The Gateway to Algorithmic and Automated Trading

As 'race to zero' takes toll, market prefers venues to act as watchdogs: AT survey

First Published 5th August 2013

Is the current speed of markets too fast, and who should be in charge of regulation? Find out what the industry thinks with the Automated Trader global trends survey

Even hedge funds are beginning to wonder if the so-called 'race to zero' in the speed of markets is getting out of hand, but most market participants remain wary about official regulation and instead want exchanges and other venues to take the lead on the question of speed controls, the latest annual Automated Trader survey of global trading trends found.

Maximum order-to-fill ratios and minimum order resting times set by exchanges are generally the preferred options across regions, but in the Asia Pacific region and the rest of the world, regulator-defined minimum resting times are also seen as acceptable, the survey found.

The Automated Trader global trends survey is the most detailed and comprehensive in the industry. This year's survey featured responses from more than 600 market participants.

Whether the speed of current markets is indeed too fast is up for debate. Slightly more than one in four hedge funds taking part in the survey felt confident with the status quo, but fewer than one in 10 traditional asset managers felt the same.

Lone traders and family offices were most keen to see urgent action over the speed of markets, but at 23% that still represented very much the minority view. Technology firms and exchanges were found to be the least worried about excessive speed.

Responses highlighted that speed would not be a concern if better controls were applied in areas such as risk management and the quality and integrity of the algorithms.

"Rather than focus on the headwinds facing the industry, survey respondents refreshingly show their resilience. Faced with increased competition on the latency side, stricter regulation and challenging market conditions, financial firms are up for the challenge," said Dr Randolph Roth, head of market structure at Eurex.

Almost 40% of respondents believe that the pace of regulatory change is too fast and that either the new rules will fail to achieve their aims or that they will be damaging to the market.

More than half of all hedge funds and 40% of sell-side firms, market infrastructure firms and technology vendors held this view. But only 13% of traditional asset managers felt the pace of change to be too rapid and potentially ineffective or damaging.

Only just over 11% of firms feel that regulators are taking the correct amount of time to come up with an appropriate framework of rules. Traditional asset managers are the most supportive with 26% in agreement with the regulators' rule-making timetable. That contrasts with 10% of hedge funds and 7% of sell-side firms who held that opinion.

Attitudes towards high frequency trading have hardened since the 2011 survey, with an average of 19% of both buy- and sell-side firms now in the category of being positively HFT hostile. That is up from 15% previously. Around 41% of respondents said they would categorise themselves as HFT suspicious, up from 28% before.

Still, only 13% of HFT-hostile firms and 9% of HFT-friendly were content with the pace of change. None of the actual HFT practitioners were in this camp.

To purchase the full survey, please click here: