Survey On HFT Shows Opinions Split Down The Middle
In a surprising outcome, Securities Industry News reports that according to a research survey conducted by Greenwich Associates, 55% of investors think high-frequency trading does not have a
negative impact on their trading operations, "viewing the phenomenon as
the latest development in a constantly evolving market," while 46% think that
their institutions are placed at a disadvantage by traders who employ
such strategies. Basically, the conclusion, before we disclose more of the study's observations, is that practically nobody has any idea what is really under the HFT surface. With an equal number of advocates and critics, confusion is rampant (and for some of the more vocal HFT supporters who believe the NBBO is never crossed and displayed liquidity is always protected, we have three words: you are wrong... More on that and "qualified contingent orders" tomorrow).
Other findings of the survey:
Forty five percent of institutional
investors believe that high-frequency trading poses a threat to the
current market structure and in some instances, involves preying on
traditional stock investors; Thirty six percent believe it actually
benefits the market, adding liquidity to global markets and 20% say
they do not know enough about the activities of high-frequency traders
to make a judgment about its overall market impact.
Where there is agreement is on the lack of data: Institutional
investors -- 85% -- believe they do not have enough information to make
any final judgments about high frequency trading. As one survey
respondent put it: “Both detractors and those touting the liquidity
provision and spread-tightening benefits of high frequency trading have
very little data to back them up.”
Despite the uncertainty, a clear majority of institutional investors –
57% - - favor new regulations on high-frequency trading while 21% would
support a high-frequency trading ban.
The conclusion by Greenwich Associates:
“Despite the lack of clarity surrounding high-frequency trading as
defined as strategies that seek to take advantage of small market
inefficiencies, (the Greenwich Associates’ survey) results suggest to
us that institutional investors believe regulatory actions aimed at
limiting the use of individual techniques like flash orders and IOIs to
maintain a level playing field might be entirely appropriate at this
time as these are seen as unfair advantages,” said Greenwich Associates
consultant John Colon.
“However, the results also make it clear that additional
research on high-frequency trading’s impact on investors and its net
effect on the market structure is needed before regulators act to
impose any broad new rules,” he added.
By all means: let the SEC investigate extensively. With many more in-depth analyses likely to come out, as there are as many justifiable opinions as there are revenue streams, many of which will refute point by point the objections raised in Goldman's dark pool defense (for example), the end result will be a much more enhanced proliferation of information about this critical topic. At the end of the day that is the only way to prevent ongoing abuse by those who hoard not only the critical market structure data but its application.