Australia's corporate regulator has proposed further rules on trading in dark pools, but described public concerns over high frequency trading (HFT) as overstated.
The Australian Securities and Investments Commission says a taskforce charged with investigating high frequency trading "did not find systematic manipulation or abuse of markets by high frequency traders".
However ASIC said a separate taskforce looking into dark pools or dark liquidity - where securities are traded outside the exchange - uncovered "some practices that require further controls, and there are regulatory gaps that need to be filled".
"Both taskforces found potential breaches of market integrity rules and the Corporations Act, and some matters are being investigated," ASIC said in a statement.
Although the volume of dark trading had remained at about 25 to 30 per cent, ASIC said dark trading was now occurring in smaller sizes that were similar to "lit" markets.
"For some securities, this has influenced their price," ASIC said in a statement.
ASIC has proposed adding safeguards against dark liquidity negatively impacting prices, improved disclosure and supervision of dark trading and restrictions on "small fleeting orders".
Meanwhile, ASIC said trading strategies used by high frequency traders were "commonly adopted by many other algorithmic traders, including the institutions".
"We found public concerns over HFT appear to have been overstated and can be attributed to the increasing use of trading technology by investors generally," ASIC said.
In high frequency trading, buy or sell orders are determined by computer algorithms and the shares are usually held for a short time.
While many believed shares bought and sold through HFT are often held for only a matter of seconds, ASIC found only 1.2 per cent of frequency traders held their positions for an average of two minutes or less.
Moreover, the average hold time was 42 minutes.
"Many issues can be dealt with by existing regulations and there has been a marked change in the professional traders' behaviour during the course of the ASIC study," ASIC deputy chair Belinda Gibson said.
"Companies should have confidence that share prices reflect their true value, and that they are able to efficiently raise capital."Similarly, investors should have confidence that they will be able to buy and sell shares at a fair and efficient price on an orderly market."
The new magazine for a new generation of West Australians.Click here to download »
All the latest market figures from Australia and the world.Click here »
'The West Australian' is a trademark of West Australian Newspapers Limited 2013.
All rights reserved.
Select your state to see news for your area.