supply is falling due to capital constraints on insurers.

Tropical Storm Irene may seem a long way off – but remember, insurers work in a global market.

Michael Sherris is a Professor of Actuarial Studies at the Australian School of Business.

Michael Aitken

Over the weekend four European countries (France, Italy, Spain and Belgium) extended their ban on all forms of short-selling in a bid to cushion bank stocks from the euro debt crisis, after what is considered unwelcome volatility, particularly in the banking sector, and in particular, in the stock Societe Generale.

Despite a raft of consistent and convincing academic evidence that such action is ill advised, regulators in these countries have never-the-less decided to bury their heads in the sand. I suggest this points to a fundamental problem with securities regulators around the world, namely the failure to embrace the concept of evidenced based policy making.

When the SEC in the USA made a similar decision to ban short-selling  back in the global financial crisis, ASIC and many other regulators also followed suit, presumably because either they thought the SEC knew best (a dangerous assumption at the best of times) or investors would take their frustrations out on our market if we left them to do so.  Despite all the gloom and doom, places like Hong Kong did not follow suit and their markets did not suffer the catastrophe that was predicted.

So why is it that in the face of the available evidence, that banning short-selling is not a useful idea, do regulators still do it? Perhaps the answer is that like the proverbial “cat caught in the headlights,” when they don’t really know what to do, running backwards and forwards looking like they are making conscious decisions will get them the benefit of the doubt if the worst happens. Trouble is, like the cat in the headlight they will still get run over by the car because the volatility will find a way to manifest itself if not today then tomorrow. Russia found this out when it tried to close its markets to avoid the consequences of the GFC and 9/11. As soon as they opened them again, they were hit hard because like the issues underlying the volatility in Europe they are more long-term in nature.

Our own regulator is not immune from the criticism that it acts in the face of the available evidence, as is evident in CP 145 which is contemplating the introduction of market design changes like uniform circuit breakers in an attempt to hold back the dam of negative sentiment.

There is no evidence to support this proposed market design change. The only evidence that does exist, provided by researchers at the Capital Markets Cooperative Research Centre (CMCRC) here in Australia, suggests otherwise.   Researchers at the centre developed a research design that looks at what happened to individual stocks that were halted for the release of information against the same stocks with similar price changes but no halts. The conclusion of the centre’s research was that volatility was higher in the aftermath of stocks that were halted than in the situations where the stocks were not. The logic is the same at the opening of the market. When the market has been closed for 18 hours people don’t really know what the price is and consequently we see significant volatility at the open relative to every other point in the trading day.

The decision to propose uniform circuit breakers here in Australia seems to have been taken based on the fact that other regulators were contemplating similar changes.  Indeed in CP 145 ASIC sites the decision by the SEC (which had no evidence to support it) as a primary reason for ASIC’s decision.

To break out of this cycle of following everyone else’s mistake there has to be an appeal to evidenced based policy making. Every time there is a market design change, the party motivating the change (whether it be a regulator, a market operator a broker or a trader) needs to confront the change pre and post with objective evidence of the likely impact of the change on fairness and efficiency, the uniform mandate of every single regulator in the world.  To do this we need to define and seek empirical proxies for fairness and efficiency and require parties motivating a change to demonstrate that the change will enhance fairness and efficiency or will enhance one without affecting the other before it is implemented or confirmed.

Researchers at the CMCRC are leading the way by demonstrating how evidenced based policy making is achievable. The framework they have created to address the issue, known as the Market Quality Framework, is designed for use by all would be motivators of market design change in securities markets.

In brief the framework identifies two key proxies for efficiency, namely, transactions cost and price discovery and three proxies for integrity, namely, insider trading, market manipulation and broker-client conflict.  We measure the proxies pre and post market design changes to provide objective evidence of the impact of market design changes on efficiency and integrity. The full framework is available from the CMCRC. So how might such a framework be useful?

Using the framework ASIC could demonstrate how the changes to the market it is contemplating in CP 145 would affect the efficiency and integrity of the Australian marketplace. Having such a framework may have saved Chi-X the four years wait it had to endure to secure a market licence in Australia. Had they provided evidence using the framework of the effect on efficiency and integrity of the introduction of Chi-X in the UK market, they might have got their go ahead a lot earlier. Had Magnus Booker used the framework to show how a merger of SGX and ASX would lead to enhancements in efficiency and integrity for Australian investors he might not be lamenting the Government decision.  At the very worst the ACCC would have had to address the evidence rather than appealing to the old chess nut that it was not in the national interest.

Of course studying market design changes elsewhere is no guarantee for what will happen here because a market at a point in time is the end result of hundreds of different market design changes over many years. In consequence this dictates the need for a study post the change in the market in question to confirm that expected outcome eventuated. That is the essence of evidenced based policy making which regrettably is in short supply in most regulatory decision making.

Michael J Aitken is the Chair of Capital Market Technologies at the Australian School of Business