Can HFT Ever Slow Down?

Advanced Trading: There are some regulators and politicians who are trying to come up with ways to slow down high-speed trading. Is this really possible? Would a fine on cancelled orders have any impact?

Scott DePetris, Portware: It's definitely possible. Regulation that targets high-frequency trading, or any trading practice, with enough force will certainly have an impact on market structure. The larger question is whether such regulations are actually appropriate - is high frequency trading really the problem that regulators and lawmakers make it out to be - and if so, whether they can be practically implemented.

Another issue is that these regulations, as currently written, could have unintended consequences for all market participants, not just high-frequency traders. A tax on cancelled orders is a perfect example. Trades are canceled millions of times a day for any number of reasons. Charging for canceled orders will potentially increase trading costs for all firms and retail investors, regardless of their investment strategy, and could have a serious impact on overall liquidity.

Advanced Trading: High speed traders believe that they add liquidity to the market. Is this true? Are they just adding volatility?

DePetris: Overall, I believe high-speed traders do add liquidity, and most people would argue that the net impact of high-frequency trading has been tighter spreads, faster execution and reduced trading costs. Of course, there are potentially toxic high-frequency trading strategies, but our markets are largely efficient and, over time, will evolve and mitigate the possibility for those strategies to operate.

Advanced Trading: Are any of your clients complaining about high speed trading? If so, what are they saying?

DePetris: There will always be firms who are unhappy with a particular aspect of today's market structure. However, it's important to note that the markets are extremely resilient, and have adapted to serve the needs of traditional and non-traditional asset managers alike. Institutional traders today have numerous execution venues and trading strategies at their disposal that are designed to meet their specific requirements.

Stay tuned for the March 2012 cover story on slowing down high-frequency trading here at Advanced Trading.

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