Dark pools up as trading size down: ASIC

Algorithmic trading and dark pools continue to change the face of Australia's equity market, with the average size of trades falling to just $4900, down from $11,500 less than three years ago.

Algorithmic trading and dark pools continue to change the face of Australia's equity market, with the average size of trades falling to just $4900, down from $11,500 less than three years ago.

The Australian Securities and Investments Commission has released its latest report on trading activity on Australia's sharemarket.

The report covers trading activity for the three months to June. It shows the average trade size fell to $4900 in the June quarter, which is "considerably lower than the levels seen in previous years".

The declining trade sizes coincide with the increased popularity of dark pool trading, and the dominance of algorithmic trading in recent years, according to market watchers.

The ASIC report also shows that order-to-trade ratios - the number of times that orders are amended or cancelled relative to the execution of a trade - have increased slightly in the past three months.

In March this year, an ASIC report on high-frequency trading and dark pools said high order-to-trade ratios in the most popular stocks could cause investors to lose confidence in the market, while suggesting that pricing was inefficient.

"[An] excessive amendment of orders has the potential to undermine investor confidence in the market, because investors may question the credibility of quoted liquidity," the report said.

ASIC's report on Tuesday showed the country's order-to-trade ratio peaked around 10:1 after Chi-X Australia entered the market, with that trend reversing over 2012 after the introduction of Treasury's cost-recovery program.

That ratio declined to 6.8:1 by the end of March this year, but the latest report shows that the number has increased slightly to 7.1:1.

The report also shows the ASX accounted for 88 per cent of the total value traded in equity market products in the June quarter, with Chi-X accounting for 12 per cent.

It also shows the average quoted bid-ask spread among stocks on the ASX 200 index has remained "broadly unchanged" over the past two years, at 15 basis points of the midpoint price.

Bid-ask spreads are an indication of the cost of liquidity, and traders would like that number to be as small as possible.

ASCI's report says that average spreads for the whole equity market "have declined somewhat" in recent times.

The average daily turnover was $5.2 billion for the June quarter, up from $4.9 billion in the three months to March.

Related Articles