ASIC reports on HFT and dark liquidity

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High-frequency trading (HFT) remains steady at 27 per cent of total equity market turnover, and dark liquidity has remained constant at 25-30 per cent of the market, according to a new ASIC report.

ASIC has released Report 452: Review of high-frequency trading and dark liquidity, following up its report of the same name in 2012.

The report found that negative sentiment of HFT appears to have "tapered off" since 2012.


"Market users have become better informed and equipped to operate in an electronic and high-speed environment," said ASIC.

The level of HFT in Australia, 27 per cent of total equity market turnover, is comparable to levels in Canada, the European Union and Japan, said the regulator.

"However, it is more concentrated [in Australia] (with 30 per cent fewer high-frequency traders) and high-frequency traders are more active in mid-tier securities than they were in 2012," said the report.

The report debunked the "perception" that HFT traders only hold their positions for a matter of seconds.

"In the March quarter 2015, on average, high-frequency traders held their positions for 52 minutes (equities), 31 minutes (SPI) and 39 minutes (bond futures)," said ASIC.

The report said that predatory lending (where trading is undertaken to exploit others or unfairly induce others to trade) "does not appear to be excessive in our market, but we do investigate instances where there may be a breach of the law".

When it comes to dark liquidity, ASIC said it has remained "reasonably constant in recent years" at around 25-30 per cent of total equity market turnover – although its composition "continues to change".

"In part as a result of rule changes made by ASIC, there has been a partial shift back to using dark liquidity for large block trades (ie the original purpose of dark liquidity), which accounted for 56.9 per cent of total dark turnover in the March quarter [of] 2015.

"At the same time, there are fewer small dark trades and they are now fairer, with any improvement to prices (compared to lit exchange markets) needing to be more equitably shared between counterparties (which was also required by the trade with price improvement ASIC market integrity rule)," said ASIC.


ASIC reports on HFT and dark liquidity
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