I recently attended the Rosenblatt Securities 2nd Annual Global Exchange CEO & Investor Conference in NYC. While nothing particularly new was uncovered during the event, there were a few interesting panel discussions that I believe warrant mentioning.
The “High Frequency Panel” included panelists from Allston Trading, Lime Brokerage, Quantlab Financial, RGM Advisors and SAC Capital Advisors. The key point conveyed by all panel members, and one that I strongly agree with is that there is no “clear” definition of high frequency trading, which is to say that everyone defines it differently, and that automated trading strategies provide significant liquidity in the market. Another belief shared by the panelists was that these strategies actually helped stabilize the equities markets last year during the darkest trading days, asserting that without high frequency trading the market would have dropped faster and farther. The panel also disproved the notion that automated trading strategies can only be implemented with “million dollar” computers, instead, underscoring that true high frequency trading is a function of strategies developed and run by very smart people, not supercomputers (and all within the rules as set out by the SEC). Finally, the panel discussed the fact that automated trading strategies have replaced the market makers of the past.
The earlier point about there being no clear definition for high frequency trading is really at the crux of this issue and needs to be reconciled before any regulation is implemented. The style of trading referred to as high frequency trading is simply automated trading using strategies that buy or sell stock on short term price movements. I am in complete agreement that these automated trading strategies do NOT require million dollar computers, but DO require very intelligent individuals (who can sometimes run their strategies from something as simple as a spreadsheet). I have spent a lot of time listening to and participating in discussions on this topic largely because contrary to what has been reported in the press or conveyed by politicians, individual traders have access to the same technologies as the “big” firms employing automated strategies, so they are not disadvantaged, rather they just need to know what brokerage firm to use. At Lightspeed we can and do assist individual traders with running their own automated strategies and connecting them to the markets at a very manageable cost.
One last highlight from the conference was the discussion about foreign markets including Brazil, Hong Kong and London beginning to increase trading volume and, in doing so, looking for firms with automated trading strategies to build trading models in their respective markets. This trend is something that the US regulators need to understand and take notice. There is a real possibility that “over-regulation” of the US markets will drive volume to overseas markets. The overseas markets are actively pursuing volume from active traders and this trend will grow exponentially if those who earn their living trading the US markets cannot continue.
Overall, a day well spent.
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