Asic hits out at 'Flash Boys' hysteria

Asic hits out at 'Flash Boys' hysteria

The Australian Securities and Investment Commission (Asic) has hit out at media criticism of its apparently laissez-faire approach to high frequency trading and the 'hysteria' which has gripped the markets following the publication of Michael Lewis' damning expose of 'Flash Boy' traders.

In a market supervision update, the Aussie watchdog slams media 'horror stories' about the possible role of HFT activity in undermining market confidence in Australian share trading.

Much of the hype has centred on recent publication of the US book Flash Boys by Michael Lewis, which claims that high-frequency trading firms and their fast computers have effectively rigged the US stock markets, and in doing so have made billions of dollars by leaping in front of investors.

The book has led to a wide-ranging bout of soul-searching in US markets, and triggered a host of investigations by regulators and law-makers, including the FBI.

Asic conducted its own research into the impact of HFT on the Australian markets in 2012, but shelved plans in June last year to introduce tougher rules on high frequency trading and dark pools following a dip in fleeting small orders by HFT traders and lower activity in dark markets.

With HFT activity on the wane, Asic dropped earlier plans to rest small orders on the market for a set time in favour of tweaking a number of rules regarding manipulative market behaviour and banning payment for order flow.

"Asic's lack of hysteria regarding high-frequency trading should not be mistaken for complacency," says the watchdog. "We have taken a proactive approach to ensure we have a regulatory framework that can deal with the technological advancements that exist in our market.

"While market conditions - including in relation to high-frequency trading - may be more toxic overseas, to suggest that they are as a result toxic here, is folly."

Comments: (1)

Dan Barnes
Dan Barnes - Information Corporation - London 29 April, 2014, 11:57Be the first to give this comment the thumbs up 0 likes

Actually ASIC did implement dark pool rules, but decided that HFT was not in itself an issue. 

It is the front-running of trades that are bounced between venues that is the problem identified in Flash Boys, which relates specifically to latency arbitrage HFT, not all HFT. Therefore restricting the routing of trades to alternative venues, increasing their transparency around order flow and addressing conflicts of interest would seem a perfectly rational strategy. 
See http://asiaetrading.com/asia-etrader-magazine/asia-etrader-magazine-issue-eight/ for details.

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