Tag Archives: High Frequency Trading

“The Sexiest Girl in the Class”

While US and European politicians talk about how to curb it, trading based on algorithms is not going away. In fact, it is spreading faster than ever, as emerging markets like Brazil, India , Russia and China, are now catching on to its potential. Ordinary traders are being replaced by coordinators of algorithms. But that’s just half the story.

“If you have the fastest network, you’re the sexiest girl in the class, you’re the top boy. It’s as simple as that.”

Fraser Bell

As pointed out in earlier post; there is a very clear parallel here to what happened between 2000 and 2005 with the rapid build-up of the more or less unknown market of financial derivatives. Only this time it’s more technical…

In the financial centres of Europe and the US, where the practice began, the people responsible for policing the markets are getting worried about their ability to cope.

But while they talk about how to curb it, trading based on algorithms is not going away. In fact, it is spreading faster than ever, as emerging markets catch on to its potential, BBC News reports.

“The Bric (Brazil, Russia, India and China) countries are where it’s at right now,” says Dr John Bates, executive vice-president and chief technology officer of Progress Software, a company that has pioneered new techniques in what are known as quantitative trading programs.

“We’ve seen it grow very quickly in Brazil. It’s done what happened in London and New York much more quickly. Now we’re seeing the same trend in India and China and even, embryonically, in Russia.”

According to Dr Bates, in the past two to three years, Brazil has already run through a cycle of development that took far longer in London and New York, with algorithm-based trading now available in equities, futures and foreign exchange markets.

Brazil’s Bovespa stock exchange has invested in new technology, boosting the proportion of algorithm-based equity trades from 4% to 12% in the past year.

“The adaptation is faster and they can leapfrog the mistakes that have been made in other places,” he says.

Dr Bates says India is already following suit and will see even more automated trade in the next few years: “The market’s gone very electronic there.”

Indian analysts reckon that as many as a quarter of all trades in the country now involve algorithms, still mainly in equities, whereas up to half of all transactions in Europe and nearly two-thirds of US transactions are estimated to come from high-frequency and algorithmic trading.

Taxing, Limits and Supervision

France is the first of the worlds major economies to impose special taxes on High-frequency Trading (HFT).

And according to head of France’s AMF watchdog, Jean-Pierre Jouyet, the French are also considering speed limits and some kind of supervision.

As Dr. Bates told the Asian Financial Forum in Hong Kong in January:

“As there is a rush towards reducing transaction time in the name of high-frequency trading, the question we need to ask is what purpose are we serving by reducing trading time to eight microseconds or even two microseconds. Is this justified?”.

Well, I guess that depends on who you ask?

The Sexiest Girl

It is kinda obvious that the financial industry would not be upgrading its technology by 90 billion dollar this year  if they didn’t think it was worth it.

“If you have the fastest network, you’re the sexiest girl in the class, you’re the top boy,” says Fraser Bell, managing director of BSO Network Solutions. “It’s as simple as that.”

BSO operates its own international network covering the UK, the US and 16 other countries, including the main European financial markets, Hong Kong, Singapore, Brazil and Russia.

It prides itself on being able to send data from London to Hong Kong and back in just 174 milliseconds.

“There’s a massive global drive for speed,” says Mr Bell, who sees himself as locked in a “race to zero” with rival network operators.

Read the full article at BBC News here.

Related by econoTwist’s:

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French Senate Start Taxing High-Frequency Trading In January

According to a report by Ulrika Lomas of Tax-News.com, the French Senate, with its left-wing majority, has approved plans to establish a tax on automated transactions in France, to curb the rapid rise in high frequency trading.

“This form of trading merely serves to derail the markets and lamented the lack of visibility for both investors and issuers and the lack of contribution to the country’s real economy.”

Nicole Bricq

Proposed by general budget rapporteur Nicole Bricq, the tax had been adopted by the Senate finance committee recently, highfrequencytrading911.com writes.

