Opinions are strongly divided over whether high-frequency trading (HFT) provides truly useful liquidity, and some regulators have already put certain constraints in place and are considering whether to go further.
Yet most Asia-Pacific market participants believe HFT will continue to evolve and spread, finds a survey due to be published this week by conference company Worldwide Business Research (WBR). The poll received 160 responses from both the buy- and sell-side, including a number of large international fund houses*.
Most respondents said that in five years’ time, HFT would be more common across all the main asset classes, but especially in equities, futures and foreign exchange. Half even suggested that there would be more HFT of fixed income, while two-thirds said the same about exchange-traded funds.
There was, unsurprisingly, some anti-HFT sentiment expressed in the survey, with 37% dismissing the statements of some HFT firms claiming they are market-makers, saying that many are not. On the other hand, 34% argued HFTs are essential to the market by providing valuable liquidity under most conditions.
Some respondents added comments in the survey that a distinction should be made between HFTs that are also market-makers and those that are not, in that different standards should be applied to each.
Regarding the influence of HFT firms on key market structures such as brokers, data centres and exchanges, around 50% of respondents thought it likely or very likely that HFT firms would encourage more automation, rules and structures for their own benefit.
Still, 65% of respondents said HFT firms should form a lobby group to protect their interests. There is currently no formal group in Asia-Pacific representing the HFT industry, notes WBR.
Yet half (49%) of respondents view regulators as behind the technology curve with no idea of what HFT firms are doing, and say they need to upgrade their technology systems. Taking a more drastic view, 11% wanted tougher rules against HFT rule breakers, whom they consider to be “public interest criminals”.
Roderic McLauchlan, Singapore-based automated trading producer at WBR, tells AsianInvestor: “We were constantly getting feedback that there was virtually no information on HFT activity in Asia-Pacific. So we have organised a series of HFT/automated trading surveys to assess the impact of HFT on traditional market participants including buy-side traders and brokers [of which this is the first].
“There is no doubt that HFT is revolutionising the way trading business in done across the region and that the nature of this change is both accelerating and very wide, touching all parts of the trading value chain,” he adds. "There is no escaping it and the failure to accept this reality will translate to big losses in the market.”
* Firms polled included Aviva Investors, Invesco Asset Management, JP Morgan Asset Management, Mirae Asset, Nomura Asset Management, Reliance Mutual Fund, UBS Global Asset Management and Vanguard Investments.