Last week, the Australian Securities and Investment Commission (ASIC) published its review of HFT (REP 452: Review of high-frequency trading and dark liquidity). As computer-based trading dominates trading activities in our market, it makes a timely and important review by the Commission. While it concluded that HFT activity is not of significant concern, the report raised enough issues to suggest that HFT has many more negatives than positives. HFT does not enhance liquidity, and nor does it operate on valuation metrics. It is speculatively driven and if used aggressively with shorting, can create fear and panic in markets. There are many behavioural studies that suggest that while greed and fear drive markets it is fear that is the more powerful force. Fear is a human trait that computer algorithms prey upon; and that point was totally missed in the analysis by ASIC. (VIEW LINK)
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