Financial Services Minister Bill Shorten. Photo: Penny Bradfield
THE federal government has approved new rules clamping down on high-frequency share trading, in response to fears the market's integrity was being threatened.
Financial Services Minister Bill Shorten on Tuesday said the policies - including mandatory ''kill switches'' for algorithmic trading - would improve Australia's chances of avoiding a ''flash crash'', seen in the United States in 2010.
Investor groups, some banks and the Australian Securities Exchange have called in recent months for tighter regulation of high-speed trading, saying the practice posed risks to market stability.
In response, the government on Tuesday gave the Australian Securities and Investments Commission new powers to police the use of computerised algorithms, as well as tighter rules on trading in ''dark pools''.
Under the changes, brokers operating high-speed trading algorithms will be required to have ''kill switches", which immediately stop the algorithm from trading in the event of a ''flash crash''.
Trading in dark pools - transactions that take place outside transparent ''lit'' markets such as ASX - will also be more tightly regulated to safeguard investors.
Mr Shorten said the rules were an attempt to level the playing field without over-regulating trading.
Financial Services Council chief executive John Brogden said the measures had struck the right balance between protecting investors and regulating activity.
Exchange operator ASX also threw its support behind the rules, saying they will ensure investors can continue to have confidence in the nation's financial markets.