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Institutional investors worried about high-frequency trading
Over two-thirds of large institutional investors are concerned about the effect of high-frequency trading on the equities market, according to a survey by Liquidnet.
The Liquidnet Institutional Voice Survey gauged the opinions of 630 asset management firms that collectively manage equity assets of more than $13 trillion.
Liquidnet chief executive Seth Merrin said the survey demonstrated that long-only traders believed high-frequency trading was a negative for large institutions.
"Investors are clearly concerned that their long-term investment styles are at odds with the speculative, nano-second profit taking approach taken by high-frequency traders," Merrin said.
Head of Liquidnet Australia Sam Macqueen said that revealing too much information to the market put large institutions at the mercy of high-frequency traders, which was what made the buy-side-only 'dark pool' market Liquidnet popular with institutions looking to make large trades.
"The bigger a fund you are, the harder it is for you to get into and out of relevant positions - and the more disincentive there is to let the information get out there because people can profit from that," Macqueen said.
"We stitch the liquidity back together in a protected environment to allow institutions to trade more effectively together," Macqueen added.
A spokeswoman for the Australian Securities and Investments Commission (ASIC) said the regulator was on track to release a consultation paper on high-frequency trading in late September 2011.
"With the introduction of ASX's new data centre with enhanced co-location facilities, and Chi-X and ASX's PureMatch order books, ASIC anticipates the level of high frequency trading and automated trading will grow. We are currently considering a number of risk controls at the firm and market operator levels to manage concerning trading behaviours," the spokeswoman said.
"At the market surveillance level, we are considering the forms of data that would enhance ASIC's supervision function, including over high frequency trading and the use of algorithms," she added.
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