High-Frequency Trading. A Workers Capital Briefing
|
|
- Osborne Walsh
- 8 years ago
- Views:
Transcription
1 High-Frequency Trading A Workers Capital Briefing September 2012
2 About the ACTU The Australian Council of Trade Unions (ACTU) is the nation s peak body for organised labour, representing Australian workers and their families. Nearly two million workers are members of the 46 unions affiliated to the ACTU. The Working Australia Papers The Working Australia Papers are an initiative of the ACTU to give working people a stronger voice in the development of social and economic policy. Previous Working Australia Papers have addressed a broad range of issues, from taxation policy to productivity. Working Australia Paper 6/2012 D No. 6/2012 Australian Council of Trade Unions Level 6, 365 Queen Street Melbourne VIC [2]
3 Introduction In August 2012 The Australian Securities & Investments Commission (ASIC) issued a consultation paper seeking views on its draft market integrity rules and guidance on automated trading 1. A high profile and increasingly important form of automated trading is high-frequency trading (HFT): a set of practices that utilises speed to generate additional returns to HFT firms and their clients. In recent years there has been growing concern that HFT is serving to exacerbate the speculative, short-term and volatile nature of financial markets. ASIC s consultation is, in part, a response to such concerns. Australian industry and not-for-profit funds are major participants in global capital markets. Via the world s major trading exchanges they invest billions in equities, bonds, derivatives and foreign exchange. But unlike some other participants, super funds have little or no choice but to remain in these markets for the long-term. Our super funds therefore have a strong interest in financial markets that are regulated to be transparent, secure and fair. Such markets are more likely to deliver stable and reliable returns over many years rather than short-term speculative gains in the space of a few days, hours or seconds. The purpose of this ACTU paper is to highlight some of the risks that HFT may present to super funds as longterm investors in global financial markets. Those who specialise in HFT earn billions in profit every year, not from long-term productive investment in jobs and communities, but from being able to trade faster than their competitors. For this skill they are paid large fees and commissions. In the context of the global pensions industry, payments for such short-term unproductive trading represent a growing leakage from the investment chain that connects workers contributions to the sources of long-term return that will ultimately help to fund their retirement. The issues raised by HFT therefore deserve close attention by unions and super funds. This paper is intended to serve as a brief introduction to HFT and why regulatory reform is necessary. After a brief explanation of what HFT is and how it can generate profits, the paper critically discusses the arguments commonly made in support of such trading. These arguments are found to be flawed. The paper therefore ends by outlining some reforms that would help to counter the risks HFT now presents to financial markets and those long-term investors who have come to rely on them, and proposes some immediate steps that super funds in Australia should take. TIM LYONS ACTU Assistant Secretary 1 ASIC (2012) Australian market structure: draft market integrity rules and guidance on automated trading, Consultation Paper 184 [3]
4 What is High-Frequency Trading? Within the next year a new fibre-optic cable, costing $300 million, will be laid across the floor of the Atlantic Ocean between New York and London. The purpose of the new cable is not to facilitate increased telecoms or internet traffic. It will not be available for use by the public or by any government. It is a private venture with one aim: to reduce the amount of time it takes trading firms to buy and sell financial instruments. At present the fastest cable between Europe and North America allows trades to be communicated in 64.8 milliseconds. The new cable, when it begins to operate in 2013, will allow those few who can afford to purchase access to communicate a buy or sell order in 59.6 milliseconds 2. Since 2005 over twenty new data centres have been built in the US state of New Jersey, close to the computer trading engines that power the New York Stock Exchange 3. These centres have been built to house servers owned by financial institutions across the world. By being physically closer to the computers that process NYSE trades these institutions can reduce the amount of time it takes to buy and sell by milliseconds. But for some even the latest fibre-optic technology is too slow. Cables often have to be laid around buildings and other structures increasing their length and therefore slowing the flow of data. Therefore some trading firms have begun to invest in building chains of microwave dishes that can fire data-signals to each other across distances in straight lines. In the context of communicating trades between Chicago and New York fibreoptic cables can only manage a speed of 6.55 milliseconds. Microwave dishes can cover the same distance in 4.25 milliseconds. It is estimated that this difference could be worth $1,350 a day to a trader wishing to profit from price differences for the same securities on the two exchanges 4. What is occurring is a technological arms-race. In the world of HFT saving milliseconds can mean millions in additional profit. The race is on to find newer, faster ways of trading across time and space. In the words of Andrew Bach, head of network services at NYSE Euronext: The speed-of-light limitation is getting annoying 5 2 Stock trading is about to get 5.2 milliseconds faster, Businessweek, Server farms hurt by glut, Wall Street Journal, Networks built on milliseconds, Wall Street Journal, Light is not fast enough for high speed stock trading, New Scientist, [4]
5 Source: Wall Street Journal, [5]
6 HFT has its origins in the introduction of real-time quotation systems to financial markets during the 1980s and the use of algorithms to automate trading within pre-determined price, volume and time parameters. Over the past thirty years trading in highly liquid instruments such as derivatives, equities, foreign exchange and bonds has become increasingly driven by computer programmes designed by mathematicians and physicists, requiring little or no human intervention. HFT utilises the latest developments in computing, telecommunications and quantitative modelling to reduce trading latency (the time needed to execute an order), generating profit by exploiting the comparative slowness of other market participants. The graphic below illustrates how this can work. Source: The New York Times, This example illustrates one common form of HFT. An investor submits an order to a trading venue for shares in company XYZ. HFT traders are able to detect the order milliseconds before others. Sometimes, as in the above graphic, certain traders are given advance notice of an incoming order by around 0.03 seconds (these are called flash orders ). Knowing that an order is coming they buy all available shares in XYZ. The order then hits the market. The HFT traders can then sell the shares they bought milliseconds before for a higher price. Within a fraction of a second HFT traders have bought-low and sold-high without any human intervention and with negligible risk. Repeated many times a day, sometimes in connection with large volume transactions, this can generate significant profit. It has been estimated that HFT firms made profits of nearly $13 billion in 2009 and High Frequency Trading, The New York Times, [6]
