The loneliness of the high frequency trader

Interesting, if brief, talk about ‘How are firms can capitalising on high frequency trading?' at the FIX Protocol quarterly meeting last night.

The panel (whom I can't quote unless I jump through some ‘media training-inspired' hoops, so I won't bother) spend the first part of the discussion trying to define exactly what High Frequency Trading is? The term ‘electronic market maker' was used to put HFT in perspective. I wonder if there would be as much regulatory bru-ha-ha if our speedy traders were re-dubbed ‘electronic market makers' instead of relishing their boy racer-inspired moniker?

Regulators dealing with technology is a touchy subject. Much has been made around whether regulators have the means and the resources to monitor markets that rely on ever changing and sophisticated technology. One comment put forth the question: Should regulators regulate technology or the market practice around technology?

After all it was an un-intended consequence of Reg-NMS that resulted in the wonderful ‘flash-trading'. Were the roots of that practice in market structure or technology?

While high frequency traders are getting a lot of shtick lately, this panel came to praise and not to bury. It can be said that the equity markets have remained (at least) liquid during the worst of the financial crisis. This was credited with the high population of high frequency traders operating in the equity markets. There has also been some Twitter talk about #HFT which says that post regulatory market structure is optimised for high frequency trading - to remove the HFTs would be to introduce unwanted volatility.

Judging from how much various exchanges have invested in high quality data centres (Nyse Euronext in Basildon-mentioned last night) most exchange venues are betting that HFTs will be around the markets for some time.