How algorithmic trading and AI are reshaping disclosure risk

When the market moves faster than the law 7 min read

Australia’s continuous disclosure regime—grounded in the Corporations Act 2001 (Cth) and operationalised through the ASX Listing Rules—was designed for a different market to the one we have today. It assumes that material price movements are driven by new, issuer-known information and that timely disclosure keeps the market informed and fair.

Recent reporting seasons have delivered record volatility—not just in speculative corners of the market, but across blue-chip names, too. Share prices are moving faster, and often more violently, than the underlying disclosures seem to justify. In some cases, there is no obvious new information at all. Instead, algorithmic trading reactions—to patterns, sentiment and micro-signals rather than of the fundamentals—has been identified as the reason for such swings. For listed companies and their officers charged with overseeing the company's sound disclosure of information, this creates a new kind of risk.

The gap between what the law expects and how the market behaves or can react is widening. The question is no longer 'do we have anything to disclose?', but rather 'how do we make good disclosure decisions in a market that no longer behaves predictably?'

In this Insight, we examine this growing disconnect between disclosure laws built for human judgement and markets increasingly driven by algorithms, and unpack the legal and practical implications for boards, management and disclosure committees.

The reasonable person in a digital age

Australia’s continuous disclosure regime reflects a deliberate policy choice about how markets should work: listed entities must immediately disclose information that is not generally available and that a reasonable person would expect, if generally available, to have a material effect on the price or value of the entity's securities.

The 'reasonable person' standard is a key, load-bearing concept of the entire disclosure framework. It calibrates what must be disclosed and when, and was designed for a market of human decision-makers applying contextual judgement and rational expectations about future value. In practice, however, significant volatility is increasingly untraceable to new, issuer-known information.

The market is moving, but not always for reasons the disclosure framework was designed to capture or could have pre-empted. The test for disclosure has not changed; the market it operates in has.

What is driving market volatility?

Algorithmic trading—the use of computer programs to execute trades according to predefined rules—is not new. For decades, markets have incorporated automated strategies to improve speed and efficiency of execution, and the listing rules and trading systems accommodate that. But its prevalence today is striking: the Australian Securities and Investments Commission estimates that up to 85% of trading on the Australian Securities Exchange is now algorithmic.¹ This is no longer a marginal feature of the market; it is a defining characteristic.

Advances in large language models have materially expanded these systems' capabilities. Algorithms can now ingest vast amounts of data, extract meaning from ASX disclosures, infer sentiment, predict market reactions in near real time, and act on them—at a speed and scale far beyond human capacity. Trading decisions are triggered by both quantitative inputs and qualitative interpretation, heightening the risk of price movements driven by partial, speculative or inaccurate interpretations without a human (ie that 'reasonable person') in the loop.

In discussions with our clients, particularly their investor relations teams, recent volatility in the 2025 half- and full-year reporting cycles has been attributed to algorithmic trading reactions. Given thinner liquidity in many ASX-listed securities, more passive ownership (including through ETFs and index-linked funds), and the continued growth of AI-driven trading, we think conditions are ripe for that kind of volatility to continue.

Mind the gap

Market activity is increasingly shaped by processes that operate outside the bounds of the human judgement the law assumes. Our view is that algorithmic trading behaviour no longer always reflects—or responds to—the 'reasonable person' standard underpinning Australia’s continuous disclosure regime.

The temporal mismatch is stark. By the time an issuer identifies and assesses a price movement, 'promptly and without delay' consistent with ASX guidance, the market may already have cycled through multiple layers of algorithmic response and amplification. Such trading may not weigh nuance, assess credibility or apply judgement in a human sense. The 'reasonable person' contemplated by Listing Rule 3.1 is a thoughtful, contextually aware decision-maker. The algorithm is neither.

That disconnect has practical consequences for disclosure decision-making. Algorithmic trading does not anchor itself to the reasonable person standard, and its inputs cannot be assumed to reflect the emergence of issuer-known information. A price movement driven by AI powered interpretation, feedback loops or self-reinforcing strategies is not, of itself, evidence that anything new and material has entered the market.

