The controversy over high frequency trading that was unleashed by Michael Lewis’ book Flash Boys is nowhere near settling down (there is already early talk about who will be in the movie), and people involved in high frequency trading claim that their business is being unfairly maligned to people who don’t fully understand how the market works. But according to a recent ConvergEx survey, financial professional who know perfectly well how the system works want HFT to be shown the door.
“A majority of financial industry participants believe that the U.S. equity markets are unfair and that HFT is harmful,” wrote ConvergEx Group CEO Eric Noll in the company’s US Equity Market Structure survey.
Equity markets are unfair
In a survey of more than 350 people in the financial industry (233 on the buy-side, 73 sell-side, and about 50 more in other capacities) 70% said that US equity markets aren’t fair for all participants and 51% said that HFT is harmful, but only 2% of participants have made significant changes to the way they do business in light of the recent public debate.
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Few professionals changed practices due to recent debate
This seems to contradict Lewis’ claim that many financial professionals didn’t understand why they were getting worse prices than they expected when initiating large trades. It never made sense for buy-side professionals to repeatedly get jerked around on trades and not take the time to figure out why. It would be interesting to know exactly what types of ‘slight changes’ were caused by the debate over HFTs, but the ConvergEx survey doesn’t go into that much detail.
But it also contradicts the common argument made by HFT advocates that the practice increases liquidity in the market, as 40% of participants weren’t confident that the US equity market would be able to withstand a large shock in volatility. If HFT really were creating volatility despite not taking positions on the stocks they trade, then you wouldn’t expect to see so much concern.
Financial professionals would expect more regs to get rid of HFT
What’s most surprising from the ConvergEx survey isn’t that traders want to get rid of HFT (who wants more competition?), but that they are willing to accept increased regulation in order to make that happen, 43% to 19% with 38% saying that we have the right amount of regulation. So if anyone tries to portray the growing sentiment against as HFT as a Main Street witch hunt against an unpopular strategy, there’s plenty of evidence that Wall Street would rather be rid of the practice as well.