Twitter
Facebook
LinkedIn
Today’s post features our new and exclusive video podcast series on TradeTech TV where we will be getting in-depth industry insight in bite-sized chunks from some of the world-leading electronic trading professionals.
Kicking off the podcast is part one of five from Andrew Morgan, Head of Autobahn Equity Europe at Deutsche Bank. In this episode he gives us his thoughts on that most controversial of topics, High Frequency Trading:
Q: So, HFT: Lovable rogue or scourge of the markets?
AM: I suppose every conversation about HFT starts with a discussion about how to define it, and the reason that it is so difficult to define is that it is a relative and subjective term. There is also a common conception of what HFT strategies involve and the reality of the techniques associated with HFT: They aren’t strategies; they’re techniques for accessing the market. All that’s really changed over time is that the alpha horizons associated with traditional trading strategies have become shorter.
There is no getting away from the fact that the trading ecosystem has changed dramatically as a result of increased activity by the HFT community, since the barriers for entry for them has dropped, post-the original MiFID legislation. It has been easier for them to increase the amount of liquidity that they provide to the market as costs are lower and speeds are better. That said, as a traditional buy side market participant, I think it is important to understand the implications of increased high frequency participation.
Net-net, our view is that high frequency traders improve liquidity, reduce spreads and bring liquidity that previously hadn’t existed to the marketplace. The concern that a lot of the buy side community have is legitimate from the standpoint of making sure that they have the right tools to interact with that liquidity, but on the whole I think that high frequency strategies are mainly benign and pursued for legitimate business reasons and with the right tools there is no risk associated with interacting with that liquidity.
Q: It has been suggested that increased regulation may suffocate HFT. Is this true, and if so is that necessarily a bad thing?
AM: I think there’s definitely a risk that regulation might reduce the amount of high frequency activity in the marketplace, in particular the minimum resting periods and market making obligations that have been suggested would be, in my view, something that would drive away some of the liquidity from the marketplace. My sense is that the prevailing sentiment is one of no appetite to remove liquidity from the marketplace. I think that most people appreciate that would be a bad thing to do at the moment and I’m hopeful that as a result of the review that some of the proposals that I think would result in that consequence will be changed to reflect the downside of the removal of the liquidity that they provide.
For the full interview, where we discuss The Flash Crash and the impact of HFT scaremongering, make sure to watch the video above. In the following 4 episodes we will be looking further into HFT, MiFID II, the impact of macroeconomic events and we’ll take a look at the German markets, ahead of TradeTech Deutschland in May.
High Frequency Trading will a hot topic at our upcoming TradeTech events – to find a TradeTech near you click here.
If you found this article interesting, you may also enjoy…
- http://www.thetradetechblog.com/liquidity/dark-pool-trading-should-be-an-extension-rather-than-the-rule/
- http://www.thetradetechblog.com/liquidity/the-next-drive-for-electronic-trading-innovation-is-not-low-latency-its-liquidity/
- http://www.thetradetechblog.com/equity-trading/3-questions-to-ask-about-algos-to-prevent-gaming-protect-your-trades/
Related posts:
No Comments