No brakes on high-speed trades: ASIC

The corporate regulator says it will not put the brakes on high-speed traders by forcing brokers to hold small trades for a "minimum resting time".

The corporate regulator says it will not put the brakes on high-speed traders by forcing brokers to hold small trades for a "minimum resting time".

The chairman of the Australian Securities and Investments Commission, Greg Medcraft, said the proportion of super-small trades on the Australian Securities Exchange had fallen 55 per cent in the past two months, due to increased regulatory supervision.

Small trades now comprised 1.6 per cent of all untraded orders, down from 3.6 per cent in March, he said.

"Already we have seen considerable lessening of noise created by small and fleeting orders and expect there will be further improvement," he told the Stockbrokers Association's annual conference in Sydney.

His comments relate to so-called "small and fleeting orders", which critics say create excessive "noise" in the market and offer little economic utility.

High-frequency traders (HFT) have been accused of using multitudes of small transactions to create market volatility, and the issue has become a heated one as the number of HFT firms has increased since 2010.

ASIC established a taskforce on high-speed trading last year to investigate concerns about the impact such trading was having on market integrity.

But in March this year it released a report in which it said high-speed trading was largely benign, and the growth in so-called "dark execution" was a greater concern.

Elmer Funke Kupper, the head of the ASX, said he did not support plans to require brokers to hold small trades for a minimum time.

He said minimum resting times would not make a difference in practice because the issue was with the number of small orders, not their speed.

He also said it would be expensive to implement such changes.

"The idea of a speed limit sounds tempting," he said. "We believe there is an issue with the number of small trades but the issue is not with speed. It may give high-frequency traders another arbitrage opportunity at the expense of genuine investors. Remember, they are better than anyone else at exploiting complexity and speed."

Mr Funke Kupper, who has been with the ASX for 20 months, said 40 per cent of all trades on the ASX were now below $500, but the increase in small orders was made by broker algorithms that broke up trades for investors, rather than by high-speed traders.

Professor Carole Comerton-Forde, of Melbourne University, said the research showed that high-speed traders supplied more liquidity to the market than they demanded.

She said academic literature from the US suggested HFTs contributed greatly to price discovery.