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Monday 26 October 2015

15-311MR ASIC publishes results of new reviews of high-frequency trading and dark liquidity

Financial market users have become better able to operate in an electronic and high-speed environment, according to the latest ASIC findings on high-frequency trading and dark liquidity.

ASIC today released a report examining the impact of high-frequency trading on Australian equity and futures markets and dark liquidity on Australian equity markets.

Report 452 Review of high-frequency trading and dark liquidity (REP 452) was the result of two new reviews, which build on ASIC's 2012 analysis of equity markets, and assess the impact of high-frequency trading on our futures exchange markets.

ASIC Commissioner Cathie Armour said 'ASIC has concluded that current levels of high-frequency trading and dark liquidity are not adversely affecting the function of Australian markets for businesses and investors.'

'Financial markets play a critical role in the Australian economy. It is vital that they are fair, orderly, transparent and efficient and that investors can have trust and confidence in their operation.'

High-frequency trading

ASIC's updated analysis showed that market users have become better informed and equipped to operate in an electronic and high-speed environment, and negative sentiment about high-frequency trading has reduced.

The level of high-frequency trading in Australia’s equity markets has remained steady (at 27% of total turnover). High-frequency trading has grown by 130% in the futures market since December 2013 to 21% of volume traded in the SPI and 14% of bond futures. These levels are not currently concerning, however, ASIC will continue to monitor their development.

High-frequency traders have become more sophisticated, generating higher gross revenue and trading more aggressively than in 2012. They are also more active in mid-tier securities.

Predatory trading by high frequency traders does not appear to be excessive in our market, but we do investigate instances where there may be a breach of the law. Some institutional investors have become more sophisticated, increasingly managing their own order flow and execution decisions so they can limit interaction with predatory traders and improve their trading outcomes.

Dark liquidity

Dark liquidity has remained reasonably constant in recent years at around 25–30% of total equity market turnover. However, its composition continues to change. Since ASIC’s 2012 review, there has been a shift back to using dark liquidity for its original purpose – that is, for large block trades.

Feedback from stakeholders also indicated that there was now less concern with dark liquidity in our markets. Concerns ASIC previously held about the transparency and fairness of market participant-operated crossing systems have mostly abated.

However, ASIC remains concerned about exchange market and crossing system operators seeking to preference some users over others. It is concerned about the methods used by some market participants to manage their conflicts of interest for principal trading and client facilitation.

To increase accessibility, ASIC has also published a summary version of the report: see Information Sheet 209 Review of high-frequency trading and dark liquidity (INFO 209).


In 2012, ASIC analysed the impact of high-frequency trading and dark liquidity on the quality and integrity of our equity markets. These reviews culminated in Report 331 Dark liquidity and high-frequency trading (REP 331). We also introduced a number of ASIC market integrity rules to address the concerning behaviour we had observed, particularly with crossing systems.

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Last updated: 23/03/2016 03:07