ASIC tightens rules on AI and algorithmic trading, pushing Australian markets toward stricter controls

Australia’s corporate regulator has moved to tighten oversight of algorithmic and AI enabled trading, announcing amendments to the Market Integrity Rules on September 26, 2026 that expand obligations for testing, monitoring and governance of automated trading systems. The changes are designed to reduce the risk that trading algorithms create false or misleading market signals, and to align Australia’s rule book with international standards as AI adoption accelerates across trading desks.

What the regulator changed

The amended rules broaden the scope of existing trading system obligations so they explicitly cover algorithmic strategies that use artificial intelligence or machine learning. Firms will be expected to take reasonable steps to test algorithms before they run in live markets, to monitor their behaviour in real time, and to maintain governance frameworks that define responsibility and escalation pathways. The reforms also require mechanisms that can immediately halt aberrant algorithm activity, commonly described in industry as kill switches.

ASIC has also used this package to simplify and consolidate parts of the Market Integrity Rules, removing outdated or overly prescriptive provisions and clarifying the rule that prohibits conduct that creates a false or misleading appearance in a market. The regulator says the changes make the rules more technology neutral, and more consistent across securities and futures markets.

Timing and consultation

The regulator said the amended instrument will come into effect in 2028, and it has provided an extended 18 month transition period for firms to implement the new controls. ASIC is also consulting on updated regulatory guidance to help market participants operationalise the changes, including proposed revisions to two regulatory guides that set out expectations for participants in securities and futures markets.

Industry submissions and targeted engagement informed the final drafting, but ASIC has left room for further feedback on the guidance and practical implementation issues. The regulator set a deadline for written submissions on the guidance, recognising that firms and market operators will need time to adapt compliance, engineering and testing workflows.

Why regulators changed the rules now

Automated trading now dominates activity on many Australian trading venues. ASIC said the combination of faster execution, wider use of AI models and the systemic interconnectedness of markets increases the chance that algorithmic behaviour could amplify volatility or produce misleading order patterns. By spelling out testing, monitoring and governance obligations, the regulator aims to raise the baseline of operational risk controls and reduce the chance of market disruption caused by misbehaving algorithms.

The move also reflects an international trend. Global standard setters have published guidance on algorithmic trading and market resilience, and ASIC framed its reforms to bring domestic rules into closer alignment with those international principles. Greater consistency is intended to boost cross border confidence and reduce compliance friction for firms operating in multiple jurisdictions.

Market reaction and likely impact

Market operators, brokers and algorithmic trading firms will face implementation costs, including additional testing infrastructure, expanded monitoring systems, and changes to governance and incident response playbooks. Smaller participants may need to rely more on third party vendors to satisfy the new requirements. Over time, investors and counterparties could benefit if the regime reduces the frequency of disruptive algorithmic events and improves traceability when incidents occur.

Exchanges and clearing houses may also revise their own anomaly thresholds and circuit mechanisms so that operator level controls and participant level controls work together. ASIC emphasised that its approach is proportionate and technology neutral, intending to preserve room for innovation while strengthening market integrity.

What to watch next

Key near term milestones include the public consultation on updated regulatory guidance, and responses from market participants on implementation timetables and the operational detail of testing and kill switch requirements. Firms that operate automated trading strategies should assess their current testing regimes, monitoring dashboards and governance frameworks to identify gaps against the new expectations.

The rule change is not an isolated development. It sits alongside other policy work, including ASIC advice urging firms to upgrade cyber resilience as AI increases threat vectors, and broader Australian Government measures addressing the national framework for foreign investment, market infrastructure and financial stability. Together, those initiatives suggest regulators are preparing domestic markets for a future where AI is embedded across trading, clearing and surveillance systems.

For market participants and investors, the reforms mean clearer, and in some cases stricter, obligations for the safe use of automation and AI in trading. For policy makers, the changes represent a pragmatic attempt to keep regulatory standards current with fast moving technology while preserving orderly markets and confidence for global investors.