Trading | HFT
“HFT firms are nimble. There is a bit of cat and mouse going on as the regulators follow behind but I think there will always be a response in the HFT community; they will still be able to identify profit-making opportunities.” Brad Wood, GreySpark
KOSPI200 Futures and Options markets make up 50% of daily volume. The Korea Exchange (KRX) released a consultation to regulate electronic trading of derivatives on 29 April 2013. Under the proposal it would require firms to register their trading accounts, which will have kill switches allocated to them to prevent algos going awry. The exchange will be able to refuse ‘excessive’
numbers of orders and can charge firms that post excessive numbers of orders a fixed fee of KRW 1,000,000 per month. The ratio of orders to trades was set at 20-1 if the number of orders is between 20,000 and 100,000 and 10-1 if the number of orders exceeds 100,000. MiFID II, the pan-European directive currently
being debated and expected to take effect some time in 2016, will follow the line of the German rules but could go even further, imposing a minimum resting period for orders and order to trade ratios.
Sand in the wheels The European line would be to make HFT less viable. However targeting a trading style without identifying specific problems it has caused would appear to be unfair on HFT notes Magnus Almqvist, senior business development manager at technology provider SunGard. “You do find harmful trading patterns that fall under the HFT umbrella just as you do under any
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trading method,” he says. “When you had floor trading there were unacceptable methods on the trading pit.” Squires observes that the key in distinguishing
between algorithmic trading and HFT is in addressing the trade to execution ratio. “In my opinion, imposing a trade to execution
ratio and minimum resting times would be effective ways to keep an orderly market,” he says. Alternatives to banning HFT should also be
considered says Sébastien Jaouen, head of global trading sales at Etrali. “In a nutshell, with the huge progress we have witnessed in the capturing of all communication pieces and the ability to reconcile them with the full audit trails of orders and trades, the regulators have the tools and power to enforce the regulations and track fraud,” he says. “The technology is an enabler not only for market participants such as HFT but also for the regulators.” Wood notes that some rules are likely to have unintended consequences which could be more detrimental to the orderly functioning of the market than positive, while they are not guaranteed to prevent the firms operations entirely. “HFT firms are nimble,” he says. “There is a bit
of cat and mouse going on as the regulators follow behind but I think there will always be a response in the HFT community; they will still be able to identify profit-making opportunities.” n
Best Execution | Summer 2013
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