High-frequency trading (HFT) is a topic that has been getting a lot of attention within the international community as of late. Some love it, some hate it, and whether or not HFT is actually detrimental to the market is a topic up for debate.
The practice has made huge waves in the US, but in Canada the seas seem to be a bit calmer. Why is that? Maybe because HFT currently makes up between 15-20% of equity trading on the Toronto Stock Exchange, which is comparatively less than the volume undertaken in the US. Another reason could be that Canadian exchanges have been using real-time surveillance for some time now, making sure that a closer eye is kept on trading. This undoubtedly makes at least some traders feel a bit safer from the perils of HFT.
Aequitas Innovations has recently entered the fight with an outlook decidedly against HFT, announcing that it would create a new stock exchange in which certain strategies would not be allowed to run rampant. Some of the practices to be restricted in this new exchange include latency arbitrage and ‘ghost’ orders.
If high-frequency trading is actually as widely-hated as people claim, this experiment should be a successful one. If HFT is really a big deal for traders, surely they’d flock to this new option where they could live without it.
Already-established competitor TMX does not seem to be too worried at the moment. The new exchange won’t be ready until next year at the earliest, and will most likely have a difficult time chiseling away at TMX’s 80% market share of Canadian equities. TMX also believes that they have the right approach to HFT trading – a balance of tolerance and regulation – and that outright banning of the practice is not necessary.
According to their Group Head of Equities Kevan Cowan, “For users of high-performance technology, whether it’s high-frequency traders, broker-dealers, or increasingly the buy side, the debate has shifted…It is no longer all HFT is bad or all HFT is good, which is the positioning we were seeing one or two years ago. Now, people are saying it is behaviors within different trading and investor segments that have to be examined, and can’t be all painted with the same brush.”
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