HFT Is A-OK, Industry Says

In its Concept Release, dated Jan. 13, the Securities and Exchange Commission asked the industry and the general public for their views on the activities of high-frequency traders. The commission wondered whether HFT practices might be bad for the marketplace and require regulation.

Most respondents–but not all–said "no."

 

 

There is a market misperception that this investor type is predatory, and operates by manipulating the markets or by seeking to game other orders. We believe this is a sweeping mischaracterization of the vast majority of short-term traders.

–John Ingrilli, chief operating officer, UBS Equities, Americas

 

 

The liquidity they provide is beneficial to the markets.

–David Cushing, director of global equity trading, Wellington Management Company

 

 

As high-frequency traders have hijacked the equity markets and become the casino (i.e., "the house"), they have become nearly impossible for long-term investors to avoid. Investors must either engage HFTs and pay a "tax" or risk never allocating their capital to worthy enterprises.

–Deborah Craddock, head of trading, et al., Southeastern Asset Management

 

 

Each participant should be judged on their behavior, not their business model.

–Peter Kovac, chief operating officer, EWT LLC

 

 

High-frequency trading is the first to flee the market in times of stress and volatility. They can simply turn their programs off for the rest of the day. [NYSE]-designated market makers have an obligation to the marketplace and do not stop trading just because it enters a short period of unprofitability.

–Patrick Armstrong and Daniel Tandy, co-presidents, Alliance of Floor Brokers

 

 

HFTs are the liquidity backbone of the market.

–Manoj Narang, chief executive, Tradeworx

 

 

Legitimate conduct should not suffer disparate regulatory treatment based on whether such conduct is "high-frequency" or "low-frequency."

–Eric Hess, general counsel, Direct Edge Holdings

 

 

Speed is not inherently unfair or harmful; it is the misuse or misapplication of speed that may harm investors or markets.

–Joan Conley, corporate secretary, Nasdaq OMX Group

 

 

The term "high-frequency trading" is ill-defined, referring to a broad range of strategies and activities. Thus, the commission should avoid generalizing the concerns raised by certain questionable strategies to all electronic traders.

–John McCarthy, general counsel, GETCO

 

 

High-frequency traders and their strategies are under scrutiny for the very benefits to which they have directly contributed-the ability to recognize immediate price discrepancies and equalize pricing of securities.

–Greg O’Connor, compliance manager, Wolverine Trading

 

 

If long-term investors are the gasoline that fuels the U.S. market’s economic engine, then short-term investors are the oil that ensures the engine runs smoothly and efficiently.

–John Ingrilli, chief operating officer, UBS Equities, Americas

 

 

HFT is a type of trading, not a type of trader. Any regulatory initiatives designed to address issues raised by HFT should be targeted to the type of activity, rather than the market participant.

–Ann Vlcek, associate general counsel, SIFMA

 

 

This increase in the volume of placed, canceled and replaced orders is a sign of a competitive, well-functioning, highly efficient electronic market with tight bid-ask spreads. This activity is not an indication of market abuse. Market makers have always canceled and refreshed their quotes in response to market movements.

–Stuart Kaswell, general counsel, Managed Funds Association

 

 

[The commission should] consider whether HFT firms should be subjected to quoting obligations similar to that of OTC market makers.

–Karrie McMillan, general counsel, ICI

 

 

We do not think that the imposition of affirmative or negative obligations on high-frequency traders is necessary.

–Kimberly Unger, executive director, STANY

 

 

HFT represents opportunistic liquidity which generally does not serve the individual investor well.

–Christopher Nagy, managing director, order strategy, co-head of government relations, TD Ameritrade

 

 

We recommend that the commission examine whether any new regulations are necessary to address firms that are conducting an "order anticipation strategy," and whether certain order anticipation strategies should be considered improper or manipulative activity.

–Karrie McMillan, general counsel, ICI

 

 

Vanguard believes that a vast majority of "high-frequency trading" is legitimate and adds value to the marketplace through increased liquidity, tighter bid-ask spreads and a better-linked national market system.

–Gus Sauter, chief investment officer, Vanguard Group

 

 

Should the anticipation of the behavior of other market participants by HFTs be prohibited? No! Successful investing and trading both require anticipating other investors’ behavior and acting before they do!

–Manoj Narang, chief executive, Tradeworx

 

 

The tools that [automated professional traders] use, such as colocation and direct market feeds, are readily accessible to any market participant that chooses to employ them.

–Executives of four HFT firms: Allston Trading, Hudson River Trading, Quantlab Financial and RGM Advisors

 

(c) 2010 Traders Magazine and SourceMedia, Inc. All Rights Reserved.

http://www.tradersmagazine.com http://www.sourcemedia.com/