Impact of high-frequency trading

29 October 2015
According to the latest ASIC findings on high-frequency trading and dark liquidity, our markets and economy have taken the practices comfortably in their stride.

ASIC analysed trading on Australian equity markets from 1 January 2012 to 31 March 2015 as well as trading in the SPI and bond futures for the period 1 December 2013 to 31 March 2015.

“Financial markets play a critical role in the Australian economy. It is vital that they are fair, orderly, transparent and efficient and that investors can have trust and confidence in their operation,” said ASIC Commissioner Cathie Armour.

“ASIC has concluded that current levels of high-frequency trading and dark liquidity are not adversely affecting the function of Australian markets for businesses and investors.”

High-frequency trading

ASIC’s key findings in relation to high frequency trading are as follows:

  • The level of high-frequency trading in our equity markets is reasonably steady at 27% of total turnover.
  • High frequency traders are estimated to have earned $110–180 million in aggregate over the 12 months to 31 March 2015. This translates to a cost of 0.7 to 1.1 basis points to other market users.
  • High-frequency trading does not appear to be a key driver of transaction costs.
  • Predatory trading is not excessive in the market, although concerns do remain.
  • In terms of Australia’s futures markets, high-frequency trading represents 21% of traded volume.



Dark Liquidity

ASIC’s key findings in relation to dark liquidity are as follows:

  • A positive development has been a partial shift back to using dark liquidity for its original purpose, namely large block trades to reduce market impact.
  • There is a trend here and overseas toward exchange and crossing system operators seeking to preference some market users over others (e.g. better or worse order execution priority) for dark trading. These developments have the potential to undermine fair and non-discriminatory trading and may be inconsistent with operators’ obligations.
  • There are some concerns about how some market participants are managing their conflicts of interest for principal trading and client facilitation.

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