The Music Goes on and on

[weijian]

Global market meltdown has been years in the making

sounds more like shooting the bullets first, and then place the target where most of the bullets are found.

[greengiraffe]

• Aug 25 2015 at 6:18 PM 
   
  
  
•  Updated Aug 25 2015 at 9:41 PM 
  

Did machine traders fan this week's stock market panic ?

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NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/j/3/t/d/k/image.related.afrArticleLead.620x350.gj7h6d.png/1440502866730.jpg[/img]ASX chief Elmer Funke Kupper says market volatility at this time of year, when most major market activity was subdued due to the northern hemisphere summer was 'unusual'. Jessica Hromas
[Image: 1425525330490.png]

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by Jonathan Shapiro
The large and violent moves in global equity markets have raised questions as to whether high frequency and algorithmic trading systems exacerbated movements and made financial markets unstable. 
On Monday's open the New York Stock Exchange, the Dow Jones Industrial Average Index plunged 1000 points after the exchange invoked "rule 48"  to bring an orderly open to sharemarket trading.   
"What we have seen in the opening in the US on Monday was a little unusual," the head of the Australian Securities Exchange Elmer Funke Kupper told The Australian Financial Review.  "But the US is, of course, very strongly driven by high frequency trading and algorithms."
In one of the most volatile trading sessions in recent memory – the sharp moves in US equity markets tested 'circuit breaker' measures introduced by regulators to halt rapid falls in share prices that could be amplified by automated machine orders.

While sharemarket investors haemorrhaged losses high frequency trading firms reported one of their best days in history. Douglas Cifu, the chief executive of Virtu the world's largest HFT firm, told The Wall Street Journal, the 'market-making firm' was on track to post its largest ever daily profit as markets gyrated.  
Virtu listed on the NASDAQ exchange earlier this year operates in United States and Australian markets has a market capitalisation of $US3 billion ($4.16 billion).  
Traders said one notable trait of the last 48 hours of volatility has been a rapid shift from one market to another as traders, be they humans or machines, were forced to hurriedly search for alternative hedges as circuit breakers and trading halts kicked in.  
Chad Slater of Morphic Asset Management said when trading was halted on the Chicago Mercantile Exchange's equity futures market, selling moved to European shares, which fell 8 per cent, before shifting to currency markets leading to a sudden 3 per cent move in the yen.


DRIED UP
"This is extremely hard to do given the volume of currency traded in this market, but it appears liquidity just dried up," Slater said on his investment blog.
Mr Slater said that as 'cash' or physical equity markets opened up, orders caused a malfunction on a number of exchanges resulting in sharp plunges in stocks such as hospital operator HCA that wouldn't typically be subjected to such sharp price action.  
The US chief investment officer of UBS Wealth Management Mark Haefele said the price moves had all the "hallmarks of a self-reinforcing correction, driven by quantitative risk control settings across hedge funds, trading books, and dedicated quant strategies," in a note to clients.  

Haefele said traders were forced to shed market exposures in a hurry leading to exit crowded positions – such as the 'long US dollar' position which would typically fare better when markets enter a panicked state. 
He said the "unfamiliar mix of emerging market uncertainty, deflationary pressure, central bank interference, and extreme volatility", meant current gyrations should be taken seriously. 
Mr Funke Kuper said market volatility at this time of year, when most major market activity was subdued due to the northern hemisphere summer was 'unusual'.
"It's a new experience for all of us and the questions are these: Is this a correction that is somewhat overdue? Is it China alone or is it people worrying about the state of the world.

"My instinct is that the world is not recovering as well as people would like it to believe coming out of the GFC."
Paul Griffiths the London-based chief investment officer of Colonial fixed income said that while he suspected algorithms played a part in the sell-off, risk-assets were succumbing to fear that policy support may be coming to an end.  
"To have a 1000 point drop in the Dow, that completely bounced back and then trades back down again is classic panic territory."
The violent price action however did not spill over to the bond market – that experienced its own surge in volatility in June, in what was another instant of market instability.  
"The volume in bonds was not particularly high so where is it going?" Griffiths asked.
"It implies that it is in cash, and that's not a long-term [investment] so it has to find a home somewhere."

[greengiraffe]

