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Hedge Fund Study: Institutional Traders Concerned by High Frequency Trading

Date: Tuesday, September 13, 2011
Author: Alex Akesson, HedgeCo.Net

More than two-thirds of traders at leading asset management firms around the world are concerned about the impact of high frequency trading (HFT) on the equities market, according to a survey by Liquidnet, an international institutional equities trader.

Liquidnet’s Institutional Voice Survey polled traders from 630 institutional asset management firms, including global mutual, pension and hedge funds, who hold approximately 70% of equity assets under management in the U.S. The firms collectively manage equity assets of more than $13 trillion.

“The survey reveals that there is strong conviction among the vast majority of long-only traders that HFT is a negative for institutional investors trading in large size, adding some hard facts to what’s previously been speculation about institutional attitudes,” said Seth Merrin, founder and CEO of Liquidnet. “Investors are clearly concerned that their long-term investment styles are at odds with the speculative, nano-second profit taking approach utilized by high frequency traders.”

According to studies by independent industry research analysts Aite Group and Tabb Group, almost 75 percent of overall daily equities trading can be attributed to high frequency trading. Liquidnet does not allow high frequency trading in its marketplace.

Merrin added, “Institutional investors who manage trillions of dollars on behalf of Main Street investors need to be able to get in and out of positions in a safe and efficient manner away from the retail markets and internalization engines where HFT thrives, particularly in the volatile markets like we have been seeing recently.”

Broadly, global traders are significantly more concerned with HFT compared to those who only trade in their regions. At the top five global institutions, 73% of the traders said they regarded high frequency trading as a high-priority market-structure issue.

Traders concerns around HFT ran the highest among those based in North America with two-thirds identifying themselves as concerned about HFT. Nearly 60% of European respondents and more than half in Asia Pacific expressed concern regarding HFT’s impact on trading performance.

The results from this year’s survey are based on more than 300 responses from firms based in North America, Europe and the Asia-Pacific region. Participants were polled during a three week period ending July 7, 2011.

Editing by Alex Akesson
For HedgeCo.net