Still hacking away at HFT
First Published Monday, 30th April 2012 02:30 pm from Fidessa : Steve Grob
The opinions expressed by this blogger and those providing comments are theirs alone, this does not reflect the opinion of Automated Trader or any employee thereof. Automated Trader is not responsible for the accuracy of any of the information supplied by this article.
Had a distinct sense of déjà vu at
TradeTech in London last week. Seems like much of the debate and
chatter was the same as it was last year - HFT, ill
thought through regulation, etc. It struck me, though, that maybe
the regulators should let the market decide what is good or bad
for us rather than agonising over these issues on our behalf.
Take HFT for example. Whilst different definitions abound,
electronic market making has just as much right to exist as any
other business model in today's trading ecosystem. If you don't
want to trade with them, then the answer's simple
- don't!
A number of new dark pools
are emerging that are specifically geared around allowing
institutions to find natural liquidity between themselves. href="https://www.cheuvreux.com/pdf/PR%2016%20April%202012%20CA%20Cheuvreux%20launches%20its%20own%20pan-European%20MTF%20BLINK.pdf"
target="_blank">BLINK from Cheuvreux is just the
latest example, and let's not forget LiquidNet that pioneered the
whole concept of buy-side crossing in the first place. For folks
that don't want to trade in size (such as the retail punters)
then the narrower bid/offer spreads offered by electronic market
makers look attractive. This has become the model adopted by MTFs
such a TOM and Equiduct, powered by Optiver and Knight/Citadel,
respectively.
Taken to its extreme then, you
might end up with a separation of trading, with institutions
placing more and more of their liquidity into broker dark pools
and crossing networks whilst the retail community interacts with
the HFT guys. But the real point is that, in any industry, market
forces will always mean that different suppliers will shape their
offerings in order to service distinct customer segments with
similar needs. With this in mind, maybe the regulators should
stop meddling and simply ensure that the depth, type and
longevity of liquidity available at a venue is made clear to
anyone that wishes to play there. The alternative is an endless
array of corrections and counter-corrections from the regulators,
just like a golfer having a really bad day on the course of
unintended consequences.
