High-Frequency Trading - A Workers’ Capital Briefing14 September, 2012 | Submission In August 2012 The Australian Securities & Investments Commission (ASIC) issued a consultation paper seeking views on its draft market integrity rules and guidance on automated trading.
A high profile and increasingly important form of automated trading is ‘high-frequency trading’ (HFT): a set of practices that utilises speed to generate additional returns to HFT firms and their clients.
In recent years there has been growing concern that HFT is serving to exacerbate the speculative, short-term and volatile nature of financial markets.
ASIC’s consultation is, in part, a response to such concerns.
Australian industry and not-for-profit funds are major participants in global capital markets. Via the world’s
major trading exchanges they invest billions in equities, bonds, derivatives and foreign exchange.
But unlike some other participants, super funds have little or no choice but to remain in these markets for the long-term.
Our super funds therefore have a strong interest in financial markets that are regulated to be transparent,
secure and fair. Such markets are more likely to deliver stable and reliable returns over many years – rather
than short-term speculative gains in the space of a few days, hours or seconds.
The purpose of this ACTU paper is to highlight some of the risks that HFT may present to super funds as long-term investors in global financial markets. Those who specialise in HFT earn billions in profit every year, not from long-term productive investment in jobs and communities, but from being able to trade faster than their competitors. For this ‘skill’ they are paid large fees and commissions.
In the context of the global pensions industry, payments for such short-term unproductive trading represent a growing leakage from the investment chain that connects workers’ contributions to the sources of long-term return that will ultimately help to fund their retirement.
The issues raised by HFT therefore deserve close attention by unions and super funds.
This paper is intended to serve as a brief introduction to HFT and why regulatory reform is necessary. After a brief explanation of what HFT is and how it can generate profits, the paper critically discusses the arguments commonly made in support of such trading. These arguments are found to be flawed.
The paper therefore ends by outlining some reforms that would help to counter the risks HFT now presents to financial markets and those long-term investors who have come to rely on them, and proposes some immediate steps that super funds in Australia should take.
Wednesday, 19 September 2012
ACTU report on high frequency trading
This is the first trade union report I'm aware of on the HFT issue... good job by the ACTU. PDF here.