Listed entities are not, in our view, required to respond to trading activity that falls outside the legal standard the regime is built upon. Attempting to do so risks distorting disclosure practices—leading to defensive over-disclosure or reactive announcements driven by short-term volatility, and elevating both legal risk and the risk of poor disclosure discipline. 

Regulatory catch-up

Last year, ASX increased its surveillance activity with a sharp uptick in the issuance of 'aware letters' to listed entities (particularly larger ones) that experienced price swings of 10% or more. The irony is not lost that the regulatory response to what may simply have been algorithmic trading reaction was to apply a broad-brush formula to market activity and ask issuers to explain.

ASX does not appear to have carried that momentum into 2026, and regulatory attention is beginning to shift from the company to the trader—which is where we think the source of the matter lies. ASIC launched a market integrity review of its trading system rules in August 2025, focusing on trader behaviour rather than issuer conduct. Measures under consideration include mandatory kill switches for aberrant algorithmic activity and stronger controls on trading behaviour. This represents a welcome recalibration: addressing volatility at its source rather than layering additional disclosure expectations onto issuers who may have nothing new to disclose.

For listed entities and their officers, this is a welcome development.

What this means for boards and management

While regulatory attention should continue to evaluate the appropriate settings for algorithmic trading, that is not a reason to relax governance standards. The market trades every working day, the regulatory environment remains live, and the stakes of getting disclosure wrong remain very high.

Resist the pressure to speculate. ASX's policy position is clear: issuers are not required to respond to speculation, rumours or information that is already widely known. If there is no new information, there is nothing to disclose. More targeted ASX guidance in light of technological advancements would be welcome, but the position remains unchanged: a well-considered decision not to disclose—properly documented—is a defensible position. An anxious, reactive disclosure that goes beyond what is known can create far greater risk, including triggering further algorithmic chain reactions.

Exercise discipline in giving guidance. This is a challenging environment for earnings guidance, and the temptation to provide detailed, precise figures in the hope of reducing volatility may be counterproductive. This environment rewards conservative disclosures, with figures expressed in ranges where appropriate, and always supported by clear assumptions and disclaimers.

Understand how your disclosures are being read. Pre-empt how large language models will interpret your disclosures—at a binary level, what trading signal is it sending? Use clear, structured language; maintain consistent terminology across announcements; be mindful of negative sentiment cues; and recognise that tone in written documents, investor briefings and Q&A sessions may create inferences that algorithms will also analyse. The language choices that once mattered for human comprehension now matter for algorithmic interpretation, too.

Build and maintain a robust disclosure and record-keeping policy. Active regulatory monitoring of price movements underscores the expectation that issuers will have considered their disclosure obligations. Boards should ensure their disclosure committees and processes are sufficiently robust to make considered, defensible decisions quickly—and that material decisions are appropriately recorded to protect the company and its officers from hindsight scrutiny.

Steps you can take now

The collision of algorithmic trading and large language models will continue to impact price discovery in Australian equity markets, potentially widening the gap between law and market reality and forcing regulators to confront responsibility for volatility. In our view, this will require issuers to exercise discipline.

The legal framework has not yet caught up. The 'reasonable person' standard was not designed with algorithms in mind, and there is no guarantee that reform will move quickly enough to provide the certainty that listed entities need in the near term.

While regulatory settings evolve, boards and management can take clear, immediate steps to strengthen disclosure discipline in this environment:

• Clarify your framework: review and reinforce your disclosure policy and committee processes to ensure decisions can be made quickly, defensibly and with appropriate documentation.
• Train for judgement: equip directors and executives to distinguish between algorithmic noise and genuine information triggers, and to understand how disclosure obligations apply in fast‑moving markets.
• Plan for volatility: establish protocols for assessing unusual price movements—what triggers review, who is involved and how decisions are recorded.
• Shape your disclosures: use clear, consistent language and structured formats that reduce ambiguity and minimise misinterpretation by both humans and algorithms.
• Engage early: maintain open communication with your ASX adviser and legal counsel to test disclosure decisions and ensure alignment with current regulatory expectations.

As markets evolve, the challenge for issuers is not to match the pace of change, but to maintain clarity and discipline in disclosure. The market may be volatile. Your approach to disclosure need not be.