This post first appeared on Floating Path.
Magnus Bocker, CEO of Singapore Exchange, is looking to attract high frequency traders to the largest exchange in Southeast Asia in attempts to increase trading volumes and liquidity.
Despite a never-ending supply of examples showing how HFT in fact does not increase liquidity and trading volumes are about flat in HFT-dominated U.S. markets since 2007, Bocker believes microsecond trading is the key to SGX’s future. His stance should come as no surprise given his background with high frequency-courting exchanges Nasdaq and OMX Group.
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“We will pursue high-frequency trading once we have circuit breakers and other policies in place,” he said. “That will enhance the liquidity and quality of the Singapore market.”
To date, high frequency traders account for a “negligible” amount of volume in SGX’s equity trading, however they do contribute about 30% of the exchange’s derivative trading. Thus far, a lack of fragmentation (one trading venue versus 50 in the U.S.) and higher trading costs have stopped HFT firms from piling into Singapore. Fees for trading equities amount to .2% of the value traded, which makes most high frequency strategies quite unprofitable.
“If SGX is serious about high-frequency trading, it could change its fee structure to encourage more high-frequency trading,” said Arjan Van Veen, a Hong Kong-based analyst at Credit Suisse
However Larry Tabb believes “the exchange fabric isn’t fragmented, so that there will never be the kind of high-frequency trading that we see in the U.S. and or Europe in Singapore.” Nonetheless, Bocker is pushing on with circuit breaker plans and recently unveiled a new trading platform able to process trades in 90 microseconds at a cost of $250 million.
David Gerald, head of Securities Investors Association of Singapore summed up the situation best.
“A knife is good as well as dangerous, the exchange and manufacturers of products will put out products to improve their bottom line.”