It has been a long time since posting in this forum because of a...

It has been a long time since posting in this forum because of a headache from the head against a brick wall syndrome, caused through the lack of reasonable replies from the ASX, ASIC and Parliamentarians.

I have added a follow up to this distant thread because Don Randall finally had a reply from David Bradbury after almost 12 months, which he forwarded to me this week.

Even politicians find it difficult to engage in mature and timely communication.

Don Randall, MP, originally forwarded my submission 17 May 2010 to the Minister for Financial Services but it ended up with David Bradbury, Parliamentary Secretary to the Treasurer in his portfolio responsibility for ASIC.

Don Randall's office offered their apologies in the extreme delay in getting a response from the minister but I assured them it was par for the course with any submissions in relation to the use of algorithmic trading to manipulate the markets.

The low priority in forwarding a response, and the failure to acknowledge that algorithms can be used in price manipulation, confirms my belief in the lack of understanding and priority in tackling the problem on behalf retail investors who are competing in an uneven playing field when investing/trading in Australian Companies.

For those interested - here is the response I received:

'The Hon David Bradbury MP
Parliamentary Secretary to the Treasurer

21 APR 2011

Dear Mr Randall

Thank you for your personal representations of 17 May 2010, originally directed to the Minister for Financial Services, Superannuating and Corporate Law on behalf of Mr iam, concerning algorithmic trading and market manipulation on the Australian Securities Exchange (ASX). Your letter has been referred to me as I have portfolio responsibility for the Australian Securities and Investments Commission (ASIC). I apologise for the delay in responding to you.

Mr iam's letter appears to equate algorithmic trading with market manipulation. Algorithmic trading (or automated order processing) is a practice that is widely used on financial markets around the world. Most algorithmic trading is not manipulative. In general, the Government does not seek to impose regulations that would seek to restrict or inhibit legitimate trading behaviour. However, the Government is concerned by any behaviour that seeks to manipulate the market.

Any deliberate attempts to force a security's price to an artificial level are illegal, irrespective of the method(s) employed. Where this is suspected, the ASIC will investigate the matter. If the activity is determined to constitute market abuse, ASIC will pursue appropriate sanctions under the Corporations Act 2001.

Reflecting the serious nature of such activity, on 28 January 2010, the Government announced its intention to substantially increase the penalties for market manipulation offences. Following the election, the Government maintained its commitment to this policy, with the commencement of the Corporations Amendment Act (No. 1) 2010 on 24 November 2010.

These changes included provisions to increase the penalties for individuals to $500,000 or three times the profit made or loss avoided, whichever is greater. For corporations, the penalty is now the greater of $5,000,000, three times the profit made or loss avoided, or 10 per cent of the corporation's annual turnover during the period the breach occurred. In addition, offenders may be imprisoned for up to 10 years.

Mr iam's letter refers to the ASX report into algorithmic trading and market access arrangements, released in February 2010. I note that the report concluded that algorithmic trading has not had a harmful impact on the market, and that it has not raised any major supervisory or operational issues for the ASX. However, it did identify a number of areas for improvement, including recommendations for ASIC, to ensure that algorithmic trading does not affect market integrity in the future, especially in light of the proposed introduction of market competition. I am confident that ASIC will give full and careful consideration to these recommendations.

The Government will continue to monitor developments in the area to determine whether any further regulatory changes are needed to ensure the continued integrity of Australia's financial markets.

On 4 November 2010, ASIC released for consultation a comprehensive package of proposals regarding Australia's equity market structure (available at ASIC's website, www.asic.gov.au). Although primarily for the purpose of introducing market competition, the proposals consider other issues pertinent to the regulatory framework, such as algorithmic trading and the increasing global trend towards automation. ASIC is currently reviewing industry feedback and submissions received from interested parties in response to this consultation package.

Algorithmic trading is much more prevalent in overseas jurisdictions. Foreign regulators have been grappling with this issue for much longer than Australian regulators, and many are currently reviewing its impact on their markets as well as potential regulatory responses. As is customary with matters of mutual concern, Australia's regulators will continue to communicate with their international counterparts on this issue.

As you may be aware, early last year the US regulator, the Securities and Exchange Commission (SEC), released a consultation paper on various market issues, including aspects of algorithmic trading (such as high frequency trading, and the quality and fairness of a highly automated, high speed market). I understand that the SEC has received a significant number of submissions to date, and that this consultation process is on-going. I am sure that ASIC will take a keen interest in the outcome of this consultation process.

Mr iam's letter also suggests a number of recommendations for consideration regarding algorithmic trading and market manipulation. The Government welcomes public input into the legislative reform process and will give due consideration to Mr iam's suggestions. However, I would like to emphasise that algorithmic trading and market manipulation are two separate issues. Algorithmic trading is simply a tool - it is unlikely to be a cause for concern when used for legitimate trading purpose. The Government is continuing to work with regulators and market operators to ensure that appropriate safeguards are in place to detect, punish and, where possible, prevent manipulative activity, to ensure that the stability and integrity of the Australian capital markets are not put at risk.

Thank you again for writing on behalf of Mr iam and I hope this information will be of assistance to him.

Yours sincerely

David Bradbury'

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