Forcing speed traders to pay for cancelled trades wouldn't necessarily support SEC' stated mission to maintain fair, orderly and efficient markets and to facilitate capital formation, said Edgar Perez, author of The Speed Traders, An Insider's Look at the New High-Frequency Trading Phenomenon That is Transforming the Investing World, and course director of The Speed Traders Workshop 2012 Seoul: How High Frequency Traders Leverage Profitable Strategies to Find Alpha in Equities, Options, Futures and FX, March 28th.
Suggested solutions such as forcing high-frequency traders to pay for the cancelled trades or requiring them to maintain competitive buy and sell orders in the market throughout most of the trading day would send the wrong message by exclusively targeting a key sector of the financial markets, said Perez. As Securities and Exchange Commission chairman Mary Schapiro acknowledges, speed traders provide liquidity to markets, and measures such as those mentioned above, Perez continues, will reduce their ability to provide such liquidity, consequently, impacting retail investors by purchasing shares for more and selling at lower levels.
Perez noted that high-frequency traders are not against regulation; in fact, their industry was born as a result of regulatory reforms brought into place by the SEC, and helped by the availability of high-performance computing. For instance, Perez said, Chicago-based Getco employs about 400 professionals among quants and traders who use computer-driven strategies to formulate prices for stocks, derivatives and currencies, making its profit on the spread between bids and offers. Targeted regulation could compress their already thin margins and forcing them to focus on markets abroad that are clamoring for the additional liquidity they bring.
Efforts such as the planned Consolidated Audit Trail (NYSE:CAT) that will track equities, fixed income and futures trading in real time are critical to bring transparency to the markets and guide future measures to stop suspicious practices not necessarily constrained to the high-frequency trading world. Introducing circuit breakers and banning so-called stub quotes, both implemented after the 'flash crash' of May 6, 2010, are steps in the right direction, Perez concluded.The Speed Traders Workshop 2012 Seoul, led by Perez in South Korea, reveals how high-frequency trading players are expanding in the global markets and driving the development of algorithmic trading at breakneck speeds from the U.S. and Europe to India, Singapore and Brazil. The Speed Traders Workshop 2012 Seoul, March 28, kicks off a series of presentations in the world's most important financial centers: Kuala Lumpur, Malaysia, April 11; Doha, Qatar, April 18; Warsaw, Poland, May 11; Kiev, Ukraine, May 18; Singapore, May 26; Shanghai, China, June 6; Jakarta, Indonesia, June 13; Mexico City, Mexico, July 27; Hong Kong, August 4, and Moscow, Russia, August 10.