The new initiative proposes to impose from January 1, 2012, a tax on certain investment service providers in cases where daily cancellation rates for orders for buying and selling financial instruments on public markets exceed 50%.

Bricq warns that this form of trading “merely serves to derail the markets and lamented the lack of visibility for both investors and issuers and the lack of contribution to the country’s real economy.”

Commenting on its decision to back the plans at the time, the Senate finance committee pointed to the “flash crash” stock market crash of May 6, 2010 in the US and to the stock market crash in Europe in August of this year, which, it argued, served to fuel the controversy surrounding both the impact and the usefulness of high frequency trading.

And the controversy continues….

 

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Financial Markets Temporary Shut Down In Both US, EU And Russia

The trading in financial markets has now been closed in both the US, Europe and in Russia due to sharp declines.  The shutdown is temporary, but the panic and uncertainty might pospone the closedown. Ride on, baby!

“We cut our global GDP growth forecasts to 3.9% in 2011 and 3.8% in 2012, from 4.2% and 4.5%, respectively. DM growth looks set to average only 1.5% this year and next – down from 1.9% and 2.4% previously – making the BBB recovery even more bumpy, below-par and brittle.”

Morgan Stanley Research

Rule 48 have just been invoked by the NYSE Euronext.

A few hours ago, Russian media reported that the Russian stock market had been closed for the same reasons – a sharp decline. All trading on Russia’s MICEX stock exchange has been halted until 17:15 GMT.

(h/t: Zero Hedge)

Here’s the text of Rule 48:

(a) In the event that extremely high market volatility is likely to have a Floor-wide impact on the ability of [Designated Market Makers] to arrange for the fair and orderly opening, reopening following a market-wide halt of trading at the Exchange, or closing of trading at the Exchange and that absent relief, the operation of the Exchange is likely to be impaired, a qualified Exchange officer may declare an extreme market volatility condition with respect to trading on or through the facilities of the Exchange.

(b) In the event that an extreme market volatility condition is declared with respect to trading on or through the facilities of the Exchange, a qualified Exchange officer shall be empowered to temporarily suspend at the opening of trading or reopening of trading following a market-wide trading halt: (i) the need for prior Floor Official or prior NYSE Floor operations approval to open or reopen a security at the Exchange (Rules 123D(1) and 79A.30); and/or (ii) applicable requirements to make pre-opening indications in a security (Rules 15 and 123D(1)).

The rule was approved by the Securities and Exchange Commission on Dec. 6, 2007.

(Source: The Wall Street Journal)

Check the developments at the major stock exchanges here:

NYSE Euronext

New York Stock Exchange

Nasdaq OMX

London Stock Exchange

RTS Exchange Russia

TODAY’s SHOCKER:

Morgan Stanley – Dangerously Close to Recession

See Also:

Fitch Ratings. European Senior Fixed-Income Investor Survey Q311. 08182011.

“Corporate entities are expected to scale back capital spending and revert to cash preservation mode. Investment grade corporates snatch top spot for most favoured asset class, ahead of high yield, whilst cash moves to joint third from sixth place in Q211. Access to funding remains the key perceived risk to bank credit quality, with a higher proportion of respondents citing this factor as critical. Over the coming 12 months, the majority foresee tight or tightening bank lending conditions, receding from the overall expectation of loosening in the previous survey.”

Oh, and a little  bit more…from BNP Paribas:

“The recovery’s weaknesses are now coming to light. The crisis caused growth to collapse without a proportionate fall in asset prices; barely had the recovery begun than the world economy found itself in a position of excess liquidity, creating the preconditions for a commodity bubble that has now materialised. The overheating of certain developing economies has worsened, whilst, in the G3, under utilisation of production factors has persisted, or has even been more marked. International financial imbalances remain. The sustainability of Greek government debt is becoming highly problematic, whilst the systemic risk for banks and governments in other in other peripheral euro zone countries are far from being resolved. The recovery in the US shows signs of running out of steam and the outcomes of unrest in the Arab world remain uncertain.”

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