7 HFT has become an increasingly significant feature of global financial trading. Approximately 60 per cent of equity trading in the US, and 40 per cent of equity trading in Europe, is the result of high-frequency trades. In the UK the figure may be as high as 77 per cent 7. In Australia around only 10 per cent of ASX trading is attributed to HFT activity. This is expected to grow 8. The graphs below illustrate the increase in algorithmic trading, much of it driven by HFT techniques, since Source: The Economist, In addition to developments in computing and telecommunications HFT has been encouraged by a number of recent changes in financial regulation. In particular, as part of its broader drive to deregulate markets, the European Union adopted the Markets in Financial Instruments Directive in Despite strong opposition from some member states the Directive abolished the concentration rule. This rule had allowed member states to require that trading in financial instruments be conducted only via a regulated exchange. The rule served to limit the extent to which such transactions could be channelled through non-regulated venues or taken completely off-market. The EU concluded that this rule limited competition resulting in high transaction costs. These costs inhibited trading and so compromised liquidity, particularly in secondary securities markets. This placed European venues at a competitive disadvantage to other trading centres. However, one consequence of rule abolition has been an increase in opportunities for inter-exchange pricing arbitrage. Such a trading landscape lends itself to HFT. This regulatory change helps to explain why the majority of specialist HFT firms have been established within the last ten years. 7 tabbgroup.com, High frequency trading is cuckoo, Business Spectator, [7]
8 The 2010 flash crash HFT became an issue for regulators in May 2010 when the Dow Jones Industrial Average suddenly fell by nearly 9 per cent in the space of a few minutes the largest intraday fall in the history of the index. Most the fall was reversed within 20 minutes. The fall had been triggered by a large mutual fund entering the market to sell an unusually large number of futures contracts. Buyers included HFT firms. However, because HFT algorithms are typically designed to avoid holding positions for long the HFT traders began selling the contracts again within minutes. The combined impact of the original sale and the high-frequency reselling drove futures prices down leading to equivalent sales in equities markets to offset the falling value of the derivatives. The spiral of selling continued for several minutes until the sharp plunge in prices triggered an automatic 5-second pause in futures trading after which demand-side interest recovered and prices began to stabilise and rise. An investigation into the May 2010 flash crash by the US Securities and Exchange Commission and the Commodity Futures Trading Commission concluded that while HFT did not initially trigger the crash it nevertheless exacerbated the massive swings in trading activity and prices. It took intervention by non-hft agents to prevent markets falling further than they did. Problems of High-Frequency Trading Since the flash crash in 2010 regulators and parts of the business media have taken an increasing interest in HFT and the risks it may pose to the stability and integrity of financial markets. The public debate has become increasingly polarised between those who view HFT as making a valuable contribution to increasing the cost and price efficiency of global finance, and those who see it as increasing systemic risk while making little or no contribution to directing financial capital into productive long-term investments. Advocates commonly make the following arguments in support of HFT and why further regulation is unnecessary: a) HFT helps to generate liquidity. HFT agents compete to buy incoming offers to trading venues and so provide an important source of demand and market-depth. They therefore play a role akin to designated market makers : registered market participants whose role is to offer firm buy/sell quotes on a range of securities in order to maintain broader market liquidity. [8]
9 b) HFT reduces the cost of trading. By injecting demand into markets at low-risk HFT agents contribute to tightening spreads. c) HFT makes markets more efficient. Aggressive trading across venues helps to minimise or eliminate price discrepancies between related financial instruments. The notion that HFT generates liquidity, lower costs and market efficiencies has become the shared common sense of the HFT industry, many regulators and exponents of efficient markets theory. However, there are important weaknesses in the pro-hft case including in relation to market integrity and fairness. Firstly, as discussed above, HFT agents are able to create and cancel orders in milliseconds. The average HFT latency is 3 milliseconds. The liquidity they provide therefore tends to be a thin and volatile form of demand that involves a highly selective buying of securities that are then re-sold within fractions of a second. Liquiditymaking gives way to liquidity-taking before most other market participants are able to buy/sell at prices that resemble real levels of supply/demand and real long-term investment values. Instead, and in contrast to designated market makers, HFT agents utilise speed to generate information asymmetries that result in many institutional investors, such as pension funds, paying more for securities simply because they are too slow to pay less. In the view of a European asset manager who gave evidence to the UK government s inquiry into computerised trading: Although HFT may contribute to tighter spreads in the lit markets, and potentially higher volumes, most of the added liquidity is artificial, in that large institutional orders cannot interact with it to any great benefit. High trading volume does not necessarily mean greater market liquidity for institutions. 9 Secondly, the tight spreads generated by HFT tend to be of limited value to the broader market. They are often of limited depth, meaning that they relate only to small trading volumes which, once exhausted, are rapidly replaced by wider-spreads as a result of automatic algorithmic re-pricing. Further, HFT spreads are usually on offer for millisecond durations which means they are only of use to other HFT agents. Finally, tight spreads on particular trades do not necessarily mean lower aggregate trading costs. Evidence from asset managers to the UK government inquiry illustrates this point: Lately spreads, correlation and volatility have remained high whereas liquidity is limited (we would argue that much of the liquidity supposedly added by HFTs is not of any use to institutional investors 9 Government Office for Science (2011) End-user Perspectives on Computerised Trading, p. 41 [9]
