The Australian Securities and Investment Commission (Asic) is proposing new certification rules for broker trading systems, stringent annual tests, and draft market integrity rules requiring direct control over filters and automated controls to suspend orders and/or systems.

Asic's guidance follows a two-year study into the impact of high frequency trading systems in Australia as the market opens up to fresh competition from exchange-trading venues such as Chi-X. It also comes in the wake of series of wild swings in US and European markets that have sparked fresh debate over the impact of rogue trading systems and algorithmic programmes on market integrity.

In an indirect reference to the recent case of Knight Capital - brought low by an out-of-control algorithmic trading pattern - Asic deputy chairman Belinda Gibson says: "Recent events overseas are a reminder of the speed and automation of markets and the importance of robust controls over those systems.

"The increasing automation of trading, and Asic's focus on it, is also evident in our market supervision report, which identified issues from high frequency trading. This type of trading, and algorithms generally, continue to be of concern. The measures we are proposing will strengthen our protection against the type of disruption we have seen recently in other markets."

Pre-trade risk management forms a critical element in the reform package, with Asic proposing to fine firms up to a $1 million if they fail to make adequate arrangements for tracing the origin of orders from their trading systems.

Further reform measures are also in the pipeline. Asic's senior executive leader of market and participant supervision Greg Yanco says: "Asic continues to work closely with market participants on order management including problematic algorithms. It is an area of focus, and we will be engaging with participants actively in coming months, especially given the potential for market disruption when things go wrong."

Read the full Asic paper: