In a speech given to the Australian Shareholders Association by ASIC chairman Greg Medcraft last week, he made favourable comments about both dark pools and high-frequency trading (HFT), concluding that they had become the “new norm”.
To put his optimism about market complexity into context, he was by no means as sanguine about other issues, such as insider trading, “we have been sending more people to jail than ever before”, or about that of financial advisers mis-selling, “those selling complex products to unsuspecting investors need to wise up.”
For high-frequency trading, ASIC has analysed data from surveillance feeds from the Australian Securities Exchange (ASX) and Chi-X Australia in order to identify the nature and extent of HFT in the market. The regulator conducted a detailed analysis of trading on equity markets over the nine-month period from January to September 2012.
ASIC carried out an analysis of equity market trading within ASX and Chi-X from January to September 2012, to try and determine the activity and implications of high frequency trading. They also spoke to both industry participants and regulators abroad to try and spot gaps in existing regulations.
“On the whole, we found that some of the public perceptions about high-frequency trading in Australia appear to have been overstated, with no evidence of systematic manipulation by high-frequency traders,” said Medcraft.
Their studies found that increases in order-to-trade ratios were moderate compared to overseas markets, and were not driven entirely by high-frequency traders.
With regard to dark pools, ASIC has suggested a new set of rules about order execution, with the aim of giving investors a measure of choice.
“These rules will provide sufficient investor protection from the impact of conflicts of interest and poor transparency that may result from excessive dark trading,” said Medcraft. “Excessive dark trading can impact the price investors pay for securities. We have proposed a trigger for a minimum dark order size that will provide an additional safety net for investors.”
In combination with the new price improvement rule, he thinks this will tackle the risks of excessive dark trading and ultimately provide greater capacity for Australian investors to use dark pools.