10 and therefore is not really liquidity at all). This combination leads to an increase in overall trading costs. Overall there has been a marginal increase in the cost of trading Some direct costs, such as commission rates and head count, have decreased as a result of alternative trading venues being used, and greater efficiency in the methods of trading. Other direct costs, such as technology spend have increased as the market has become more fragmented. Indirect costs, such as market impact and opportunity costs, have risen largely because of the increased volatility in markets. Increased IT costs and the IT team have offset the savings on commissions and spreads. 10 Thirdly, HFT may contribute to levelling prices across venues. However, this is a solution to a problem that regulators, via the deregulation of trading exchanges, have contributed to creating. It is therefore a problem that could be alleviated by means other than HFT. Nor is it clear how levelling prices in 3 milliseconds rather than 1 second benefits long-term institutional investors and other non-hft market participants. In addition to questioning the arguments made for HFT some argue it can be used deliberately to manipulate markets and price formation to the advantage of those with the fastest technology and most advanced algorithms. This helps to explain the massive investments made by many HFT firms in recent years in colocating to major exchange servers, laying new fibre-optic cables and hiring the most able mathematicians and physicists. Examples of manipulative strategies that some HFT firms are suspected of using include: a) Quote stuffing: the practice of placing a large number of quotes in the market for the purpose of slowing down the processing of orders by an exchange or the activity of other traders. In both cases the causing of delays will benefit the fastest HFT agents who will able to buy/sell at prices that reflect a lag in priceformation. b) Momentum ignition: the practice of buying/selling in sufficient volume to ignite a generalised rise/fall in prices for a security that the HFT agent can then exploit. c) Spoofing: the practice of issuing waves of false orders at different prices for a security already held by an HFT agent to give the misleading impression to the wider market that demand is greater than it really is. Once orders for the security start to flow-in from other agents the lower prices initially fed into the market 10 ibid, p. 45 [10]
11 are withdrawn so that the security is eventually sold for a price higher than would have been the case before the spoofing was initiated. However, because of the speed and complexity of HFT market abuse it is often difficult to prove. Nevertheless, many of those who gave evidence to the UK government inquiry believe that market manipulation often takes place: We try to avoid venues that allow these types of strategies but it is very difficult to find evidence that market abuse has occurred. These strategies should be banned. According to the FSA quote stuffing does not take place in Europe but if 95 per cent of orders are cancelled before being executed then you would think an element of that represented orders which were never meant to be executed. Quote stuffing happened on the day of the Flash Crash. There was a single exchange that was the source of these quote stuffing events and there was possibly only a single participant. What happened was that a single stock would get 5000 quotes in a second, and then they were all cancelled instantly. We definitely see this as market abuse and it could get worse. 11 More important than particular instances of market abuse is the systemic risk and instability that HFT contributes to generating and the inability of regulators to keep pace with new developments and the new abusive strategies they make possible: The biggest risks are to financial stability, especially when computers are entrusted to perform tasks quicker than human common sense can dictate. Unless distinction is made between certain types of computer-programmed trading, and curbs are placed on the more opportunistic types, the next ten years will see an increase in instability of markets, further loss of confidence and an erosion of market integrity. There is no way that the current regulatory authorities have the expertise or capabilities to detect or enforce market abuse ibid, pp ibid, pp [11]
12 These risks and instabilities are exacerbated by Direct Access Trading, where non-members of a trading venue can participate directly in the market using the electronic systems and algorithms of a member institution. Such participants are less likely to understand and comply with market rules, and may not fully comprehend the nature and implications of the systems and algorithms they are given access to. This is likely to disrupt markets and lower confidence in their quality and integrity. A further consequence of HFT has been an increase in dark trading. In contrast to lit trading where buying/selling takes place on exchanges that impose strict obligations in relation to pre and post-trade transparency, dark trading in so-called dark pools involves conducting transactions in private venues where prices and volumes need not be publically disclosed. This form of trading has become increasingly popular in recent years partly because many market agents have lost confidence in the capacity of public exchanges where HFT is common to offer a fair and stable trading environment. However, while conducting certain transactions away from lit exchanges may make sense for particular buyers, sellers and brokers, it comprises broader public transparency and price formation. It therefore risks making financial markets and capital allocation less rather than more effective. HFT or Socially-Useful Financial Markets? The primary role of financial markets should be to generate and allocate capital for the purpose of facilitating long-term investment in productive and sustainable economic activities that help meet the needs of workers, citizens, consumers and communities. This requires a financial system whose regulatory structure and system of incentives operates to discourage short-term, unproductive speculation and related abuses. The Global Financial Crisis demonstrated that too many of the world s financial institutions had become pre-occupied with securing short-term speculative gains, generating massive systemic risks and instabilities that have since cost millions of jobs and the destruction of public services in many countries. Unfortunately, despite the events of recent years it is far from clear that the lessons of this experience are being learnt. A financial system that helps to deliver good jobs, steady growth and a sustainable environment is one that is, at the very least, transparent, accessible, stable and free from abuse. All participants must be able to enter and participate in markets on a fair and equal basis. In the absence of such conditions prices are more likely to deviate sharply from fundamental asset values, leading to speculation, volatility and market manipulation. There is strong reason to believe that many contemporary forms of HFT act to encourage speculative behaviour across the financial system. [12]
