The ISN commissioned a study on this form of trading and believes it is costing long-term investors, including super funds and individual investors, more than $1.5 billion per year.
High-frequency trading involves using complex mathematical algorithms to analyse and respond to market information and issue orders and cancellations at higher speeds than other traders.
“A market system that caters to speed, rather than capital allocation, bestows an uneven playing field and gives traders whose strategies are based on relative speed advantages a leg up,” ISN’s director of policy, Zachary May, said.
High-speed trading, which can include trades that can now be executed a thousand times faster than the blink of an eye, according to ISN, accounts for 22 per cent of total market turnover in Australia.
The financial analyst firm advocates reforms to equity market structure to improve market integrity and fairness.
“ISN renews its call for the consideration of electronic call auctions, which level the playing field as all trades in the auction receive the same price and happen at the same time,” Mr May said.
“Doing so would go a long way toward bringing the focus of markets back to exchanging shares and allocating capital, while also supplying resilient liquidity.”
