Over half of capital markets firms do not use real-time market surveillance and monitoring tools despite a general recognition in the industry that greater transparency is needed to deal with abuse and irregular activity, according to a survey from Progress Software.
The poll of over 125 people at buy and sell-side firms shows 83% agree that increased transparency is needed to effectively deal with market abuse and irregular activity, like the May 6 "flash crash". However, only 53% currently have real-time monitoring systems in place.
The research also reveals that 59% of those quizzed believe that high frequency trading is beneficial to the market, with respondents citing increased liquidity and tightened spreads as the primary benefits. In contrast, only 18% believe that high frequency trading is dangerous or threatens market integrity.
So while respondents generally do have a favourable opinion of HFT, they recognise that increased transparency is critical in preventing abuse and anomalous market conditions. In fact, 68% of respondents believe that the flash crash could have been prevented.
Meanwhile, only a third believe that additional or stronger prohibitive regulations are needed to effectively deal with market abuse and anomalous conditions.
Just over half think that sponsored access should be managed with some level of mandated pre-trade risk checks. Nearly a third believe the benefits outweigh the risk with sponsored access and it should be freely allowed in all forms including the highly disputed naked access. Only 13% believe that all forms of the practice should be banned altogether.
John Bates, CTO, Progress, says: "It is clear that high frequency trading is a widely accepted practice that will be at the heart of the capital markets landscape for the foreseeable future. From rogue traders to 'fat finger' errors to market panics, we've seen individuals, firms and even global economies impacted. With unprecedented trade volumes and values taking place in just fractions of a second, it is time for the capital markets culture to change with the times and embrace the tools needed to detect and avert risky trades, dangerous market movements and illicit market abuse."
The value of market surveillance technology was highlighted today with Nasdaq OMX's move to buy Australian provider Smarts Group.