Yesterday, I briefly attended a heavily populated event looking at ... you guessed it...high frequency trading. Nothing is guaranteed to fill a room these days more that those HFTs. (2010's equivalent of 'low latency')
The talk was supposed to be centred on the pros and cons of various types of market access - exchange membership, sponsored access or broker-sponsored direct market access. The panel consisted of Antonio Reyes Miras, MD at JP Morgan, Adam Toms, MD at Nomura,
Walter Hendriks, MD ABR Financial and Charlotte Crosswell of Nasdaq OMX.
However, the most thrilling comment on that debate came from Toms who said that while Nomura would recommend broker-sponsored DMA for a UK client, another client, who may want to access to an exchange in Russia, might do better to start off with a local
co-location/sponsored access provider that partners with the bank.
Well, I almost fell off my seat after that bold statement.
With nothing much, really, to debate on that topic, the conversation focused on risk - who owns it, where the responsibility lies along the trade lifecycle and why regulators and the public seem to be "terrified" by HFT.
Regulators demand that pre-trade risk management must be in place, regardless of the access methods. This brings up the issue of 'flow control' - can the trade flow be "cut off" and who would be responsible?
JP Morgan's Reyes Miras, who previously commented that the responsibility for risk would transfer throughout the trade lifecycle, placed the authority to cut off the trade flow firmly with the broker. This drew audible 'gasps' from a pretty quiet audience.
Nomura's Toms said it would be a matter of adding to the broker toolkit framework in order to be able to disable the trade flows as quickly as possible.
HFTs aren't bound by meeting the needs of clients and operate in proprietary environments. Now regulators are demanding full transparency and brokers are building toolkits to stop trade flows all in the name of proper risk management.
Much is said about how terrifying HFTs are to the general public, but the small 'gasp' in a crowded room in London yesterday afternoon may mask a growing sense of unease within this community.