Flash boys in Australia only make millions, not billions

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(Bloomberg) -- Australia’s stock-market regulator has refuted a senator’s claim that high-speed traders make as much as $3 billion a year in the country’s equity markets.

The actual figure is a fraction of that, according to a report from the Australian Securities & Investments Commission released on Monday. High-frequency traders, who use sophisticated computer algorithms to execute deals measured in microseconds, raked in an estimated $110 to $180 million in revenue in the year ended March 2015, the commission said. Tasmanian Senator Jacqui Lambie claimed in June that HFT firms had reaped $3 billion by skimming profits from the funds of retirees and retail investors.

“The costs that high-frequency traders impose on other market users are material, but substantially less than the billions estimated by some commentators,” the commission said in the report. “High-frequency traders are trading somewhat more aggressively than in 2012.”

Lambie plans to examine ASIC’s estimates, a spokesman for the senator said by phone.

“The ASIC estimate puts it into perspective,” said Michael Aitken, chief executive officer of the Sydney-based Capital Markets Cooperative Research Centre. “It’s hard to make profit because of competition.”

Authorities in some of the world’s largest markets have sought to reduce the risks from automated trading. The main U.S. derivatives regulator will take its biggest step yet when as early as next month it imposes new curbs on high-speed trading. While there are concerns about predatory trading practices, this isn’t excessive in Australia, the commission said.

“People don’t understand it because it is a secretive community doing something that, while simple, actually needs to be explained and that makes it easy for them to make it a scapegoat,” said Joel Hurewitz, the global head of broker-dealer strategy at Nomura Holdings Inc.’s Instinet Pacific unit in Hong Kong.

High-frequency trading helps lower transaction costs for low-turnover securities, the Australian regulator said in its report. The cost of HFT firms to investors is at least 20 times lower than the charges that retail brokerages impose on their clients, ASIC added.

Competition and larger traded volumes have reduced the speed traders’ profit margins, according to Benedict Cheng, a Hong Kong-based managing consultant at capital markets adviser GreySpark Partners.

The level of HFT activity in Australia’s stock market kept steady at 27 percent of total turnover, comparable to Japan, the European Union and Canada, the regulator said. The number of speed-trader accounts, however, has fallen 30 percent since 2012. Overall daily turnover in the equity market averaged $5.8 billion in the three months ended June, according to the commission’s latest data.