The Australian Securities and Investments Commission (ASIC) has today published its latest review of high-frequency traders and their impact on Australian-US dollar cross-rate and Australian equity markets.
The report, which builds upon analysis conducted by the securities regulator in 2013 and 2015, found that high-frequency traders account for a quarter of all market transactions in equities and the AUD/USD cross-rate but their market presence is declining.
In the review, ASIC found that high-frequency traders have a positive contribution to price formation which benefits all investors in the market. In addition, in times of market stress or peak demand, they also provide important Liquidity .
ASIC notes that while natural market users are impacted by costs from high-frequency trader intermediation, this cost is small and it is trending down.
High-Frequency Trading for AUD/USD Cross Rate
For the AUD/USD cross rate, the turnover of high-frequency trading is steadily falling and is in line with the lower volumes over the global multi-dealer platforms. Now, high-frequency traders account for 25 percent for all AUD/USD trading. This is down from the high of 32 percent achieved towards the beginning of 2013.
The decline in volume is a reflection of the falling number of high-frequency traders. However, despite the drop, their relative concentration has increased as the top five traders make 86 percent of all high-frequency trades.
The report from ASIC also highlights that the lower volumes of high-frequency trades have been compensated with higher returns.
According to the statement released by ASIC today, the review of high-frequency trading in the AUD/USD cross rate is part of a wider investigation of the wholesale foreign Exchange markets.
Cathie Armour
Source: Chief Executive Women
Commenting on the findings, ASIC Commissioner Cathie Armour said: “financial markets play a critical role in the Australian economy. It is vital that they operate fairly and efficiently and that investors have trust and confidence in their operation."
“High-frequency activity has declined over the past three years but still retains a substantial footprint across our markets. This review reinforces the strength of the Australian market structure and the importance of having a varied mix of traders and investors in our markets.”
