High-Frequency traders who bombard the stockmarket with trade messages should wear a higher share of the supervision costs than genuine traders, according to Australia's retail fund managers.
The Financial Services Council said it would support shifting the bulk of cost-recovery charges imposed by the Australian Securities and Investments Commission further towards messaging.
New regulations propose charges to cover the estimated 10 per cent of ASIC's market supervision costs created by messaging from high-frequency traders.
In a submission on cost-recovery measures for ASIC, the FSC said market makers who provided genuine liquidity and who facilitated trade in exchange-traded funds should be exempt from the higher messaging charges.
High-frequency traders seek to profit from large numbers of usually small trades and small movements in the price.
They issue and withdraw hundreds of buy and sell orders as part of their trading and do not hold stocks after the market close.
The FSC said "excessive" messaging is usually aimed at "extracting information about the intentions of other market participants to their detriment" and should carry a higher burden of ASIC's costs in regulating the stockmarket.
"This has the effect of increasing the friction cost of transactions for investors with a longer-term time horizon," the FSC wrote in its submission.
"We think that the public interest would be better served by requiring a larger proportion of cost recovery to be based on message counts," the FSC said.
"It is actual trading that serves the public good, allowing price formation and the efficient redeployment of capital. In contrast, the excessive use of messaging which is not followed up by actual trading is not in the interest of the Australian capital market."
In a major study released in March, ASIC found HFT accounted for less than a third of trading on the Australian stockmarket and that many traditional investors had adopted HFT techniques.
The FSC has previously supported an exemption for firms that make a genuine market in stocks through their messaging and said any exemption should be constructed to ensure this was not abused.
