As Australia looks to tighten rules on high-frequency
trading (HFT), regulators across Asia are contemplating varied responses to potential
increases in HFT volumes.
In a consultation paper closing this Friday, the Australian
Securities and Investments Commission (ASIC) has suggested an assortment of new
measures, including pre-order filters managed by brokers to protect the market
from erroneous trades and order kill switches.
But some experts – including Dr Alex Frino, professor of
finance at the University of Sydney Business School and CEO of the Capital
Markets Cooperative Research Centre – believe the measures will adversely
“The problem with the pre-order filter is they add
significant latency to the marketplace, which would make a portion of the HFT
community non-viable. My concern is they could be providing good liquidity to
the market, which would disappear,” Frino said.
“Within the HFT community you’ve got very heterogeneous
parts of HFT activity and our studies have shown the pool of HFT trading is a
net provider of liquidity in Australia. Their liquidity provision increases
during significant market events,” Frino said.
Other HFT changes across Asia include the possibility of new
venues introducing competition in Korea and presenting HFT firms with increasing
opportunities for price arbitrage.
Last year, Korea’s Financial Services Commission (FSC)
proposed legislative changes to let alternative trading systems compete with
the incumbent Korea Exchange, but national elections and FSC management changes
have delayed a decision.
Yet HFT firms could be discouraged from Korea due to tax
rules announced by the country’s Ministry of Strategy and Finance, introducing
taxes on Korea Composite Stock Price 200 Index options and futures.
Futures will be taxed at 0.001% of the transaction value,
while the options tax will be set at 0.01% of the premium for the option. Both will
be effective from 1 January 2016.
In Hong Kong, a two-month public consultation by market
regulator the Securities and Futures Commission ends 24 September, ahead of
updates to electronic trading regulation addressing a range of issues which
include expected increases in HFT.
Singapore has already experienced a rise in HFT activity due
to the launch of co-location services last year, where clients can place
trading platforms close to the exchange’s matching engine to reduce latency, creating
price arbitrage opportunities.
India has recently seen an investor uproar against HFT
trading, with a 260-strong Delhi-based group – the Intermediaries and Investor
Welfare Association of India – attempting to have automated trading banned
across Indian venues, claiming it gives unfair advantage to those who can
afford the best technology.
The petition was filed at the Delhi High Court, claiming the
Securities and Exchange Board of India (SEBI) and the country’s finance
ministry had neglected to protect retail investors while algo traders and
co-location services made trading harder for ordinary investors. The court
ruled that SEBI, the exchanges and the ministry must provide answers to the
accusations before a hearing set for 29 January.