Kevin Cronin, global head of equity trading at asset management firm Invesco, has told US regulators that, “There is an immediate need for more information about high frequency traders and the practices of high frequency trading firms.”
Cronin was speaking to the Joint Commodity Futures Trading Commission (CFTC) – Securities and Exchange Commission (SEC) Advisory Committee on Emerging Regulatory Issues as part of its review of the ”flash crash' of 6 May 2010. During the ”flash crash' the value of blue chip securities on US exchanges plummeted and then rebounded within the space of 30 minutes. A comprehensive explanation for the cause of the events has not been officially established by regulators.
The advisory committee was set up by US regulatory bodies for the securities and derivatives markets, the SEC and the CFTC respectively, to provide a joint approach to issues that affected both sectors.
In his statement Cronin questioned the responsibility that high frequency trading firms have to liquidity provision. Speaking about their withdrawal from the market on 6 May, he said, “As the SEC noted, these firms may have acted appropriately under current rules. Nevertheless, this raises the need to examine on an expedited basis whether new obligations should apply to liquidity providers such as high frequency traders.”
He noted that although there were algorithmic strategies that were valuable to the market's efficiency and liquidity, there were others that could be considered improper activity. “It has been theorised that as many as 95% of all orders entered by high frequency traders are subsequently cancelled,” he said.
Cronin pushed for an examination of existing market structure and its focus on speed of execution. “At some point we believe that speed and price discovery have an inverse relationship and this dynamic needs to be understood.”