The head of the Australian Securities Exchange (ASX) says charging for certain high-frequency trades is the best way to manage problematic behaviour.
ASX Ltd CEO Elmer Funke Kupper estimates that about 15 to 25 per cent of trading on the Australian market is done through high-frequency transactions.
“When it comes to high-frequency trading, our view is that we need to continue to work on the economic incentives of the trading mould to make sure that we manage the behaviours that can be problematic,” Mr Funke Kupper told the ABC’s Inside Business program on Sunday.
Some investment bankers wanted to be sure their investments were aligned with the market, he said.
“You can do that by charging for the right types of transactions that high-frequency traders use and I think that’s where we will go in Australia,” Mr Funke Kupper said.
His comments came after the equity market operator reported a four per cent drop in annual net profit last week, blaming decreased investor activity arising from Europe’s debt crisis.
Mr Funke Kupper said trading revenue for high-frequency trades, which is done using algorithms to conduct large numbers of stock orders, was about $5 million to $9 million, but it was still difficult to estimate.
“I can’t confirm because we actually don’t know what that number is exactly,” he said.
The ASX is concerned about the ongoing fragmentation of the market, prompting it to make a submission to the government to put in place measures which it says will protect the quality of the market.
The submission comes as the daily average value of securities traded on the ASX in July was about $3.5 billion, the lowest trading value per day since mid-2005.
Fund managers have complained that frequency trading is resulting in market manipulation at the expense of mum-and-dad investors.