ASIC Defines Trading Algorithm and Grants Market Until 2028 for Compliance

The Australian Securities and Investments Commission (ASIC) has officially established a legal definition for what constitutes a trading algorithm. This milestone is part of a comprehensive regulatory update aimed at modernizing the governance of automated and artificial intelligence-driven trading across Australian financial markets. By clarifying these definitions, the regulator seeks to address modern market complexities.

Under the new guidelines, a trading algorithm is broadly defined as any software designed to automatically determine parameters of an order. This includes software that dictates whether an order should be placed, its precise timing, pricing, quantity, or subsequent management. The broad scope ensures that both basic automated scripts and sophisticated AI models fall under regulatory oversight.

To help the industry adapt, ASIC has provided a generous transition period. Brokers, trading venues, and institutional firms have until March 2028 to ensure full compliance with the updated mandate. This extended timeframe allows market participants sufficient opportunity to re-engineer their technological infrastructure.

During this window, firms are expected to review and enhance their testing procedures, risk management protocols, and internal compliance controls. Automated trading systems have increasingly dominated order flow, making robust pre-trade risk checks and algorithm testing vital for market stability.

While the regulation targets traditional brokers and institutional venues operating under Australian jurisdiction, retail trading entities and automated prop trading operations targeting this market will also need to monitor compliance closely. Ensuring that algorithmic strategies align with ASIC standards will prevent potential regulatory enforcement actions.

Market participants are advised to use the multi-year runway proactively. Upgrading execution algorithms, validation frameworks, and documentation standards well ahead of the March 2028 deadline will mitigate operational disruptions.

As global regulators increasingly focus on the implications of AI and automated execution, ASIC's structured approach sets a notable precedent. Prop traders and retail brokers alike must stay informed on how these technological definitions will influence future oversight.