ASIC, the stock market regulator has cracked down on high-speed investors who have been blamed for much of the increased volatility in the ASX in the current period of elevated volatility.
In a statement issued Monday morning, ASIC it clear, without directly mentioning them, that it had taken aim at automated stock trading operators and high-speed speculators (who are using computer programs and algorithms to buy and sell shares rapidly to try and earn profits from small pricing differences).
ASIC told them in the statement to cut their daily volumes 25% from the record levels seen on Friday when the ASX saw an 8% plunge in early trading and then a 12% rebound to close up more than 4%. ASIC said this has the potential to cause back-office problems with brokers and investment banks and others in the market which could cause problems.
It is the first time the regulator has ordered high-speed traders to cut their activities. In past problems, such as in the GFC and its aftermath ASIC had limited short selling by investors (using shares borrowed from investors for a fee to try and drive down the price).
It is believed the order from ASIC on Monday is the first globally to high-speed traders, who have arisen since the GFC using cloud computing and algorithms to try and discover price discrepancies and trade rapidly to make thousands of small profits a minute.
In the statement issued before trading, ASIC said it was making the move “As part of the Australian Government’s response to the novel coronavirus (COVID-19), ASIC has taken steps to ensure Australian equity markets remain resilient”
ASIC said it had issued directions under the ASIC Market Integrity Rules “to a number of large equity market participants, requiring those participants to limit the number of trades executed each day until further notice.”
“These directions require those firms to reduce their number of executed trades by up to 25% from the levels executed on Friday. This action will require high volume participants and their clients to actively manage their volumes. We do not expect these limits to impact the ability of retail consumers to execute trades.”
The regulator (which made it clear the statement was issued with the approval of the council of financial regulators (ASIC, RBA, APRA, and Federal Treasury) said: “This action is pre-emptive and intended to maintain those high standards.”
“While there was no disruption to market operations on Friday, there was a significant backlog of work required to be undertaken over the weekend by the exchanges and trading participants. If the number of trades executed continues to increase, it will put a strain on the processing and risk management capabilities of market infrastructure and market participants,” ASIC warned.