13 Recommendations for Reform There are a number of reforms that regulators and policymakers must consider implementing. These include the following: 1. Impose a moratorium on HFT until regulators have completed a detailed assessment of the role it plays our financial system and the costs/benefits it generates for system-users. 2. Impose a minimum resting time of 1 second for trades. This would help to promote genuine liquidity and radically reduce opportunities for abuses such as spoofing. The onus should be placed on the HFT industry to make a social utility case for being allowed to trade in milliseconds. 3. Outlaw flash orders. Trading venues should not be allowed to offer advance notice of incoming orders to any market participant, including HFT firms. The practice encourages a two-tier market that disadvantages the large majority of participants who cannot co-locate or buy access to the fastest fibreoptic cables. 4. Mandate fees on those who cancel orders above a certain order/trade ratio (such as 3:1). Regulation must ensure that such fees fall on those responsible for implementing the cancellations and who seek to benefit from them, rather than being passed-on to other parties. 5. Mandate a clear and consistent system of circuit-breakers within and between all trading venues. By suspending trading when market indicators breach certain pre-set limits circuit-breakers would help to minimise contagion-risk and stem volatility. 6. Regulators should aim to bring all trading venues under a uniform set of regulations that promote consistent pre and post-trade transparency and equality of market access. Encouraging more competition between greater numbers of exchanges is a recipe for instability, market abuse and the weak policing of behaviour. 7. Outlaw Direct Access Trading. Only those who fully understand market rules and the technologies at their disposal should be allowed to participate directly in financial markets. 8. Impose an appropriate set of charges on HFT traders to pay for the additional costs incurred by government and regulators resulting from the increased regulation and policing of HFT behaviour. [13]
14 Next Steps for Australian Super Funds There is reason to believe that HFT represents a risk to long-term capital market participants such as Australian industry and not-for-profit super funds. But the extent of that risk, and the associated costs to members, is presently unknown. It is therefore important that funds, individually and collectively, take the following steps: a) Each fund board should recognise HFT as an investment risk. The fund should commission a report from its investment team or consultants that details how and to what extent HFT is built into their current portfolio, and what costs/benefits HFT delivers to members. This cost/benefit analysis should include an assessment of systemic risks in addition to fund-level risk. In light of this analysis the fund should then consider the extent to which portfolio reliance on HFT should be reduced. b) Via their collective bodies and associations funds should call for and support further detailed analysis and policy development in relation to measuring collective HFT risk and what steps Australian regulators should take to mitigate it. [14]
G100 VIEWS HIGH FREQUENCY TRADING. Group of 100
G100 VIEWS ON HIGH FREQUENCY TRADING DECEMBER 2012 -1- Over the last few years there has been a marked increase in media and regulatory scrutiny of high frequency trading ("HFT") in Australia. HFT, a subset
More informationFI report. Investigation into high frequency and algorithmic trading
FI report Investigation into high frequency and algorithmic trading FEBRUARY 2012 February 2012 Ref. 11-10857 Contents FI's conclusions from its investigation into high frequency trading in Sweden 3 Background
More informationELECTRONIC TRADING GLOSSARY
ELECTRONIC TRADING GLOSSARY Algorithms: A series of specific steps used to complete a task. Many firms use them to execute trades with computers. Algorithmic Trading: The practice of using computer software
More informationSenate Economics Legislation Committee ANSWERS TO QUESTIONS ON NOTICE
Department/Agency: ASIC Question: BET 93-97 Topic: ASIC Complaints Reference: written - 03 June 2015 Senator: Lambie, Jacqui Question: 93. Given your extensive experience can you please detail what role
More informationWhite Paper Electronic Trading- Algorithmic & High Frequency Trading. PENINSULA STRATEGY, Namir Hamid
White Paper Electronic Trading- Algorithmic & High Frequency Trading PENINSULA STRATEGY, Namir Hamid AUG 2011 Table Of Contents EXECUTIVE SUMMARY...3 Overview... 3 Background... 3 HIGH FREQUENCY ALGORITHMIC
More informationHigh-frequency trading: towards capital market efficiency, or a step too far?
Agenda Advancing economics in business High-frequency trading High-frequency trading: towards capital market efficiency, or a step too far? The growth in high-frequency trading has been a significant development
More informationFINAL NOTICE. Michael Coscia. Date of Birth: 7 July 1962. Date: 3 July 2013 ACTION
FINAL NOTICE To: Michael Coscia Date of Birth: 7 July 1962 Date: 3 July 2013 ACTION 1. For the reasons given in this notice, the FCA hereby imposes on Michael Coscia a financial penalty of USD 903,176
More informationFINANCIER. An apparent paradox may have emerged in market making: bid-ask spreads. Equity market microstructure and the challenges of regulating HFT
REPRINT FINANCIER WORLDWIDE JANUARY 2015 FINANCIER BANKING & FINANCE Equity market microstructure and the challenges of regulating HFT PAUL HINTON AND MICHAEL I. CRAGG THE BRATTLE GROUP An apparent paradox
More informationMiFID II Trading Venues And High Frequency Trading
MiFID II Trading Venues And High Frequency Trading MiFID II Trading Venues And High Frequency Trading This is the third part in a series of Legal Longs on the MiFID II Directive [2014/65/EU] and the Markets
More informationFinancial Markets and Institutions Abridged 10 th Edition
Financial Markets and Institutions Abridged 10 th Edition by Jeff Madura 1 12 Market Microstructure and Strategies Chapter Objectives describe the common types of stock transactions explain how stock transactions
More informationStatement of Kevin Cronin Global Head of Equity Trading, Invesco Ltd. Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues August 11, 2010
Statement of Kevin Cronin Global Head of Equity Trading, Invesco Ltd. Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues August 11, 2010 Thank you, Chairman Schapiro, Chairman Gensler and
More informationEquity Market Trading in Europe: The Case for Refinement Over Revolution
ViewPoint June 2011 Equity Market Trading in Europe: The Case for Refinement Over Revolution Three years after its implementation, the cornerstone of financial market regulation in the EU - the Markets
More informationInvestors Exchange (IEX) Building A Market that Works for Investors. September 9, 2015
Investors Exchange (IEX) Building A Market that Works for Investors September 9, 2015 FLASH BOYS: A WALL STREET REVOLT 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX
More informationa. CME Has Conducted an Initial Review of Detailed Trading Records
TESTIMONY OF TERRENCE A. DUFFY EXECUTIVE CHAIRMAN CME GROUP INC. BEFORE THE Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises of the HOUSE COMMITTEE ON FINANCIAL SERVICES
More informationHigh frequency trading
High frequency trading Bruno Biais (Toulouse School of Economics) Presentation prepared for the European Institute of Financial Regulation Paris, Sept 2011 Outline 1) Description 2) Motivation for HFT
More informationPreventing market abuse: Can market surveillance really improve amidst fragmentation and low-cost competition?
