Survey: Asset Managers Fret Over High-Frequency Trading

(September 12, 2011) — Asset managers are increasingly concerned about the impact of high frequency trading (HFT) on equities markets, according to new research by institutional marketplace Liquidnet. 

The study consisted of responses from 630 institutional asset management firms collectively managing equity assets of more than $13 trillion.

“The survey reveals that there is strong conviction among the vast majority of long-only traders that HFT is a negative for institutional investors trading in large size, adding some hard facts to what’s previously been speculation about institutional attitudes,” said Seth Merrin, founder and CEO of Liquidnet, in a statement. “Investors are clearly concerned that their long-term investment styles are at odds with the speculative, nano-second profit taking approach utilized by high frequency traders.”

Merrin added, “Institutional investors who manage trillions of dollars on behalf of Main Street investors need to be able to get in and out of positions in a safe and efficient manner away from the retail markets and internalization engines where HFT thrives, particularly in the volatile markets like we have been seeing recently.”

Liquidnet’s research revealed that at the top five global institutions, 73% of the traders said they regarded high frequency trading as a high-priority market-structure issue. Traders’ concerns around HFT ran the highest among those based in North America. Almost 60% of European respondents and more than half in Asia Pacific expressed concern regarding HFT’s impact on trading performance.

High-frequency trading attracted increased attention after a former Goldman Sachs computer programmer was arrested in July 2009 for allegedly stealing proprietary high-frequency computer codes. Last September, Securities and Exchange Commission (SEC) Chairwoman Mary Schapiro said her agency is considering a number of major changes to equity markets and will look into whether market participants who buy and sell thousands of shares in milliseconds could face restrictions on their trading strategies.

The top securities regulator said the new market for swaps trading would benefit from “competition, access, liquidity and transparency” already established in the cash equities market, according to Reuters. “As it takes shape over time, we will be working to embed into the security-based swap market the broad principles that have brought important benefits to the equities market,” Schapiro said at a Security Traders Association conference in Washington. She added that because high-frequency trading firms are subject to minimum obligations, the regulator will consider carefully whether these firms should be subject to an appropriate regulatory structure governing key aspects of their market behavior, including quoting and trading strategies.