Amit Manwani heads U.S. quantitative and analytics products for Nomura Securities International. A Lehman Brothers veteran in algos and analytics, Manwani joined Nomura in November 2008 to develop its new electronic products. He offered his opinion on some of the more prominent industry issues.
On high-frequency trading model risks–
Since high-frequency traders provide a lot of liquidity without the obligation to provide it, it’s possible that their models could detect the presence of some big buyer and all back off. And as everyone simultaneously backs up, liquidity dries up. But that’s a natural consequence of markets having gone from a dealer-type market to more order-driven markets without a centralized dealer. With electronic markets there’s the potential that, if no one is willing to take one side of the trade, you’re going to have extreme volatility. The challenge for regulators is to figure out if there is value in there being an obligatory market maker, a liquidity provider that can buffer some of the uncertainties that come from all of the high-frequency trading firms that are providing liquidity and disappearing all at once.
On a potential transaction tax–
A discriminatory tax of any sort is probably a knee-jerk reaction. There are probably better ways of accomplishing the same thing. It’s almost like the tax is saying trading is bad. We do know all the negative impacts of taxes. It’s going to lead to inefficiencies in the marketplace. It’s going to prevent people from providing liquidity. It’s probably going to cause price mismatches that will last for longer periods of time. I haven’t seen strong arguments from practitioners in the field, who actually have a thorough understanding of what all the implications should be, saying it’s incontrovertibly a good thing.
On regulating dark pools–
Some say that dark pools have added a net benefit, because they provide anonymity and don’t provide full visibility, and what’s going on allows larger orders to get done. If you believe that dark pools have actually made it more difficult–and as more flow goes into dark pools, public market price discovery will get harder–then making dark pools look more like public markets is a good thing. Since there’s been no conclusive study that practitioners have done that quantifies the value of dark pools on a definitive basis, then to some extent, investors themselves are probably the best judge of whether their interaction in a dark pool has given them a net benefit or not.
On risk concerns related to naked sponsored access–
Just because your neighbors aren’t going to rob your house, you’re not going to leave your doors unlocked. You just need some checks and balances in the system. We would like some type of change that either requires the emergence of a standard set of diagnostics that the exchanges themselves implement, or a standard that the broker-dealers–that are actually providing sponsored access–would have to subscribe to. It will probably add some latency to the system, but those kinds of checks and balances seem well worth it.
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