The conclusions flow from an analysis of dark liquidity and HFT by two internal Asic taskforces in response to concerns about the impact of new trading technologies on market integrity and quality.

Asic deputy chairman Belinda Gibson says: "Companies should have confidence that share prices reflect their true value, and that they are able to efficiently raise capital. Similarly, investors should have confidence that they will be able to buy and sell shares at a fair and efficient price on an orderly market."

She says the taskforces found that public concerns over HFT appear to have been "overstated" and can be attributed to the increasing use of trading technology by investors generally.

While the taskforce did not find systematic manipulation or abuse of markets by high frequency traders, it found that their trading strategies are commonly adopted by many other algorithmic traders, including the institutions.

Gibson says that many issues can be dealt with by existing regulations, although the watchdog intends to impose restrictions on HFT firms rapidly opening and cancelling multiple batches of small orders to test market prices

It was found that high-frequency trading in Australia is dominated by a small group of firms with the 20 largest entities accounting for about 80% of all HFT turnover (or 22% of total equity market turnover).

On dark liquidity, the taskforce found that while the volume of dark trading has remained around 25-30%, the composition of dark liquidity and internal bank crossing systems has changed significantly. Asic identified 20 crossing systems operated by 16 market participants and they have started to connect to one another.

Says Gibson: "Dark trading is now occurring in smaller sizes that are similar to 'lit' exchange markets and for some securities this has influenced their price. Asic uncovered some practices that require further controls and there are regulatory gaps that need to be filled."

The latter will entail "improved disclosure and supervision" of dark trading.

"Financial markets are always evolving," says Gibson. "Electronic trading has been with us since the 1970s. It is now exponentially faster and regulation must move with it."