STAC Mid-Winter Meeting Update: Part Three

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STAC Mid-Winter Meeting Update: Part Three

Continuing our coverage of STACís 84th Annual Mid-Winter Meeting, thisis part two of the ìExchange Leaderís Perspectiveî panel.  To read partone, please click here.

The featured speakers were:

• Moderator, Jamie Selway, White Cap Trading

Panelists:

• David Harris, CBOE | CBOE Stock Exchange
• Bryan Harkins, Direct Edge
• Paul Adcock, NYSE Euronext
• Brian Hyndman, NASDAQ OMX
• Joe Bracco, BATS Exchange

High Frequency Trading
By now, readers of The Options Insider have realized that STAC washeavily focused on high frequency trading, and clearly this panel wasno exception.  High frequency trading is a leading topic in theindustry.  It crosses borders, asset classes, buy and sell-side, aswell as exchanges.  With two new exchanges poised to launch this yearto cater to this contingency, the focus on this relatively new area isa mixture of curiosity, worry, confusion, and awe.

Next up in the exchange leadersí panel was the question of what exactlyhigh frequency trading is, and what role does it play in the markets.

Joe Bracco questioned wither high frequency trading is just a form ofautomated market-making.  These participants proivde increasedliquidity to the market, by increasing quote size, among othervariables.  In effect, their role can be described as ordermodification.

For NYSE Euronextís perspective, Paul Adcock offered that most of theenhancements they build for their systems are geared toward the HFTmarketplace.  He quickly added, however, that with the VIX at itscurrent levels, these types of traders struggle, as higher volatilityis more in line with that trading methodology.

When asked where, on the HFT continuum, Adcock thinks the market iscurrently, he said that he sees a lot of shops opening up out of thebroker/dealer space, but since the overall strategies are similar, onlythe biggest and fastest will survive. He thinks that the market iscurrently near or at the middle of HFT shops emerging.

Bryan Harkins disagrees, saying that HFT is past the growth stage, andhas become saturated.  He added that the existence of HFT shops doeshelp to make the markets extremely competitive, which is good for themarkets, but does speak to saturation.

Discuss your thoughts on high frequency trading in the forum.

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The Merits of Short Versus Long Term
When questioned on the short vs. long-term strategy of customers, DavidHarris responded that it is the job of the exchange to put buyers andsellers together, regardless of timeframe. It shouldnít matter as longas buyers and sellers match, of course, with everyone playing by thesame rulebook.

Harris added that it is not possible to regulate why a person istrading, and that regulators should spend time looking at behaviorsthat are collectively bad for the market and stop putting people intobuckets.  He suggested that a better use of time would be to look atthe effects of profitable retail trades outside of displayed quotes andnon-displayed markets.

TO BE CONTINUED IN PART FOUR...
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