Why does Singapore Exchange Seek High-Frequency Traders?

Singapore Stock Exchange (Bloomberg)

According to Bloomberg, Singapore Exchange Ltd. (SGX)Southeast Asia’s biggest bourse operator, wants to lure more high-speed traders on to its stock market as it grapples with lower volume.

Computerized trading firms, which execute transactions in fractions of a second, account for a negligible share of volume on Singapore Exchange’s cash equities market, according to bourse spokeswoman Loh Wei Ling, while they contribute 30 percent of revenue from derivatives. Singapore Exchange will seek to change that once it introduces safeguards, Chief Executive Officer Magnus Bocker said at a briefing this month.

“We will pursue high-frequency trading once we have circuit breakers and other policies in place,” he said. “That will enhance the liquidity and quality of the Singapore market.”

High-frequency traders facilitate the majority of U.S. equity transactions, where computerized firms have ample opportunity to profit from fleeting price discrepancies because transactions take place on more than 50 venues. Singapore isn’t as fragmented, which keeps computer traders away. Credit Suisse Group AG and Tabb Group LLC said the city’s relatively high trading and clearing fees also deter those firms.

Bocker is seeking more business with the daily average value of equity trades down to about S$1.5 billion ($1.2 billion) this year, a 36 percent plunge from 2007, according to datacompiled by Bloomberg. Singapore Exchange’s net income was S$336 million for the fiscal year that ended in June, 20 percent lower than fiscal 2007. SGX climbed as much as 0.7 percent today, before closing 0.4 percent lower at S$7.38.

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Why Putting a Speed Limit on the Stock Market?

(Dallas News)

(Dallas News)

According to The New York News, when Brad Katsuyama was running the U.S. trading desk for the Royal Bank of Canada, his clients would send in orders every day, but every day, when Katsuyama went to buy or sell, something would go wrong. When he wanted to buy, offers to sell shares would suddenly vanish, and the price of the stock would shoot up. When he wanted to sell, the same thing would happen in reverse. “I started to realize that, day in and day out, I was getting screwed,” Katsuyama told me recently.

The problem was that he was often too slow. Back then, in 2007, the stock market was in the middle of a significant shift. A combination of new technology and new regulations had led to the rise of firms focused on high-speed, computer-driven operations known as high-frequency trading. With the help of complex algorithms and ultrafast Internet connections, the new traders could buy and sell stocks in fractions of seconds, looking to make a seemingly infinite number of quick, tiny profits that added up. By 2009, high-frequency traders were making billions of dollars a year, and their transactions accounted for about 60 percent of U.S. stock trades.

Some of these traders acted like useful stock-market middlemen, constantly buying and selling, bridging the bid-ask gap between other buyers and sellers. But plenty of others used the new technology to foil long-term investors by trading ahead of the slower players. A trader’s algorithm might detect that Katsuyama was trying to buy 100,000 shares of a stock and then immediately start buying it to drive up the price. Indeed, certain high-frequency traders were forcing long-term investors, including those who managed funds that held ordinary people’s retirement accounts, to constantly buy higher and sell lower. The game seemed rigged.

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How does society benefit from the High-Frequency Trading?

Source: U.S. News

Source: U.S. News

According to U.S. News, three and a half years have passed since the afternoon when the stock markets went into a trillion-dollar free fall and just as suddenly reversed course, recovering 80 percent of that loss. It all happened in less than 45 minutes.

The “Flash Crash” of May 6, 2010, was the unintended result of high-frequency trading (or HFT), in which heavy-duty computers execute sophisticated trading strategies in millionths-of-a-second time frames. HFT has been the source of many smaller crashes and other mishaps, occasionally shutting down trading venues and even putting firms out of business. Yet the practice continues to grow, while the transaction times get shorter and shorter.

A few weeks ago, the Commodity Futures Trading Commission, which has jurisdiction over almost all derivatives markets under the Dodd-Frank financial reform law, published a paper evaluating various “kill switches” that might contain the damage when the machines go haywire again.

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How could the High-frequency Trades still be Profitable Facing EU Curbs Announced in Draft Deal?

Source: European Parliament News

Source: European Parliament News

According to Bloomberg, European Parliament lawmakers have reached a draft deal with national governments on high-frequency trading curbs as part of a push to toughen the bloc’s financial market rulebook, said the chief legislator working on the plans.

“The negotiation team achieved a significant breakthrough on this issue,” Markus Ferber, the lawmaker leading the measures, said in an e-mail. “The area of high-frequency trading is lacking suitable regulation. This is why it was high time to find a decent solution to this pressing problem.”

The provisional deal, reached by legislators and officials from Lithuania, which holds the EU’s rotating presidency, includes a so-called tick size regime limiting the minimum size of price movements on financial markets, Ferber said. “This will slow down high-frequency trading significantly,” he said.

