This is certainly interesting. On Wednesday, NYSE Euronext’s vice president of corporate communications Ray Pellecchia posted a defence of high frequency trading – flash orders aside – on the exchange’s “Exchanges” blog.
The post was written by Steven Poser, a member of NYSE’s Strategic Market Analysis division.
Mr Poser’s argument is essentially that HFT “helps narrow quoted spreads” (emphasis FT Alphaville’s):
The debate regarding high-frequency trading has become muddled by confusion over high-frequency trading itself, which generally provides liquidity to the market, and flash-type orders. The NYSE agrees that flash order types are not in the market’s best interests, but disagrees with those who try and lump that activity with beneficial high-frequency trading.
Tne predicted beneficial effect of High Frequency Trading (HFT), should be lower quoted spreads (the difference between the bid price and the offer price on a stock), in stocks where high-frequency activity is common. High-frequency traders tend to be most prevalent in the highest-volume stocks, because such stocks afford more opportunities to execute high-frequency strategies, with lower risk.
He contends, more broadly, “that HFT is likely a positive factor in market quality for high-volume issues”.
Just why this post is interesting has less to do with its argument – the premise of which is open to debate – and more to do with the fact it reads like part of a cunning NYSE strategy to distinguish itself from its rivals, Bats and Nasdaq.
Some context: earlier in August, both Bats and Nasdaq said they would stop offering flash trading programs amid growing congressional and regulatory scrutiny of the controversial practice, in which exchanges would allow certain clients to view orders from other traders a fraction of a second before the trades were routed elsewhere.
NYSE had long been a critic of such programs, which it did not offer but through which its major rivals - including Bats, Nasdaq and DirectEdge – have carved out market share.
But the exchange has been careful not to tar all HFT with the flash brush, as some have done. Consider the following statements by chief execuctive Duncan Niederauer on Monday, via Reuters:
Niederauer said high-frequency trading had been swept up in the discussion over flash trades, which exchanges send to specific groups of market participants before routing the orders to the wider market. High-frequency trading increases market liquidity and should be encouraged, he said.
“High-frequency trading really is the market making of the 21st century,” he added. “High-frequency trading, from our point of view, is the most consistent market participant constituent in terms of liquidity provision, and I actually think it should be encouraged and not discouraged.”
The Poser/Pellechia post took that PR strategy- flash trading bad, HFT good, NYSE told you so – even further.
Well played.
Related links:
PR flashing at ICE – FT Alphaville
The Cold War in high frequency trading turns hot – FT Alphaville