If there was a single theme dominating TradeTech Europe 2014’s first day, at both the conference sessions and in the exhibition hall, it was the media storm created by the release of Michael Lewis’s new book, 'Flash Boys'.
The book, which was released last week and focuses on the rise of high-frequency trading (HFT) in the US market, has been widely debated in the media and the industry, though few seem to have yet read it in its entirety.
While much media coverage has been focused on the book’s assertion that the stock market is now rigged against the interests of retail and institutional investors in favour of lucrative HFT business, TradeTech attendees felt the book falls short of giving an accurate picture of how markets work today.
David Howson, chief operating officer of BATS Chi-X Europe, said: “The phrase that comes to mind when thinking about 'Flash Boys' is ‘never let the facts get in the way of a good story’.”
While he believes it has played a positive role in fuelling the debate about market structure and the use of technology, he felt that many aspects of the book painted an inaccurate picture of the way HFT works today.
This view is shared by Brian Schwieger, head of equities at the London Stock Exchange Group, who said that the business models used by HFT firms in 2014 are very different to those portrayed in 'Flash Boys'.
“The business model has changed as the cost of technology has come down and the incremental cost of speed means that the playing field has been levelled. Today, these firms are more about a multi-strategy approach to quantitative prop trading,” he explained. “Speed is still important, but it’s not the only factor.”
Fabien Orève, global head of trading at Candriam Investors Group, said that, for institutional investors at least, HFT’s effect on markets in neither positive or negative, but buy-siders need to learn to use it to their advantage.
“An example of how I might deal with HFT is, in the morning there tends to be little depth in the lit market and exposing your order might risk moving the price away from you due to HFT, so I would trade with a dark liquidity seeking algorithm. Later in the day, you might need to speed up your execution and therefore you can take advantage of HFT market participants to ensure that you can get that fill,” he said.
Rob Boardman, CEO of agency broker ITG Europe, said the book was shedding light on important issues, but said it lacked constructive angles and failed to properly examine the positive aspects HFT and the development of technology has brought to the market.
He said: “There’s a lot of criticism of HFT but without looking at the positives. There’s little analysis and data to back up these claims. For us as a broker, it’s important to look at the venues, analyse their toxicity and present this information to our clients so they can make a decision. It’s good to have a debate on this but it needs to be a rational debate.”
The second day of TradeTech Europe 2014 will see Ronan Ryan, one of the stars of 'Flash Boys' and chief strategy officer at US anti-HFT venue IEX speak in a live video interview with Richard Balarkas, CEO of Quendon Consulting.