Preventing market abuse: Can market surveillance really improve amidst fragmentation and low-cost competition? Stock exchanges perform a vital function in society by enabling the listing and trading of
More informationHigh Frequency Trading Background and Current Regulatory Discussion
2. DVFA Banken Forum Frankfurt 20. Juni 2012 High Frequency Trading Background and Current Regulatory Discussion Prof. Dr. Peter Gomber Chair of Business Administration, especially e-finance E-Finance
More informationIndex. FIA EPTA Principles. 5. Risk Controls. 1. Introduction
Index 1. Introduction 2. General Description 3. Prevention of Market Manipulation 3.1 Hiring of Employees 3.2 Training of Employees a. Internal Training b. External Training 3.3 Software Development and
More informationFrom Traditional Floor Trading to Electronic High Frequency Trading (HFT) Market Implications and Regulatory Aspects Prof. Dr. Hans Peter Burghof
From Traditional Floor Trading to Electronic High Frequency Trading (HFT) Market Implications and Regulatory Aspects Prof. Dr. Hans Peter Burghof Universität Hohenheim Institut für Financial Management
More informationAnswers to Concepts in Review
Answers to Concepts in Review 1. (a) In the money market, short-term securities such as CDs, T-bills, and banker s acceptances are traded. Long-term securities such as stocks and bonds are traded in the
More informationCall for evidence on the impact of MiFID on secondary market functioning
Call for evidence on the impact of MiFID on secondary market functioning The ABI s Response to CESR 08-872 The ABI is the voice of the insurance and investment industry. Its members constitute over 90
More informationHigh Frequency Trading Volumes Continue to Increase Throughout the World
High Frequency Trading Volumes Continue to Increase Throughout the World High Frequency Trading (HFT) can be defined as any automated trading strategy where investment decisions are driven by quantitative
More informationEvolution of Forex the Active Trader s Market
Evolution of Forex the Active Trader s Market The practice of trading currencies online has increased threefold from 2002 to 2005, and the growth curve is expected to continue. Forex, an abbreviation for
More informationHigh-frequency trading, flash crashes & regulation Prof. Philip Treleaven
High-frequency trading, flash crashes & regulation Prof. Philip Treleaven Director, UCL Centre for Financial Computing UCL Professor of Computing www.financialcomputing.org p.treleaven@ucl.ac.uk Normal
More informationComments from NASDAQ OMX
October 2011 ESMA Consultation paper on Guidelines on systems and controls in a highly automated trading environment for trading platforms, investment firms and competent authorities Comments from NASDAQ
More informationANNUAL STOCKBROKERS CONFERENCE SPEECH BY ASX MANAGING DIRECTOR AND CEO - ELMER FUNKE KUPPER BUILDING A COMPETITIVE EXCHANGE FOR AUSTRALIA 29 MAY 2014
ANNUAL STOCKBROKERS CONFERENCE SPEECH BY ASX MANAGING DIRECTOR AND CEO - ELMER FUNKE KUPPER BUILDING A COMPETITIVE EXCHANGE FOR AUSTRALIA 29 MAY 2014 Thank you for the invitation to speak this morning.
More informationESMA MiFID II / MiFIR Consultation and Discussion Papers General Comments on Market Structure Issues
1 August 2014 ESMA MiFID II / MiFIR Consultation and Discussion Papers General Comments on Market Structure Issues Financial markets have changed and technology has evolved meaningfully since 2007 when
More informationOptions for Amending the ASIC Market Supervision Cost Recovery Arrangements. ASX Submission
Options for Amending the ASIC Market Supervision Cost Recovery Arrangements ASX Submission 1 February 2013 Contents Executive Summary... 3 Appendix 1 Detailed Responses to Treasury Questions... 4 Current
More informationAlgorithmic Trading, High-Frequency Trading and Colocation: What does it mean to Emerging Market?
Algorithmic Trading, High-Frequency Trading and Colocation: What does it mean to Emerging Market? Ashok Jhunjhunwala, IIT Madras ashok@tenet.res.in HFTs are being pushed out of the more established markets,
More informationChinese University of Hong Kong Conference on HKEx and the Market Structure Revolution
Chinese University of Hong Kong Conference on HKEx and the Market Structure Revolution The Impact of Market Structure Changes on Securities Exchanges Regulation 31 March 2012 Keith Lui Executive Director,
More informationRISK DISCLOSURE STATEMENT
RISK DISCLOSURE STATEMENT You should note that there are significant risks inherent in investing in certain financial instruments and in certain markets. Investment in derivatives, futures, options and
More informationFIA AND FIA EUROPE SPECIAL REPORT SERIES: ALGORITHMIC AND HIGH FREQUENCY TRADING
FIA AND FIA EUROPE SPECIAL REPORT SERIES: ALGORITHMIC AND HIGH FREQUENCY TRADING 18 February 2015 This Special Report is the fourth in the FIA and FIA Europe s series covering specific areas of the European
More information9 Questions Every Australian Investor Should Ask Before Investing in an Exchange Traded Fund (ETF)
SPDR ETFs 9 Questions Every Australian Investor Should Ask Before Investing in an Exchange Traded Fund (ETF) 1. What is an ETF? 2. What kinds of ETFs are available? 3. How do ETFs differ from other investment
More informationPRODUCT DISCLOSURE STATEMENT FOR THE ISSUE OF ASX CFDs BY MORRISON SECURITIES PTY LIMITED
PRODUCT DISCLOSURE STATEMENT FOR THE ISSUE OF ASX CFDs BY MORRISON SECURITIES PTY LIMITED PART 1 This document is part of a Product Disclosure Statement and is Part 1. The other document which makes up
More informationIntroductIon to commsec cfds
Introduction to CommSec CFDs Important Information This brochure has been prepared without taking account of the objectives, financial and taxation situation or needs of any particular individual. Because
More informationAlgorithmic trading - Overview. Views expressed herein are personal views of the author
Algorithmic trading - Overview Views expressed herein are personal views of the author Scenario 1 You are a fund manager and have Rs 500 Crores in hand (USD 83 million) to be invested. You have a highly
More informationRISK DISCLOSURE STATEMENT FOR SECURITY FUTURES CONTRACTS
RISK DISCLOSURE STATEMENT FOR SECURITY FUTURES CONTRACTS This disclosure statement discusses the characteristics and risks of standardized security futures contracts traded on regulated U.S. exchanges.
