Long-only institutional traders are widely worried about the impact of high-frequency trading programs on the shape of equities markets, according to a survey conducted on behalf of Liquidnet, operator of a venue for trading anonymously in large blocks of shares.
According to the Liquidnet Institutional Voice Survey, more than two-thirds of traders at leading asset management firms around the world are concerned about the impact of high frequency trading (HFT) on the equities market.
At the top five global institutions, 73% of the traders said they regarded high frequency trading as a high-priority market-structure issue, according to Liquidnet.
The firms polled collectively manage equity assets of more than $13 trillion. Liquidnet’s customer base includes 630 institutional asset management firms.
“The survey reveals that there is strong conviction among the vast majority of long-only traders that HFT is a negative for institutional investors trading in large size,” said Seth Merrin, founder and CEO of Liquidnet. “Investors are clearly concerned that their long-term investment styles are at odds with the speculative, nano-second profit taking approach utilized by high frequency traders.”
Liquidnet does not allow high frequency trading in its marketplace, Merrin noted. Liquidnet cited studies by independent industry research analysts Aite Group and Tabb Group that almost 75% of overall daily equities trading can be linked to hig-frequency activity .
“Institutional investors who manage trillions of dollars on behalf of Main Street investors need to be able to get in and out of positions in a safe and efficient manner away from the retail markets and internalization engines where HFT thrives, particularly in the volatile markets like we have been seeing recently,” Merrin said.
Traders concerns around HFT ran the highest among those based in North America with two-thirds identifying themselves as concerned about HFT. Nearly 60% of European respondents and more than half in Asia Pacific expressed concern regarding HFT’s impact on trading performance.
The results from the survey are based on more than 300 responses from firms based in North America, Europe and the Asia-Pacific region. Participants were polled during a three week period ending July 7, 2011, Liquidnet said.
The results echo concerns expressed by professionals in derivatives markets, captured early this year in a separate survey by Progress Software and discussed in this segment of “High Frequency Minutes,’’ the six-part video series on issues that matter about low latency, high-frequency trading on Securities Technology Monitor.