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Archive for February 2012

Too Many Orders Clog Stock Exchange Systems

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High frequency trading is far from mainstream mode of operation still. Nevertherless, there seems to be a problem for stock exchanges to handle the order volume.

According to FT,  Deutsche Boerse plans to use “punitive charges” to discourage operators from entering excessively high number of orders in the system. Londong Stock Exchange, Borsa Italiana and Euronext have already introduced similar measures. This may work as a temporary measure, but they have to look for more efficient solutions as high frequency trading is on exponential rise and the trend is unlikely to change anytime soon. 

It is dubious to question the motives of the HFT firms for entering “excessive” amount of orders. This may happen from time to time, as a glitch in a system, but there is little or no incentive to do so on purpose and on regular basis. The bourses better adjust sooner than later as the excessive volume today will become norm tomorrow. And they should look for a more efficient way than “punitive charges” to handle this. 

And, of course, there is nothing to be done by regulators. This is technical and business matter and needs to be handled as such. If regulators get involved, Europe [again] will become less competitive place for trading business. 


Written by A.S.

February 29, 2012 at 1:27 am

Posted in Uncategorized

How Big Is System Trading? Big, But Still A Niche Only

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System trading has been around for many years. It is probably the most compelling proposition in the investment landscape. If done properly, the system trading generates positive returns in all kinds of market situations and with all kinds of financial instruments. Empirically, the next thing what comes close is an investment style which relies on macro bets, but then it is more reliant on human factor to predict major moves in the markets (think of Ray Dalio/Bridgewater and Soros as the most luminous representatives of the genre).

 Actually, some of the funds relying entirely on system trading have been around for many years, are some of the biggest and the best-performing. Renaissance Technologies is the posterchild of system trading. They charge 5%(!) management fee and 44%(!) and still manage to generate 35% average return to investors. They have been in the news recently with a new fund with more moderate fees. BluCrest is another example with billions and billions under management and they have launched a new feeder fund recently.

 It is not surprising that some of the system trading funds manage billions. What is surprising that change in the assset management industry happens so slow. The traditional funds are still mainstream with by far most of the assets – usually producing negative (or low-digit positive returns) year after year. The proof of this is handy at all times – walk in any high street bank and pick up their fund’s brochure … Aparently, the dumb money still prevails over smart money.




Written by A.S.

February 9, 2012 at 8:43 pm