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.
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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.
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.”