Feel like it is time to spread the market annihilation love courtesy of "any minute now" HFT-induced flash crashes? Have no fear, Bank of America is here. "High-frequency trading in the US and Europe has grabbed most attention in the market, but similar activities are quietly taking off in Asia as well." Thusly begins a pamphlet by BofA/ML's Carrie Cheung which explains the tremendous "advantages" that HFTs offer to any local market. Not mentioned is that these advantages include drastic market destabilization, and that the "attention" is of the "get that thing the hell out of here" variety. At least we get to learn some very useful facts about the proliferation of the little bloodsucking algos in the Pacific rim such as...
- "high-frequency trading firms today account for about 20-25% of the TSE turnover - ZH translation: the TSE will crash only one third lower when the Flash Crash hits it"
- "the market microstructure changes introduced at the same time (i.e. new tick sizes) cut the average spread of Nikkei 225 stocks by 25%, making it much cheaper to trade - ZH tranlsation: in HFT jargon, trade is a synonym for stuff cancelable quotes and/or churn",
- "The new platform allows for higher-frequency trading, where algorithms are used to make thousands of trades in milliseconds, thereby allowing firms to profit from tiny spreads and market imbalances." - ZH translation: we make frontrunning fast and easy, or your Other People's Money back;
- "Furthermore, the introduction of co-location services by Japanese exchanges, together with third-party proximity services, further enhances the platform for high-frequency trading firms in Japan." - ZH translation: Cisco stands to make at least one or two cents in incremental EPS by letting the biggest market manipulators frontrun and scalp at the speed of light; judging by its latest results, it needs it;
- "It is estimated that high-frequency trading activity will account for 30-40% of liquidity by the end of 2010." - ZH translation: the crash after the next, will be about half the amplitude of the May 6 crash;
- The Kospi Index Option is the world’s most heavily traded derivative. It is highly correlated with the US markets, has a low transaction cost and hence is heavily traded by retail investors. These elements make it an attractive market for a lot of foreign investors including the highfrequency trading group. - ZH translation: Japanese housewives will first all buy together, then will be all shaken out together, losing all their money at the same time, with just Made in New York Atari making a killing;
- China is a market most foreign investors want to access, but the entry barriers are high. However, the recent successful launch of CSI 300 futures will no doubt make it an important market to keep an eye on. The futures contract, while currently limited to just domestic traders, now has the second largest turnover in the world, following Kospi. - ZH translation: we are preparing to blow up the world.
In conclusion, use Bank of America cause their HFT expertise in setting landmines in Asian stock markets is second to none: "Asia’s markets are evolving gradually. In addition, the region’s growing economic power and upgrades in technology will definitely make this the next hot spot for high-frequency trading."
Full two page ad of BofA exporting WMDs to the Pacific rim: