The Australian Securities and Investments Commission (“ASIC”) released a market report this week which included comments on “problematic algorithms” used in high-frequency trading software. Unlike U.S. CFTC Commissioner Bart Chilton, who has been very vocal about his distrust of the “cheetah” traders that take advantage of this software, the ASIC is suspicious of the programs themselves.
Greg Yanoc, ASIC’s head of market supervision explained that “…it’s more about badly written or poorly written algorithms that cause spikes in the market or may cause a cascading effect.” The worry is that a program will malfunction, sending the market into a “flash crash” similar to the one seen in New York last year.
In the market report, regulators explain that they took time to speak to traders regarding faulty algorithms. According to their notes, fourteen companies took pre-emptive action based on these discussions, a slight increase from last period.
In addition to high-frequency trading, the report discussed exchange-traded funds (“ETFs”), insider trading, and market manipulation.