Australia investment regulator says looking at manipulation, predatory trading

SYDNEY (REUTERS) - Australia's corporate regulator on Monday (Oct 26) said it was inquiring into a small number of traders that were manipulating quarterly futures expiries, and has asked the Australian Securities Exchange to consider steps to discourage the practice.

The Australian Securities and Investments Commission (ASIC), in a report on high-frequency trading (HFT) and so-called dark liquidity pools, also raised concerns about conflicts of interest and predatory trading against clients.

"We will continue to monitor developments in high-frequency trading and dark liquidity, including the recent exponential growth of high-frequency trading in the futures market," ASIC said on Monday. "Our surveillance focus on predatory trading that manipulates the market will continue and we will actively enforce market misconduct laws," it added.

ASIC said HFT has grown 130 per cent in the futures market since Dec. 2013 to 21 per cent of volume traded in stock futures and 14 per cent of bond futures.

Dark liquidity has remained "reasonably constant" in recent years around 25-30 per cent of total equity market turnover.

Overall, the report concluded that current levels of HFT and dark liquidity were not adversely affecting the function of Australian markets for businesses and investors.

High-frequency trading refers to trades based on complex computer algorithms that guide decisions on what stocks to buy or sell. Using automated HFT ownership of traded shares may last only fractions of a second.

Dark liquidity or "dark trades" refers to orders away from the market, making them non-transparent. They have caused concern in the United States about whether firms are trying to manipulate prices in dark pools.

In 2012, ASIC introduced a number of "integrity rules" to help weed out bad players and practices.