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High frequency trading has a toxic effect on equities market

Wednesday, July 29th 2015, 12:39PM

High frequency share trading, which favours “predatory strategies that queue jump institutional and retail investors”, is having a toxic effect on Australia financial markets, according to researchers at the University of Sydney Business School.

A study has found that a high speed system known as ITCH, introduced by the Australian Securities Exchange in 2012, has also driven up transaction costs for ordinary investors relative to high frequency traders.

“High-frequency traders gain from their speed advantage at the expense of slower institutional and retail traders, and this advantage primarily comes from dealing on advanced information not available to all investors, says a report on the study. “This behaviour, known as front running, is seen by many investors as predatory.”

The researchers describe high frequency trading as “one of the most significant changes to market structure in recent years, as it capitalises on faster response times than slower traders when new information arrives in the market.”

Read the report here

Tags: ASX

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