Trading Technology

10:25 AM
Phil Albinus
Phil Albinus
Commentary
Connect Directly
Twitter
RSS
E-Mail
50%
50%

US Exchanges to High-Frequency Traders: Slow Down!

Not only are the SEC and a few pols pointing their radar guns at HFT firms, exchanges have them in their sights and the fast times might be over.

It's amazing that anything can be heard over the roar of high frequency trading -- millions of trades a second followed immediately by cancellations -- but the message is about to be heard: HFT firms and their pell-mell practices are about to be forced into the slow lane.

Last month SEC Chairman Mary Schapiro expressed concern that high-frequency trading firms were harming the market and today two US exchange operators put forth plans to curb the practice of hedge funds and prop shops that put out thousands of bids a second and then cancel those orders until a better one comes along.

How can hedge funds slow down their high frequency practices after years of going so fast? Jamie Selway of ITG shared his ideas.

According to Finextra:

Direct Edge now wants to introduce a message efficiency incentive programme (Meip) from 1 May that will see traders with a message-to-trade ratio of more than 100-to one-have their rebate reduced by $0.0001 per share.

Nasdaq OMX is planning a similar measure, penalising traders that send over one million messages a day if fewer than one in a hundred result in a trade.

Direct Edge and Naadaq are not alone with their concerns. Exchange operators in Europe Deutsche Börse and Borsa Italiana have made similar proposals recently

One wonders what caused this new wave of self-policing. Remorse? An admirable burst of restraint? Hardly. The industry is showing signs that it learned some hard lessons from the mortgage and credit crisis of 2008 -- and it doesn't want to see a new Sarbannes-Oxley/Dodd-Frank/Volker Rule for high-frequency traders who have roiled the markets to nearly everyone's dismay.

At last October's Advanced Trading Buy Side Summit, a panelist caught everyone's attention with a sharp analogy. "If a trader on the stock exchange floor behaved in the same manner as an algorithm from a high frequency firm," he said, "there would be fistfights on the trading floor."

Expect to see some speed limits in the coming weeks.

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio
Comment  | 
Print  | 
More Insights
More Commentary
A Wild Ride Comes to an End
Covering the financial services technology space for the past 15 years has been a thrilling ride with many ups as downs.
The End of an Era: Farewell to an Icon
After more than two decades of writing for Wall Street & Technology, I am leaving the media brand. It's time to reflect on our mutual history and the road ahead.
Beyond Bitcoin: Why Counterparty Has Won Support From Overstock's Chairman
The combined excitement over the currency and the Blockchain has kept the market capitalization above $4 billion for more than a year. This has attracted both imitators and innovators.
Asset Managers Set Sights on Defragmenting Back-Office Data
Defragmenting back-office data and technology will be a top focus for asset managers in 2015.
4 Mobile Security Predictions for 2015
As we look ahead, mobility is the perfect breeding ground for attacks in 2015.
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - Elite 8, October 2014
The in-depth profiles of this year's Elite 8 honorees focus on leadership, talent recruitment, big data, analytics, mobile, and more.
Video
Exclusive: Inside the GETCO Execution Services Trading Floor
Exclusive: Inside the GETCO Execution Services Trading Floor
Advanced Trading takes you on an exclusive tour of the New York trading floor of GETCO Execution Services, the solutions arm of GETCO.