Keeping Asian markets safe - The HFT debate
High-frequency trading systems are but a natural evolution in trading innovation observed in the last few decades that can, if used wisely, connect an otherwise fragmented Asian marketplace. December 23, 2013 | Mobasher KazmiIn October 2012, the Singapore Exchange (SGX) took the unprecedented step of briefly assigning three stocks, namely Blumont Group, Asiasons Capital and LionGold Corp, as ‘designated securities’, having halted their trading on the exchange for three days. The fall in share prices of all three stocks had contributed to a combined $6.9 billion drop in market value necessitating a review by both the Monetary Authority of Singapore (MAS) and SGX. MAS observed that, “this episode has surfaced broader issues regarding the market structure and practices,” while working towards identifying the causal factors of such a collapse. The incident does raise an important point that a well-regulated market such as SGX is vulnerable to sudden market failures with the threat more acute in other weaker jurisdictions of Asia. Of equal significance is the announcement soon after by MAS of introducing circuit breakers by Q1 2014, which are activated if share prices move by 10% in either direction. US Securities and Exchange Commission and Commodity Futures Trading Commission’s report had earlier attributed high-frequency trading (HFT) as having exacerbated that 10% market plunge in US equity markets through unrestrained selling during the infamous ‘flash crash’ of 2010. US-style ‘single-stock’ circuit breaker remains the ideal preventive measure of choice for regulators. Intriguingly, SGX is presently evaluating whether to offer fee rebates or liquidity provisions to HFTs once the requisite infrastructure is in place; an understandable business decision from the exchange, which is seeking to balance its desire for profitability while ensuring larger trading flows. Indeed the challenge for regulators across Asia remains how best to manage the growth of HFT in the region while maintaining market integrity in their respective jurisdictions. Any ill-judged policy action may impact liquidity and volumes adversely. Asian economies remain cautiou...
Categories: Trustees Custodians and Depositories,Exchanges,Markets Exchanges,Risk & Compliance,Trading & Data, Asset Management, Trustees and Custodians,Exchanges,Markets & Exchanges,Risk & Compliance,Trading & Data, Keywords:SGX, MAS, HFT, Circuit Breakers, CMCRC, European Central Bank, MiFID II, SFC Hong Kong, Aequitas, IEX Exchange
SGX, MAS, HFT, Circuit Breakers, CMCRC, European Central Bank, MiFID II, SFC Hong Kong, Aequitas, IEX Exchange
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