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27-08-2015, 08:59 AM
High-frequency trading a volatile problem: Mike Smith, Ian Narev
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.”
- THE AUSTRALIAN
- AUGUST 27, 2015 12:00AM
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.”