Super funds in joint action to curb 'unfair' high-frequency trading

Some of Australia's biggest super funds have written to the Australian Securities and Investment Commission, expressing concern about the growth of ultra-fast electronic trading in the local equity market.

The group - representing more than $1 trillion under management - has also asked the corporate regulator to consider reforming the way in which the Australian Securities Exchange gives information to market participants, believing the ''unfairness embedded in the structure of the market'' has allowed high frequency traders to thrive, to the detriment of others.

The group argues that HFTs have an unfair advantage over traditional investors claiming they can see information a fraction of a second before other market participants. The group claims the ASX allows this to happen by offering them ''special access'' through ''co-location facilities'' and ''special data feeds''.

Given the speeds with which HFTs operate, this is undermining market fairness and contributing to a ''two-tiered market'', the group says.

''We believe attention must be directed towards issues of market fairness, and towards certain practices commonly associated with high-frequency trading,'' the letter says. ''We request that ASIC consider reform at the exchange level.''

The move comes as global concerns about high-speed computerised trading continues to rise. Germany recently approved a draft law aimed at reining in the practice and the European Parliament voted to force trading venues to slow the speed at which orders can be made.

In Australia, about 30 per cent of all stock trading is done by HFT.

The Australian fund managers say the provision of ''non-discriminatory access'' to special information is not fair.

''Market fairness involves the dissemination of information by market operators that results in a level playing field, this is different from the provision of 'non-discriminatory access'.''

But Carole Comerton-Forde, of ANU's College of Business and Economics, says access to co-location and fast data is non-discriminatory, so anyone who wants to buy that access can do so.

''Each individual investor has to make a decision on whether it's worth investing in that technology to get that advantage,'' Professor Comerton-Forde said. ''I don't really see that as much of an issue, as long as the data that's being made available is consistent and available to everyone that wants to pay.''

A spokesman for the ASX said the exchange provided non-discriminatory access to its services and it did not give a select group of customers access to information before others.

It comes one month after the Industry Super Network - the funds manager on behalf of many of the nation's industry super funds - called for a moratorium on HFT in Australia's financial markets to allow regulators to come to grips with the new technology.

Last year, the Reserve Bank's assistant governor of financial markets, Guy Debelle, said there was no evidence that HFT caused market shocks. He did say that HFT ''may accelerate and propagate'' shocks that begin elsewhere.

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