This was in this week's Melb Herald Sun (Feb 9th)with the header...

This was in this week's Melb Herald Sun (Feb 9th)with the header KEEN EYE ON HIGH FREQUENCY TRADES

Algorithms used to be a clear sign that it was time to leave mathematics behind and take an easier subject.
It turns out that it may have been profitable to keep learning with the Australian Securities Exchange inquiry into algolrithmic and high frequency trading finding that it does give the big operators an edge and can disrupt markets.

Computer trades using algorithms now make up an amazing 60% or more of all trading on the US share market with large brokers spending millions of dollars on new programs and getting physically closer to a live market feed to get the earliest data.

In that way the computer programs can perform thousands of trades in a second before human operators can even react to market changes.
Among other things algorithms are designed to break up large "iceberg" buy or sell orders into smaller parcels with the aim of trading the same number of shares at a better overall price.
On the other side buyers "ping" small buy and sell orders at different prices into the market to try to identify a large "iceberg" order and try to profit on that knowledge.

According to the ASX inquiry, algorithmic trading is much less common in Australia but it is increasing fast and could be sped up by the introduction of competition for the ASX and the so called "dark pools" in which institutions can trade shares anonymously.
That could lead to computers searching out and trading on different prices between different trading platforms to make arbitrage profits.

In one of the greatest hospital handpasses in recent memory, the ASX has now referred its report to the Australian and Investments Commission for action when it takes over the role of market regulator later this year.

It recommends that ASIC road test all new trading algorithms introduced into Australia to ensure they don't disrupt trading before allowing their use and be prepared to order the removal of individual algorithms being used during trading hours if they cause market distortion.

ASX does plan to make some changes of its own to keep markets honest, including charging trade cancellation fees and creating share-specific circuit breakers for cases in which algorithms create trading problems.

Similar inquiries into algorithmic trading in the US and the UK are examining whether computer trading worsened the financial crisis or was used to manipulate markets and generate windfall trading profits for large brokers.