High-frequency trading a volatile problem: Mike Smith, Ian Narev

• THE AUSTRALIAN
  
• AUGUST 27, 2015 12:00AM
  

0

Michael Bennet
[Image: michael_bennett.png]
Reporter
Sydney

[Image: 321791-c32941e0-4af1-11e5-b919-aacd51936f38.jpg]
The chiefs of CBA and ANZ warned that high-frequency trading intensifies market volatility. Source: AFP
[b]The chiefs of Commonwealth Bank and ANZ have taken aim at high-frequency traders, warning the ultra-fast buying and selling of securities was intensifying market volatility.[/b]
“The issue with high-velocity trading is a bit of a problem, I think, for the longer term because it does push the market very, very dramatically both ways,” ANZ boss Mike Smith said this week at a Male Champions of Change event in Sydney.
At the same event, CBA chief Ian Narev said high-frequency trading, or HFT, had clearly intensified the recent volatility given it had been sparked by “quite well known” issues, such as China’s slowing economy.
“(There’s been) quite jittery markets and they tend to be reacting pretty quickly to little bits of news,” he said. “When you overlay that on the sort of level of algorithmic trading you’ve got in the market, that can exacerbate effects.”
Through computers and complex algorithms, high-frequency traders move in and out of stocks at high speed to make profits through large volumes of trades.
While controversial for allegedly disadvantaging other investors, the corporate regulator has played down fears for the Australian market, where HFT volumes are lower than markets such as in the US.
“Look at what happened last night (Monday) in the US markets for example. They opened very low, made it all up in a couple of hours and then ended up a bit soft again, and these sorts of reactions are much more volatile than we anticipated, but not as a result of any real changes of themes from those we’ve been talking about now for quite some time,” Mr Narev said.
Amid growing concerns for the Chinese economy, volatility on global equity markets in the past week, including Australia’s, has been its highest since 2011. The comments by Mr Narev and Mr Smith, however, highlight the concerns surrounding HFT, including its ability to accentuate market movements.
The major banks’ share prices have entered bear market territory after falling more than 20 per cent from the peak in March amid a broader market sell-off, concerns about bad debts, incoming capital regulations and equity raisings from CBA and ANZ.
The bank chiefs also played down the increased cost to issue debt in wholesale funding markets in recent weeks as investors price in more risk.
“The nature of bank balance sheets, and I’m sure this is the same right across the sector in Australia, is that we fund in order to withstand short-term shocks like this, so when they happen we’re strong, we’re not particularly concerned and we need to watch it over the long term,” Mr Narev said.
Mr Smith added: “Credit markets at the moment are actually operating OK. If there’s any sort of winner in all this, it’s been the fixed-income markets. Spreads have pushed out a bit but you’d expect that.”

[CityFarmer]

HFT, isn't widely available across Asia Stock Markets, except in Japan, IIRC. Is HFT in ASX widely used?

[BlueKelah]

HFT, isn't widely available across Asia Stock Markets, except in Japan, IIRC. Is HFT in ASX widely used?

Published by the ASIC early last year, seems like its pretty prevalent in ASX.

====================================================================
Dark liquidity and high frequency trading

Findings
Our analysis showed that, while there is a considerable high-frequency trading presence in our markets – 27% of equity market turnover – the majority of it is done by 20 entities.
On the whole, we found that some of the commonly held negative perceptions about high-frequency trading appear to have been overstated, and were not supported by our findings. For example, the taskforce found that increases in order-to-trade ratios have been moderate compared with overseas markets, and have not been driven entirely by high-frequency trading.
Our analysis also showed that only 1.2% of high-frequency traders held positions for an average of two minutes or less, 18% for less than 10 minutes, and 51% for less than 30 minutes. This is contrary to the perception that holding times for high-frequency traders are typically a matter of seconds, or less.
We also found no evidence of systematic manipulation, or other predatory behaviours, from high-frequency traders, and while a number of discrete incidents required follow-up, these were the exception rather than the norm.
There was, however, some basis for the perception that high-frequency trading created excessive ‘noise’ in the market, although our analysis revealed that other traders using algorithms contributed to this problem.

[greengiraffe]

HFT, isn't widely available across Asia Stock Markets, except in Japan, IIRC. Is HFT in ASX widely used?

Hi CF,

Algo trading is now adopted across all markets including that on SGX. The never ending flickering of bid/ask spreads that one is seeing on covered wrts have already spread over to the entire SGX and that is the main complains of remisers...

Of course, I must be able to think ahead of computers in trading and investing...

GG

[CityFarmer]

HFT, isn't widely available across Asia Stock Markets, except in Japan, IIRC. Is HFT in ASX widely used?

Hi CF,

Algo trading is now adopted across all markets including that on SGX. The never ending flickering of bid/ask spreads that one is seeing on covered wrts have already spread over to the entire SGX and that is the main complains of remisers...

Of course, I must be able to think ahead of computers in trading and investing...

GG

Hi GG,

With my limited understanding, there are distinctly differences between HFT, and algo trading. HFT, is an algo trading, but algo trading not necessary an HFT.

HFT, involves more than just traders. It needs co-location, and a premium trading fees, from local regulator, to work.

[Clement]

HFT, isn't widely available across Asia Stock Markets, except in Japan, IIRC. Is HFT in ASX widely used?

Hi CF,

Algo trading is now adopted across all markets including that on SGX. The never ending flickering of bid/ask spreads that one is seeing on covered wrts have already spread over to the entire SGX and that is the main complains of remisers...

Of course, I must be able to think ahead of computers in trading and investing...

GG

Hi GG,

With my limited understanding, there are distinctly differences between HFT, and algo trading. HFT, is an algo trading, but algo trading not necessary an HFT.

HFT, involves more than just traders. It needs co-location, and a premium trading fees, from local regulator, to work.

I don't think HFT strategies of the ultra low latency sorts are prevalent in SGX.

The ultra low latency based strategies are effective in the US equities markets due to securities trading across many different exchanges and NBBO regulations. 

For other strategies (i.e stat arb), speed might be needed to get orders to the market faster than others with the same predictive models, but latency is normally not the main driver of success.

[greengiraffe]

Aiya,

So long as human against robots sama sama and its just another name...

Still create volatility...

I too old to debate about names especially since they change the whole paradigm of trading and takes advantage of the emotions of mkt participants...

GG

[CityFarmer]

Aiya,

So long as human against robots sama sama and its just another name...

Still create volatility...

I too old to debate about names especially since they change the whole paradigm of trading and takes advantage of the emotions of mkt participants...

GG

Ok lah, but we can't blame higher productivity with "robot" as long as both are competing on same ground, right bo?

Taxi driver (or Taxi companies) can't blame the invention of GrabTaxi, albeit the GrabCar is debatable...