ASIC report shines a light on sharemarket's dark pools
But high-speed traders will be largely free to keep operating the way they have been, with few signs markets are being manipulated.
The Australian Securities and Investments Commission on Monday released its report on the impact of high-frequency trading and dark pools on local financial markets.
It comes after two taskforces were set up in June 2012 to investigate concerns that high-speed traders and dark liquidity were impairing market integrity.
ASIC found that fears about high-frequency traders in Australia appeared to be largely exaggerated.
"There is a belief by some that high-frequency trading is manipulative in a legal sense, or at least predatory in nature, and there is a perception that high-frequency traders uniformly have less regard for market integrity," the report states. "That perception is not supported by our study."
Australian Securities Exchange chief executive Elmer Funke Kupper welcomed ASIC's direction, especially proposals for greater transparency and better client information, and the examination of a minimum-size threshold trigger for dark orders.
"When it comes to tick sizes, we understand that there is judgment involved between promoting lit markets and making sure that HFT doesn't become a serious issue in Australia. Given that the current settings are working well, ASX believes a cautious approach should be adopted to any further change," he said.
"ASX agrees that we're seeing too many small orders today and that this needs to be better controlled. However, imposing minimum resting times is not an efficient or cost-effective way to control this issue."
Frequently Asked Questions about this Article…
Dark pools (or dark liquidity) are parts of the sharemarket where trades occur away from the public exchange. Because these trades aren't visible on lit markets, investors worry about transparency and price discovery. ASIC's report highlights the need for more transparency and better client information around dark pools to help protect everyday investors.
ASIC's study found that fears about high-frequency trading in Australia appear to be largely exaggerated. The report says the perception that HFT is uniformly manipulative or predatory is not supported by their analysis, and there are few signs markets are being manipulated.
No. The report suggests high-speed traders will largely be free to keep operating as they have, with ASIC focusing on transparency and market safeguards rather than broad bans on high-frequency trading.
ASIC recommended sweeping changes to improve transparency and client information in the largely unregulated corner of the sharemarket where dark pools operate. The report also proposed examining a minimum-size threshold trigger for dark orders to help control hidden trading volumes.
ASX chief executive Elmer Funke Kupper welcomed ASIC's direction, especially proposals for greater transparency, better client information and the examination of a minimum-size threshold trigger for dark orders. ASX also said the current tick size settings are working well and advised a cautious approach to change.
ASIC set up two taskforces in June 2012 to investigate concerns that high-speed traders and dark liquidity were impairing market integrity. The report released after those taskforces examined the impact of HFT and dark pools on local financial markets.
Tick sizes relate to the price increments used on exchanges. ASX said there is judgment involved between promoting transparent (lit) markets and making sure HFT doesn't become a serious issue. Given current settings are working well, ASX recommends a cautious approach to changing tick sizes.
Yes. ASIC's focus on greater transparency and better client information, plus examining minimum-size thresholds for dark orders, is aimed at improving market integrity and giving everyday investors clearer information about where and how trades occur.
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