by: David Crowe From: The Australian September 14, 2012 12:00AM
THE union movement is urging a crackdown on high-speed trading on the sharemarket to shield investors from growing volatility, warning that the practice has become a threat to the nation's $1.3 trillion in superannuation savings.
The ACTU will today call on the government to stop the lightning-speed trades on the Australian Securities Exchange on the grounds that they create little economic benefit while encouraging manipulation that cheats ordinary investors.
In a surprise move, the ACTU is joining the push against high-frequency trading just as Financial Services Minister Bill Shorten expresses concern about the practice and industry super fund leaders warn of its risks.
The union move heightens the debate about the sharemarket trades amid a review by the Australian Securities & Investments Commission on how to regulate investors who move in and out of the market within milliseconds.
ASIC chairman Greg Medcraft warned earlier this year that the trades could affect the "fair, orderly and transparent" workings of the market, signalling the growing official concern about the growth of specialist high-frequency investment houses.
While market operator Chi-X has helped to enable the trend towards HFT, Australian Securities Exchange chief executive Elmer Funke Kupper this week said he wanted to "tighten the economics of the practice" to make it less profitable.
The ACTU will join the debate today by seeking a moratorium on all high-frequency trading, so that the regulator can do a full study of the costs and benefits of the practice.
Failing that, the peak union body wants to stop the very fastest trades by imposing a "minimum resting time" of one second for all transactions on Australian markets.
Another recommendation in the ACTU's formal submission to ASIC, obtained by The Australian, is a ban on "flash orders", in which traders gain advance notice of incoming orders, buy up stock ahead of the imminent purchase and sell them to the buyer.
It says additional fees should also be imposed on HFT operators who cancel orders regularly, seen as a common tactic by traders moving in and out of the market very quickly.
The ACTU is linked to industry super funds that manage $264 billion and are run by boards with trustees from unions as well as employer associations.
ACTU assistant secretary Tim Lyons, who is also a trustee at industry fund Hesta, said all industry fund boards needed to look at their relationships with investment banks to see if they were at risk from the rapid trading. "We recommend that each board look at HFT as an investment risk," he said.
A super fund could find that the investment bank it used to buy and sell shares was also running an HFT unit, raising questions about Chinese walls between the two operations,
Mr Lyons said. The ACTU submission counters arguments that HFT encourages liquidity and price discovery, saying instead that the liquidity is "thin" and leads to higher volatility that damages other investors.
"All participants (in the market) must be able to enter and participate in markets on a fair and equal basis," the submission says. "In the absence of such conditions, prices are more likely to deviate sharply from fundamental asset values, leading to speculation, volatility and market manipulation."
Mr Shorten told ABC Radio this week that there were "stability concerns" raised by some participants about HFT.
"There are concerns regarding its potential use in market misconduct, but there's also a body of research indicating it could contribute to market liquidity," he said.
The ASIC review could lead to long-term changes to the regulator's market rules.
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