More informationGeneral Risk Disclosure
General Risk Disclosure Colmex Pro Ltd (hereinafter called the Company ) is an Investment Firm regulated by the Cyprus Securities and Exchange Commission (license number 123/10). This notice is provided
More informationIncreased Scrutiny of High-Frequency Trading
Increased Scrutiny of High-Frequency Trading Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday May 23, 2014 Editor s Note: The following post comes
More information1. HOW DOES FOREIGN EXCHANGE TRADING WORK?
XV. Important additional information on forex transactions / risks associated with foreign exchange transactions (also in the context of forward exchange transactions) The following information is given
More informationFAIR GAME OR FATALLY FLAWED?
ISN RESEARCH FAIR GAME OR FATALLY FLAWED? SOME COSTS OF HIGH FREQUENCY TRADING IN LOW LATENCY MARKETS June 2013 KEY POINTS The activity of High Frequency Traders (HF traders) in Australia s equity markets
More informationAugust 12, 2011. Mr. Werner Bijkerk International Organization of Securities Commissions Calle Oquendo 12 28006 Madrid Spain
Mr. Werner Bijkerk International Organization of Securities Commissions Calle Oquendo 12 28006 Madrid Spain Re: Public Comment on Consultation Report: Regulatory Issues Raised by the Impact of Technological
More informationEUROPEAN SECURITIES AND MARKETS AUTHORITY (ESMA) CONSULTATION PAPER
EUROPEAN SECURITIES AND MARKETS AUTHORITY (ESMA) CONSULTATION PAPER 22 City Road Finsbury Square London EC1Y 2AJ Tel: +44 (0) 20 7448 7100 Fax: +44 (0) 20 7638 4636 Email: info@apcims.co.uk DRAFT TECHNICAL
More informationResponse by Swedish authorities to the European Commission s public consultation on short selling
Ministry of Finance Financial Institutions and Markets Fi2010/3634 10-5913 Financial Stability Department 2010-560-AFS European Commission Internal Markets and Services DG Financial Institutions markt-g3-consultations@ec.europa.eu
More informationToxic Equity Trading Order Flow on Wall Street
Toxic Equity Trading Order Flow on Wall Street INTRODUCTION The Real Force Behind the Explosion in Volume and Volatility By Sal L. Arnuk and Joseph Saluzzi A Themis Trading LLC White Paper Retail and institutional
More informationBEAR: A person who believes that the price of a particular security or the market as a whole will go lower.
Trading Terms ARBITRAGE: The simultaneous purchase and sale of identical or equivalent financial instruments in order to benefit from a discrepancy in their price relationship. More generally, it refers
More informationOn Wall Street, the Rising Cost of Faster Trades
On Wall Street, the Rising Cost of Faster Trades By NATHANIEL POPPER August 13, 2012 For several years, the Wall Street wizards who built a faster, more fragmented stock market justified their creation
More informationRISK MANAGEMENT IN NETTING SCHEMES FOR SETTLEMENT OF SECURITIES TRANSACTIONS
RISK MANAGEMENT IN NETTING SCHEMES FOR SETTLEMENT OF SECURITIES TRANSACTIONS A background paper for the 4th OECD/World Bank Bond Market Workshop 7-8 March 02 by Jan Woltjer 1 1 Introduction Settlement
More informationTITLE: Direct Access Execution: ECNs, SOEs, SuperDOT, and Other Methods of Trading
TITLE: Direct Access Execution: ECNs, SOEs, SuperDOT, and Other Methods of Trading AUTHOR: Simit Patel PUBLISHER: McGraw-Hill ISBN: 0-07-136391-2 REVIEWED BY: Douglas Price The book Direct Access Execution
More informationWelcome to the latest edition of Compliance Update
Welcome to the latest edition of Compliance Update This edition of Compliance Update provides information and guidance for our members in the following key areas: the importance of member firm systems
More informationAn objective look at high-frequency trading and dark pools May 6, 2015
www.pwc.com/us/investorresourceinstitute An objective look at high-frequency trading and dark pools May 6, 2015 An objective look at high-frequency trading and dark pools High-frequency trading has been
More informationTransaction Cost Analysis and Best Execution
ATMonitor Commentary July 2011 Issue Transaction Cost Analysis and Best Execution 10 things you wanted to know about TCA but hesitated to ask Foreword This is not an academic paper on theoretical discussions
More informationExchanges and the High-Frequency Trading Market
Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at
More informationRISKS DISCLOSURE STATEMENT
RISKS DISCLOSURE STATEMENT You should note that there are significant risks inherent in investing in certain financial instruments and in certain markets. Investment in derivatives, futures, options and
More informationCOMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT. Accompanying the document. Proposal for a
EUROPEAN COMMISSION Brussels, XXX SEC(2011) 1227 COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT
More informationGeneral Forex Glossary
General Forex Glossary A ADR American Depository Receipt Arbitrage The simultaneous buying and selling of a security at two different prices in two different markets, with the aim of creating profits without
More information(Legislative acts) REGULATIONS
24.3.2012 Official Journal of the European Union L 86/1 I (Legislative acts) REGULATIONS REGULATION (EU) No 236/2012 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 March 2012 on short selling and
More informationResearch Paper No. 44: How short-selling activity affects liquidity of the Hong Kong stock market. 17 April 2009
Research Paper No. 44: How short-selling activity affects liquidity of the Hong Kong stock market 17 April 2009 Executive Summary 1. In October 2008, the SFC issued a research paper entitled Short Selling
More informationORDER EXECUTION POLICY
ORDER EXECUTION POLICY Saxo Capital Markets UK Limited is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary
More informationRepeal of Short Sale Tagging
REGULATION IMPACT STATEMENT Repeal of Short Sale Tagging July 2014 About this Regulation Impact Statement This Regulation Impact Statement (RIS) addresses ASIC s proposal to repeal the ASIC market integrity
More informationBefore you accept the Terms and Conditions and engage in our Services, it is important that you read these Risk Warnings.