High-frequency trading in stocks came under increased regulatory scrutiny after the so-called flash crash in May 2010, during which the Dow Jones Industrial Average briefly lost almost 1,000 points.

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New York Attorney General Discusses Ongoing Investigation of High-frequency Traders

Eric Schneiderman, New York state attorney general (Bloomberg)

Eric Schneiderman, New York state attorney general (Bloomberg)

Randy Diamond from Pensions & Investments reveals that New York Attorney General Eric Schneiderman said Friday that his office is investigating several high-frequency trading organizations that gain advantages by receiving market information early. Mr. Schneiderman would not name the organizations during comments at a business writers conference sponsored by the Society of American Business Editors and Writers in New York.

Mr. Schneiderman said small groups of traders are given the power to manipulate market movements when high-frequency data are connected with access to information. “This is what separates the ‘smart money’ from everyone else, ‘the dumb money,’” said Mr. Schneiderman, adding that it should be a huge concern to anyone who cares about the economy and the free flow of capital.

“It’s insider trading 2.0,” he said.

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Is High Frequency Trading a Dark Force Against Ordinary Human Traders and Investors?

High Frequency Trading (HFT) is the use of computer algorithms to rapidly trade stocks. Highly sophisticated proprietary strategies are programmed to move in and out of trades in timeframes as little as fractions of a second.  It is a business dominated by a few giants as it is a sandbox that costs many millions to play in. There are many facets to High Frequency Trading. I knew roughly what High Frequency Trading was, but in this article I try to understand some of the nuance of a phenomenon that, as we will discover, is the dominant force on the exchanges today.

Forbes’ Richard Finger interviewed several people highly knowledgeable on this arcane and little understood subject. Rob Friesen, President and Chief Operating Officer at Las Vegas based Bright Trading. Dennis Dick, CFA a 15 year proprietary trader and market structure consultant for Bright Trading. Eric Hunsader is an expert in analyzing quote traffic and is founder and chief executive of data-feed provider Nanex, LLC headquartered in Winnetka, Illinois.

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U.S. Securities and Exchange Commission Plans New Website to Publish Speed Traders Data and Research

The U.S. Securities and Exchange Commission plans to unveil a public website next week that will allow it to publish data, research and analysis using the type of robust market data exploited by high-frequency trading firms.

SEC Chairman Mary Jo White

The site will share some of the agency’s research into topics such as strategies that cancel a high-percentage of orders, which can give the appearance of false liquidity, SEC Chairman Mary Jo White said yesterday at a speech in Washington. It also will allow users to explore trading-activity patterns in “easy-to-read charts and graphs,” she said, according to prepared remarks for the Security Traders Association’s market structure conference.

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Knightmare on Wall Street’s Edgar Perez on ‘Knight Capital, Goldman Sachs and NASDAQ’s trading glitches, a Sad New Market Reality?’

Edgar Perez, Knightmare on Wall Street, The Speed Traders, US Securities and Exchange Commission

Edgar Perez, Knightmare on Wall Street, at US Securities and Exchange Commission (SEC)

Mr. Edgar Perez, Author,  The Speed Traders and Knightmare on Wall Street, will provide the keynote speech “Knight Capital, Goldman Sachs and NASDAQ’s trading glitches, a Sad New Market Reality?” at High-Frequency Trading Leaders Forum 2013 Chicago, “Strategic and Tactical Insights for Investors, Speed Traders, Brokers and Exchanges”, forum that will provide investors and speed traders with the most up-to-date review of where this ever-changing industry stands through an inspiring keynote speeches and thought-provoking panels with leaders in the field.

Mr. Perez is widely regarded as the preeminent global expert in the specialized area of high-frequency trading and author of The Speed Traders, An Insider’s Look at the New High-Frequency Trading Phenomenon That is Transforming the Investing World (http://thespeedtraders.com), and Knightmare on Wall Street, The Rise and Fall of Knight Capital and the Biggest Risk for Financial Markets (http://knightmareonwallstreet.com). He is course director of The Speed Traders Workshop, How High Frequency Traders Leverage Profitable Strategies to Find Alpha in Equities, Options, Futures and FX (Hong Kong, Sao Paulo, Seoul, Kuala Lumpur, Warsaw, Kiev, New York, Singapore, Beijing and Shanghai), and was Adjunct Professor at the Polytechnic Institute of New York University, where he taught Algorithmic Trading and High-Frequency Finance. He contributes regularly to The New York Times and China’s Sina Finance and International Finance News.

