Prior to the opening of the SIFMA Financial Services Technology Leaders Forum and Expo 2011, I was honored to take part in a TABBForum panel that discussed the very timely topic of “Equity Market Structure Regulation: Will it Happen? Is it Needed?” Needless to say, the crowd was standing room only.
Moderated by Larry Tabb, founder of the TABB Group, I was joined on the panel by:
- Bill Neuberger, Global Co-Head of Electronic Trading, Morgan Stanley
- Claude Courbois, Vice President, Managing Economist, NASDAQ OMX
- Dave Johnsen, Head of U.S. Liquidity Strategy, Goldman Sachs Electronic Trading
- Charlie Susi, Co-Head of Global Electronic Trading, UBS
It was really fascinating to hear their insights and to add my own as a former top trader at Fidelity Investments and in my present role as a VP at Sapient Global Markets. One area that I touched upon was the explosive growth of high-frequency trading firms (HFTs) and their competitive advantage. HFTs, for example, “co-locate” by placing large server farms right next to exchanges so they can get faster data feeds. This faster access to data gives them the edge to make huge profits; the scientific term used to describe the HFT front running is “latency arbitrage.” The latency being arbitraged is the speed of data sent to computer terminals.
We must continue to stress the need for fair and organized markets in order to restore public confidence. This includes introducing rules and technology that make the markets fair and balanced. RBC, for example, has the THOR algorithm, a patent-pending smart order routing technology is designed to minimize latency arbitrage, improve execution quality and control trading costs. THOR cuts this very slight time differential down to zero so data arrives at that various exchanges at the same time, making the market fair and balanced for all parties. RBC has actually tweaked it recently and is now moved from 25% to 100% fill rates.
I’ll have more insights on market regulation and how it has impacted both the buy- and sell-side of the market in upcoming blogs.
