High-Frequency Trading

In defense of HFT: Our business is 'clean'

High frequency trading (HFT) has "eaten many peoples' lunches" but is a "clean" industry and is among the most regulated industries in the world, the head of a traders association has argued.

HFT, has come under intense scrutiny in recent months in part following the publication of Michael Lewis's book Flash Boy, which suggested stock markets are "rigged" as traders exploited micro-second gaps in the supply of trading information to "front-run" and gain a competitive edge.

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A trader works on the floor of the New York Stock Exchange.
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However, the financial industry is now on a more level playing field because a majority of professional traders now use colocation centers (colos) – which have almost instant access to exchanges via a fiber connection, Mark Spanbroek, the Vice-Chairman of European Principal Traders Association told CNBC.

Traders looking to compete need to update their business model, he said.

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"If your business model is as such that you provide liquidity on a near-to-continuous basis in the markets, you need the best tools. If I sit at home and I trade my portfolio, I do my click trading – I am not interested in fiber and all that, I have a way longer horizon, an institution will have a different horizon," Spanbroek said.

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"A trader trades and an institution actually invests – that is a completely different business, you need different technology," he added.

The European Principal Traders Association (EPTA), which is part of the Futures Industry (FIA) represents traders in Europe that trade with their own capital.

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"That is the big thing that HFT has – we are the best regulated community, no one has been sued for anything so we are clean – we are definitely clean," he added.

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