Mr. Perez has been engaged to present at the Council on Foreign Relations, Vadym Hetman Kyiv National Economic University (Kiev), Quant Investment & HFT Summit APAC 2012 (Shanghai), U.S. Securities and Exchange Commission (Washington DC), CFA Singapore, Hong Kong Securities Institute, Courant Institute of Mathematical Sciences at New York University, University of International Business and Economics (Beijing), Hult International Business School (London and Shanghai) and Pace University (New York), among other public and private institutions. In addition, Mr. Perez has spoken at a number of global conferences, including Inside Market Data 2013 (Chicago), Emerging Markets Investments Summit 2013 (Warsaw), CME Group‘s Global Financial Leadership Conference 2012 (Naples Beach), Harvard Business School’s Venture Capital & Private Equity Conference (Boston), High-Frequency Trading Leaders Forum (New York, Chicago, London), MIT Sloan Investment Management Conference (Cambridge), Institutional Investor’s Global Growth Markets Forum (London), Technical Analysis Society (Singapore), TradeTech Asia (Singapore), FIXGlobal Face2Face (Seoul) and Private Equity Convention Russia, CIS & Eurasia (London).

Mr. Perez has been interviewed on CNBC‘s Squawk on the Street, Worldwide Exchange, Cash Flow and Squawk Box, FOX BUSINESS‘s Countdown to the Closing Bell and After the Bell, Bloomberg TV‘s Market Makers, CNN en Español‘s Dinero, Sina Finance, BNN‘s Business Day, CCTV China, Bankier.pl, TheStreet.com, Leaderonomics, GPW Media, Channel NewsAsia‘s Business Tonight and Cents & Sensibilities. In addition, Mr. Perez has been globally featured on FXFactor, Columbia Business, OpenMarkets, Sohu, News.Sina.com, Yicai, eastmoney, Caijing, ETF88.com, 360doc, AH Radio, CNFOL.com, CITICS Futures, Tongxin Securities, ZhiCheng.com, CBNweek.com, Caixin, Futures Daily, Xinhua, CBN Newswire, Chinese Financial News, ifeng.com, International Finance News, hexun.com, Finance.QQ.com, Finance.Sina.comThe Korea Times, The Korea Herald, The Star, The Malaysian Insider, BMF 89.9, iMoney Hong Kong, CNBC, Bloomberg Hedge Fund Brief, The Wall Street Journal, The New York Times, Dallas Morning News, Valor Econômico, FIXGlobal Trading, TODAY Online, Oriental Daily News and Business Times.

Mr. Perez was a vice president at Citigroup, a senior consultant at IBM, and a strategy consultant at McKinsey & Co. in New York City. Mr. Perez has an undergraduate degree from Universidad Nacional de Ingeniería, Lima, Peru (1994), a Master of Administration from Universidad ESAN, Lima, Peru (1997) and a Master of Business Administration from Columbia Business School, New York, with a dual major in Finance and Management (2002). He belongs to the Beta Gamma Sigma honor society. Mr. Perez resides in the New York City area and is an accomplished salsa and hustle dancer.

High-Frequency Trading Leaders Forum 2013 Chicago is produced by Golden Networking (http://www.goldennetworking.net), the premier networking community for business executives, entrepreneurs and investors. Panelists, speakers and sponsors are invited to contact Golden Networking by sending an email to information@goldennetworking.net.

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Technology-focused Hedge Fund, AienTech, Closes after Making its Mark in FX as a Top Provider of Volume to Bank Platforms

Ugur Arslan, CEO at AienTech

Ugur Arslan, CEO at AienTech (Linkedin)

New York-based, high-frequency trading (HFT) firm AienTech is closing down after almost three years in operation, its chief executive and founder Ugur Arslan has confirmed. Details surrounding the closure are not yet known.

Launched in January 2011 with a staff of 12, the technology-focused, multi-strategy and multi-market hedge fund uses artificial intelligence and quantitative models to extract alpha from financial markets. However, Arslan insists his firm is different to other HFT firms, because it takes risk and does not use speed-only strategies. It also trades on single-bank platforms, which HFTs typically avoid due to their tight controls on any kind of arbitrage, he says.

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Drones Sending Lasers Across the Ocean? Welcome to the Race to Trade at the Speed of Light

The High-Frequency Trading Technology Arms Race

The High-Frequency Trading Technology Arms Race

In the wild, speed is the difference between killing or being killed, feeding or going hungry. Now more than ever, this is true in the shadowy concrete jungles of the world’s financial markets. Those currently trading who aren’t high-frequency traders, including traders on exchange floors, home day traders, or traders at other institutions, are giving their money away to high-frequency traders (who now make up about half of all market volume).

“By the time the ordinary investor sees a quote, it’s like looking at a star that burned out 50,000 years ago,” Sal Arnuk, co-author of a book critical of high-frequency trading titled Broken Markets, told Wired.

On a basic level high-frequency traders use a combination of hardware and software to see how much someone else is willing to buy or sell a given security for fractions of a second before their competition does. They can then trade accordingly. It’s almost like being able to bet on a horse race from the future; you already know who’s crossed the finish line first.

But the advantage never lasts. It takes ever-increasing amounts of hardware sophistication, software sophistication, power, and money to stay ahead of the game and keep making millions from your competitions’ comparative lack of information.

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