Important information Investment Risk Warnings Before you accept the Terms and Conditions and engage in our Services, it is important that you read these Risk Warnings. Definitions used in these Risk Warnings
More informationIIROC s Regulatory Agenda: Market and Dealer Regulation
The Canadian Institute s 21 st Annual Securities Superconference Securities Regulation & Compliance Navigating New Rules across Canada and the U.S. IIROC s Regulatory Agenda: Market and Dealer Regulation
More informationHow To Understand The Evolution Of Foreign Exchange Trading
Electronic Trading and the Australian Foreign Exchange Market Alexandra Heath and James Whitelaw* The introduction of electronic broking to the foreign exchange market in the early 199s signalled the start
More informationSTATEMENT OF GARY GENSLER CHAIRMAN, COMMODITY FUTURES TRADING COMMISSION BEFORE THE. May 20, 2010
STATEMENT OF GARY GENSLER CHAIRMAN, COMMODITY FUTURES TRADING COMMISSION BEFORE THE SENATE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS SUBCOMMITTEE ON SECURITIES, INSURANCE, AND INVESTMENT May 20,
More informationCONTRACTS FOR DIFFERENCE
PRODUCT DISCLOSURE STATEMENT CONTRACTS FOR DIFFERENCE Halifax Investment Services Limited Australian Financial Services Licence No. 225973 Date 20th October 2014 HALIFAX Product Disclosure Statement 1
More informationWGM Services Ltd Authorisation No: 203/13
[Type text] WGM Services Ltd Authorisation No: 203/13 February 2015 Order Execution Policy Table of Contents 1.0 INTRODUCTION... 2 2.0 SCOPE AND SERVICES... 2 3.0 ORDER TYPE DEFINITIONS... 3 Buy Stop...
More informationHigh Level Overview of Certain Key Regulatory Changes in Risk Management Trading in Europe *
High Level Overview of Certain Key Regulatory Changes in Risk Management for Electronic Securities Trading in Europe * * This paper presents the interpretation of FTEN. Inc. related to certain issues pertaining
More informationThe risks and benefits of shares
Course 3 The risks and benefits of shares Topic 1: The risks of shares... 3 The risks of shares... 3 The risk of capital loss... 3 Volatility risk... 4 The risk of poor quality advice... 4 Time for your
More informationMarket Making for Exchange Traded Funds. Corporates & Markets
Market Making for Exchange Traded Funds Corporates & Markets Commerzbank your trusted partner in the ETF market Since the start of the new millennium, exchange traded funds (ETFs) have experienced phenomenal
More informationDigitization of Financial Markets: Impact and Future
Digitization of Financial Markets: Impact and Future Prateek Rani 1, Adithya Srinivasan 2 Abstract Financial instruments were traditionally traded when stockbrokers and traders met at trading floors and
More informationQuarterly cash equity market data: Methodology and definitions
INFORMATION SHEET 177 Quarterly cash equity market data: Methodology and definitions This information sheet is designed to help with the interpretation of our quarterly cash equity market data. It provides
More informationDetermination of Forward and Futures Prices
Determination of Forward and Futures Prices Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012 Short selling A popular trading (arbitrage) strategy is the shortselling or
More informationInvestor Performance in ASX shares; contrasting individual investors to foreign and domestic. institutions. 1
Investor Performance in ASX shares; contrasting individual investors to foreign and domestic institutions. 1 Reza Bradrania a*, Andrew Grant a, P. Joakim Westerholm a, Wei Wu a a The University of Sydney
More informationAn introduction to measuring trading costs - TCA
An introduction to measuring trading costs - TCA Ofir Gefen, Head of Research & Execution Consulting ITG Asia Pacific 2011 Investment Technology Group, Inc. All rights reserved. Not to be reproduced or
More informationReport of the Alternative Investment Expert Group: Developing European Private Equity
Report of the Alternative Investment Expert Group: Developing European Private Equity Response from The Association of Investment Trust Companies The Association of Investment Trust Companies (AITC) welcomes
More informationChapter 11: Financial Markets Section 3
Chapter 11: Financial Markets Section 3 Objectives 1. Identify the benefits and risks of buying stocks. 2. Describe how stocks are traded. 3. Explain how stock performance is measured. 4. Describe the
More informationThis paper sets out the challenges faced to maintain efficient markets, and the actions that the WFE and its member exchanges support.
Understanding High Frequency Trading (HFT) Executive Summary This paper is designed to cover the definitions of HFT set by regulators, the impact HFT has made on markets, the actions taken by exchange
More informationSTATEMENT OF GARY GENSLER CHAIRMAN, COMMODITY FUTURES TRADING COMMISSION BEFORE THE HOUSE OF REPRESENTATIVES COMMITTEE ON FINANCIAL SERVICES
STATEMENT OF GARY GENSLER CHAIRMAN, COMMODITY FUTURES TRADING COMMISSION BEFORE THE HOUSE OF REPRESENTATIVES COMMITTEE ON FINANCIAL SERVICES SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT SPONSORED
More informationExchange-Traded Funds
Exchange-Traded Funds Exchange Traded Funds (ETF s) are becoming popular investment vehicles for many investors. Most ETF s are cost effective, broad market funds. We have put together a layman s explanation
More informationDerivative Users Traders of derivatives can be categorized as hedgers, speculators, or arbitrageurs.
