Super funds call for high frequency trade ban September 17, 2012 - 3:35PM
Australian regulators should consider banning high-frequency trading in the equities market, according to Industry Super Network, which represents the $1.3 trillion pension funds industry.
High-frequency trading, in which computer algorithms are used to buy and sell stocks in fractions of a second, can exacerbate slumps in the stock market and undermine investor confidence, the organisation said on its website. ISN represents Australian pension funds that have about 5 million individual members, according to its website.
Strategies that use computer algorithms to buy and sell shares are being scrutinised globally amid concern that they can destabilise markets and make them less equitable. The Australian Securities & Investment Commission is considering altering rules on market structure, which include regulations on algorithms and high-frequency trading. Submissions for the consultation to ASIC closed on Friday and proposals are expected next month.
"There is a compelling need for a moratorium on HFT and careful consideration of market structure reform to promote fairness and efficiency," Zachary May, head of regulatory policy at ISN, said in a submission to the regulator. "Unlike other jurisdictions where high-frequency trading is prevalent, Australia still has time to get ahead of this issue."
High-frequency and algorithmic trading has come under scrutiny by regulators since May 6, 2010, when about $862 billion was erased from stock values in 20 minutes before share prices recovered from the plunge. A trading malfunction at Knight Capital Group last month led to a $440 million trading loss at the market-making firm.
Public benefit
"Ultimately, this can come at the expense of long-term investors like super funds," May said in a statement today. "A moratorium would allow technological and market developments to proceed only after the risks have been carefully studied by ASIC. Further, the benefits of technology could be brought to bear for all investors in the public interest, not just a small subset of traders."
ASIC is currently assessing draft rules on market structure, which include regulations on algorithms and high- frequency trading, and will publish new rules and a regulatory guide in October.
Among proposed rule changes is a requirement that market participants be made responsible for ensuring orders submitted via their systems do not interfere with the integrity or efficiency of the market and that they can immediately shut down systems that might cause disruption.
'Of concern'
"This type of trading, and algorithms generally, continue to be of concern," ASIC deputy chairman Belinda Gibson saidlast month. "The measures we are proposing will strengthen our protection against the type of disruption we have seen recently in other markets."
Australia's pension savings pool was worth A$1.3 trillion as of June 30 last year, Australian Prudential Regulatory Authority data show.
ASIC spokesman Andre Khoury declined to comment. Submissions that didn't ask to remain private will be posted on its website in due course, he said.
