HFT Spreading Like Wildfire
Although high frequency and low-latency trading activity (HFT) continues to be eyed askance for potentially distorting U.S. securities markets, HFT continues to spread to other areas of the globe.
Part of the impetus towards other markets comes from the squeezing out of arbitrage opportunities in more well known markets, where the window of opportunity for arbitrage has narrowed from minutes in the good old days to millionths of a second today.
Analysis from The Economist suggests that exchanges can develop HFT trading capabilities without breaking the bank — and attract traders from markets that have been fished out:
As markets in America and Europe have become more competitive—HFT now makes up over 60% of equity trades in America and nearly 50% of British transactions—bid-ask spreads have narrowed and arbitrage opportunities exist for ever-briefer periods. In newer markets, traders can use simpler algorithms for higher yields.
Outside the U.S., many exchanges currently offer much slower execution times than Nasdaq, and some of these market places still have a daily trading siesta where all activity ceases for an hour or more.
One exchange that is seeking to enhance its capabilities is Hong Kong Exchanges & Clearing, according to a Financial Times report that says aligning trading hours with that of the PRC’s is part of a larger plan.
“HKEx unveiled plans to upgrade its trading system, along with other Asian exchanges, as they gear up to attract the ‘high-frequency’ and algorithmic trading community that makes up a significant portion of trading activity on western exchanges,” Financial Times says.
In Thailand, UBS executive Robert Barnes told a conference at the Stock Exchange of Thailand (SET) that the platform is due for some changes. “Mr. Barnes suggested Thai regulators should look to allow multi-market algorithmic trades rather than a single-market approach, to best facilitate different trading strategies by investors,” according to The Bangkok Post.
Latin America is not standing idle, either. Complex Event Processing (CEP) technology provider StreamBase Systems has announced a partnership with Alphastream to foster algorithmic trading in Brazil, which is trying hard to accommodate new trading approaches and a surge in volume.
Meanwhile, efforts to offer collocation facilities are leading to mini-migrations in the U.S. and elsewhere. NYSE Euronext recently opened data centers in both the U.S. and the U.K. “NYSE Euronext expects its New Jersey data center and a similar facility in Basildon, England to house ecosystems of hedge funds and trading firms eager to conduct trades in microseconds,” according to datacenterknowledge.com.
Image from Photos8
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