email to scott h., page-23

We shouldn't delude ourselves, we're just shrimps on the barbie...

Comment by the same writer:

High-frequency trading review looks in a corner, misses big picture
MICHAEL EVANS
February 9, 2010
ANALYSIS

The ASX has come up short in its initial review of the technologically charged and highly profitable world of high-frequency trading, preferring to highlight the dangers of a world in which it is no longer the monopoly market provider.

The ASX has conducted a narrow review of a fast-growing and controversial area of the market, and one that is being played out in public policy debates around the world, and in the courts in Australia and the US.

Shareholders are right to be asking whether there is a level playing field in the battle between man and machine, where computers can make trading decisions in milliseconds.

The US Senate is considering restrictions to parts of the practice. US court cases have detailed unsavoury trading practices involving market bullying, whacking down prices and intimidation, particularly in the commodities markets.

And in Australia, a high-profile court case between two local market heavyweights, Optiver and Tibra Capital, ploughs on amid intense secrecy over revealing computer codes used in the trading strategy because of their incredible value.

In reality, the ASX has an inherent conflict of interest about what - if anything - it wants done about regulating high-frequency and algorithmic trading, given its profitability to the listed ASX.

Effectively, the ASX has admitted it has looked in only one corner of the market - and didn't find anything.

That allows it to argue everything's been fine on our watch as supervisor, but, gosh, when you take away our supervisory powers and let in foreign competitors to challenge our monopoly, watch

out for the bad guys coming in from overseas. Don't say we didn't warn you.

It is true that the monopoly market in Australia does not allow for the kinds of arbitrage trading seen between trading platforms in the US and Europe.

But that doesn't mean unsavoury market practices are not on display.

In fact, the ASX review even details a fourfold increase last year in potentially illegal trading of ''wash trades'', with the acknowledgment that a wash trade ''is deemed to create a false and misleading appearance of active trading in a security'' and breaches the Corporations Act.

While the ASX's motive is profit, its enthusiasm for the supervision is doubtful.

Still, don't pop the cork just yet. The supervisory role will be handed to ASIC, run by a guy who used to run the very same ASX.