News | High frequency trading


Beleagured HFT firms receive welcome boost


Beleaguered high-frequency trading firms and exchanges, facing curbs from global regulators, have received a welcome boost from new research predicting a growth in HFT trading over the next few years while a leading academic and the Australian regulator have lent their supports to the merits of HFT.


According to new


research from capital markets consultancy, GreySpark Partners, HFT firms will see further growth in their market in the coming years. Capital markets players will continue to rely on HFT for the foreseeable future and expect HFT systems to consume “significantly larger” volumes of electronificated asset classes by 2015. HFT systems will remain popular in competitive markets, says GreySpark, because of financial incentives and drivers of market efficiency.


Anna Pajor, senior consultant


in GreySpark’s Capital Markets Intelligence Practice and lead author of the report, adds: “The capital markets industry hears stories about flash crashes and trading systems that cannot cope with the volume of orders or malfunctioning algorithms. Those stories prove that someone cut corners either when designing, implementing


Best Execution | Spring 2013


or testing HFT systems. We saw evidence of this, and we decided to tell the full story.”


Meanwhile, a new study


from the prestigious Columbia Business School, examining the risks and benefits of HFT, has concluded that HFT and related technologies are making markets stronger rather than destabilising them. Overall the study found HFT enhances market liquidity, reduces trading costs and makes stock prices more efficient. Increased liquidity also lowers the cost of equity capital for firms while investors benefit from the lower costs of automation in the form of narrower spreads and smaller commissions. “With a lower cost of capital, firms are likely to invest more with commensurate increases in GDP,” says Charles Jones, professor of finance and economics at Columbia. “And share prices are almost surely higher as a result of this reduction in trading costs, benefitting long term investors.” Jones also gives his support though to regulatory interventions such as single- stock circuit breakers which were phased in after the “flash crash” in the US in 2010. These force a temporary halt to trading if the transaction price of an individual stock moves by more


than 10% within a short period. “These price limits seem to be an appropriate speed bump,” says Jones.


Support for HFT has also


come from an unexpected source, the Australian Securities and Investments Commission (ASIC). Reporting on the findings of a taskforce set up to investigate concerns about the effect of high-speeding trading on market integrity, ASIC has declared fears about the safety of HFT had been exaggerated and no systematic manipulation of markets has been proven. “We found public concerns over HFT to be have overstated and can be attributed to the increasing use of trading technology by investors generally,” said ASIC. In the US, however, regulatory


interest in HFT trading continues to grow with the US futures regulator being the latest body to ramp up action. It recently announced it is examining the banned practice of “wash trades” where a trading firm improperly sells a contract to itself without taking any risk in the market. The review was prompted by a recent report by CFTC surveillance staff showing “shocking” levels of wash trading across a range of markets. ■


7


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100