Exchange Execs on HFT

Terry Flanagan

Exchange chiefs join in on the debate surrounding high frequency trading.

The effects of high frequency, or algorithmic trading, on the marketplace remains a hot button topic for market participants, with proponents on both sides of the debate.

“Those who talk about high-frequency trading the loudest and are often those ones who know the least,” said Andreas Preuss chief executive officer of Eurex, during the FIA Expo in Chicago. Preuss voices a concern often brought up by market participants, of the lack of education in the industry on high frequency trading firms. “There needs to be more education.”

“High frequency trading deepens liquidity broadens the markets, reduces the spread and limits volatility,” said Craig Donohue, chief executive officer of CME Group. “I haven’t really seen any reliable studies that have been concluded otherwise.”

On the other side of the fence was Jeffrey Sprecher, chief executive of the IntercontinentalExchange, who asserted that the banning of the “maker-taker” pricing structure is something that should be implemented.

“Don’t allow us to pay for order flow, because we have created a situation in the world now where high frequency traders are getting paid on one exchange for making a price and simultaneously paid on another exchange for taking a price and they no longer care about owning the underlying equity or risk, they simply want to just simultaneously buy and sell at two different places and want to get paid,” Sprecher said. He also noted that this type of trading strategy was one of the contributing factors to the “flash crash.”

Despite the contrasting sentiments, the fact remains that many exchanges are looking for ways to attract more HFT firms, with the increasing emphasis on lowering latency and increasing speed. CME Group recently announced that its co-location services, which will include hosting, connectivity and support services, will go live on Jan. 29, 2012. It is one of among many exchanges worldwide looking to increase the speed and lower the latency of their trading platforms, which most directly benefits high frequency traders. Co-location facilities are located as close to their machine engine as possible, giving trading firms, including HFT firms, nearly instant execution times. HFT has grown to about 75 percent of trading volume in the U.S., according to industry estimates.


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