How to Win Enemies and Influence Markets

High-Frequency Traders can’t seem to catch a break – in public opinion, that is. Wherever they go, they are blamed for all manner of ills in the market. To be fair, they haven’t done a very good job (or put in much of an effort at all) at managing their reputation. There was the Flash Crash, the Knight Trading fiasco, and a long list erratic behavior throughout markets. Even some corners of the managed futures community have begun blaming them for recent lackluster performance.

So we were terribly (un)surprised to learn this morning that HFT has gone and made another enemy: Forex traders. The Wall St Journal reports:

Hedge fund GSA Capital Partners LLP has accused Thomson Reuters Corp., owner of a major currency-trading platform, of being too lenient in sanctioning a high-speed trader. In an act of protest, GSA, a large customer of Thomson Reuters, said it is refusing to post prices of its trades on the firm’s system…

The dispute demonstrates the tensions within the currency market as high-speed trading expands. Regulators leave much of the policing to platform operators such as Thomson Reuters and ICAP PLC’s EBS. But as the number of high-frequency traders rises, many of these trading platforms may be struggling to keep pace, said Christopher Nagy, a consultant who formerly handled the routing of orders for brokerage firm TD Ameritrade Holding Corp…

High-frequency traders have populated the stock market for years, but fast trading in currencies started to gain traction only recently. For years, trades were often done over the phone between two traders who knew each other. That led to a clubby world where rancor was limited. Now, high-frequency trading makes up about 40% of the currency market, nearly double the share in 2007, according to consultant Aite Group. In the stock market, high-frequency trading makes up about two-thirds of volume.

High-Frequency Traders are becoming less welcome than lepers in some circles. As they expand into new markets, they’re making enemies almost as fast as they make cancelled orders. With all the animosity, we’d be shocked if some kind of regulatory action against HFT wasn’t on the horizon, but that might turn out to be bad news for everyone.

As we noted yesterday, some legislators are proposing financial transaction taxes – and one is poised to go into effect in several EU countries – as a measure to cut down on HFT. Market regulation is obviously needed, but when regulators step in without a clear understanding of the situation or the consequences of proposed solutions, laws can end up generating new problems worse than the ones they set out to solve.  Here’s hoping someone can devise a way to settle the controversy over HFT without hampering our entire financial system to do it.

Write a Comment

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.