OPTIONS THEORY Introduction The Financial Manager must be knowledgeable about derivatives in order to manage the price risk inherent in financial transactions. Price risk refers to the possibility of loss
More informationswitch to more enlightened trading A guide to Level 2 market data
switch to more enlightened trading A guide to Level 2 market data Switch to more enlightened trading Sophisticated investors are already using and harnessing the advantages that Level 2 market data provides
More informationWhat is High Frequency Trading?
What is High Frequency Trading? Released December 29, 2014 The impact of high frequency trading or HFT on U.S. equity markets has generated significant attention in recent years and increasingly in the
More informationCommodity Futures Trading Commission
Commodity Futures Trading Commission Office of Public Affairs Three Lafayette Centre 1155 21st Street, NW Washington, DC 20581 (202) 418-5080 www.cftc.gov Testimony Testimony of Chairman Gary Gensler,
More informationHigh Frequency Trading + Stochastic Latency and Regulation 2.0. Andrei Kirilenko MIT Sloan
High Frequency Trading + Stochastic Latency and Regulation 2.0 Andrei Kirilenko MIT Sloan High Frequency Trading: Good or Evil? Good Bryan Durkin, Chief Operating Officer, CME Group: "There is considerable
More informationSynergy Funds Management. Synergy Financial Markets. Create Your Financial Future by Investing with
Create Your Financial Future by Investing with Synergy Financial Markets Synergy Funds Management Synergy now offers its expertise to the market for the first time through the Synergy Individually Managed
More informationHow To Understand The Stock Market
We b E x t e n s i o n 1 C A Closer Look at the Stock Markets This Web Extension provides additional discussion of stock markets and trading, beginning with stock indexes. Stock Indexes Stock indexes try
More informationDelivering NIST Time to Financial Markets Via Common-View GPS Measurements
Delivering NIST Time to Financial Markets Via Common-View GPS Measurements Michael Lombardi NIST Time and Frequency Division lombardi@nist.gov 55 th CGSIC Meeting Timing Subcommittee Tampa, Florida September
More informationRisk Warning Notice. Introduction
First Equity Limited Salisbury House London Wall London EC2M 5QQ Tel 020 7374 2212 Fax 020 7374 2336 www.firstequity.ltd.uk Risk Warning Notice Introduction You should not invest in any investment product
More informationA practical guide to FX Arbitrage
A practical guide to FX Arbitrage FX Arbitrage is a highly debated topic in the FX community with many unknowns, as successful arbitrageurs may not be incentivized to disclose their methodology until after
More informationWhat Tools Do Vendors Provide to Control the Risks of High Speed Trading?
What Tools Do Vendors Provide to Control the Risks of High Speed Trading? Carol Clark, Rajeev Ranjan, John McPartland, Richard Heckinger* PDP 2011-1 October, 2011 * The opinions expressed in this paper
More informationBest ETF Trading Practices
Presented by QQQ TM Also inside: 2 Why best trading practices matter 3 The value of a pretrade analysis 4 Evaluating ETFs for trading efficiency 5 Mechanics of ETF trades 5 Relationships between ETF trading
More informationFESE Input to the Commission High Frequency Trading
FESE AISBL Avenue de Cortenbergh, 52 B-1000 Brussels VAT: BE0878.308.670 Tel.: +32 2 551 01 80 Fax : +32 2 512 49 05 FESE Input to the Commission High Frequency Trading Brussels, 23 February 2010 General
More informationPFIN 12: Buying and Selling Investments 78
PFIN 12: Buying and Selling Investments 78 12-1 Researching Investments OBJECTIVES Describe the types of financial information found in magazines, newspapers, and newsletters. Describe the type of data
More informationRE: File No. S7-08-09; Proposed Amendments to Regulation SHO
Elizabeth M. Murphy, Secretary Securities and Exchange Commission 100 F Street NE Washington, DC 205491090 RE: File No. S7-08-09; Proposed Amendments to Regulation SHO Dear Ms. Murphy: Lime Brokerage LLC
More informationForeign Exchange Contact Group The future of the e-forex. Macalli Louis. Frankfurt, 10th June 2009
Foreign Exchange Contact Group The future of the e-forex Macalli Louis Frankfurt, 10th June 2009 The future of the e-forex From the phone-based FX to the e-forex : main features and short term issues.
More informationMarket Making and Liquidity Provision in Modern Markets
Canada STA 2015 Market Making and Liquidity Provision in Modern Markets Phil Mackintosh 2 What am I going to talk about? Why are Modern Markets Important? Trading is now physics at the speed of light Jan
More informationMiFID II: Microstructural Issues
MiFID II: Microstructural Issues October 2015 CONTENTS A. HIGH FREQUENCY TRADERS B. TRADING VENUES C. PROVIDING DIRECT ELECTRONIC ACCESS D. MARKET MAKING STRATEGIES 02 MiFID II: Microstructural Issues
More informationANZ Margin Lending Integrated with E TRADE
ANZ Margin Lending Integrated with E TRADE The ANZ Margin Loan - Integrated with E TRADE What is margin lending? Benefits of gearing The ANZ Margin Loan is an integrated facility that allows you to trade
More informationUnderstanding ETF Liquidity
Understanding ETF Liquidity SM 2 Understanding the exchange-traded fund (ETF) life cycle Despite the tremendous growth of the ETF market over the last decade, many investors struggle to understand the
More information1 Introduction. 1.5 Margin and Variable Margin Feature
Risk Disclosure Spread Betting and CFDs are high risk investments. Your capital is at risk. Spread Betting and CFDs are not suitable for all investors and you should ensure that you understand the risks
More information