The government has approved new rules clamping down on high-frequency share trading, in response to fears the market's integrity was being threatened.
The Financial Services Minister, Bill Shorten, 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 for tighter regulation of high-speed trading in recent months, saying the practice posed risks to market stability.
In response, the government 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 which takes place outside transparent "lit" markets such as ASX – will also be more tightly regulated to ensure they are in the interests of investors.
Mr Shorten said the rules were an attempt to level the playing field without over-regulating trading.
"This puts more emphasis on the lit market . . . it's about ensuring that a range of different players in the market can get access to good deals."
"Other countries have had to work it out the hard way, we've got an opportunity to do it right, without necessarily the full problems of a full flash crash."
The chief executive of the Financial Services Council, John Brogden, said the measures had struck the right balance between protecting investors and regulating activity.
“We fully support these proposals which provide the flexibility for ASIC to monitor the market and introduce further controls at a later stage if necessary,” Mr Brogden said.