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Bourses seen not going far enough to woo high-frequency traders
By JAMIE LEE
20 October 2011
The pressure is on for Asian exchanges, including Singapore Exchange (SGX), to lower trading fees that currently would cost high- frequency traders more than a pretty penny.
Exchanges have been upgrading their technology platforms but have not gone far enough to attract such traders, said panellists at Terrapinn’s World Exchange Congress Asia yesterday.
‘The exchanges are in general moving towards much higher performances,’ said Robert Smith, managing director of high- frequency trading firm Getco Asia, who is currently evaluating a dark pool set- up in Asia. ‘But the fees of trading is a significant interference.’
SGX charges a clearing fee of four basis points on the value for most contracts, or a maximum of $600.
In Hong Kong, the exchange charges a trading fee of 0.5 basis points per trade, a stamp duty of one basis point on the stock transaction, and a transfer deed stamp duty per trade where applicable.
In comparison, the Australian Securities Exchange - which is seen to be more open to algorithmic trading - recently dropped its main trade execution fee from 0.28 basis points to 0.15 basis points.
High-frequency traders typically operate by pushing out a large number of tiny orders at extremely high speed to profit from price inefficiencies, with research showing that a high-frequency trader would not hold a position open for more than a few seconds.
Because of their trading method that is dependent on high volume, high-frequency traders can incur hefty trading costs.
High-frequency traders may also be hit by more costs if Europe adopts a tax on financial transactions that would gnaw at their razor-thin margins.
A cut in trading fees will require an understanding of its price elasticity - that is, the extent that a cut in price will impact the exchange’s revenue.
SGX has said that it is open to cutting trading fees but would focus on tightening bid-ask spreads first.
Since July, several stocks here have been trading in smaller steps via a tick size reduction.
Singapore’s minimum crossing value for trades should also be removed, said James Rae, head of advanced execution services sales for South-east Asia at Credit Suisse.
Currently, married deals need to be at least worth $150,000 or involve 50,000 shares.
The debate over the merits of high-frequency traders rages on, especially as Asian exchanges are now eager to draw them into the securities market to boost liquidity and their revenue.
High-frequency traders are under intense scrutiny by regulators, who may ask these proprietary traders to offer more information about the algorithms, or computer codes, they use - a move that clearly faces resistance from the group.
Mark Austen, COO of the trade body Association for Financial Markets in Europe, argued that regulators should focus on market abuse but not block such trading altogether because it is a ‘natural evolution’.
‘If Asia (continues) to grow at its rates, it’s going to have to move from export-based to consumer- based. We will need a more efficient capital market,’ he added at the panel.