VIEWS: 18 PAGES: 4 CATEGORY: Business & Economics POSTED ON: 6/26/2010
The hot topics in the global equity market space right now are dark pools, high frequency trading and flash orders, and how they affect the functioning of the world's stock markets. With continued growth in the market share of alternative trading systems, competition has accelerated, and the economics and the impacts of some business models are being questioned. The debate is really about whether technology is making the industry more efficient. While financial markets haven't seen a lot of technological advancement over the past decade, this is now changing very rapidly. For wholesale investors, volume discovery is the key. Typically exchanges have been very good at price discovery. High-frequency trading is an extension of this as trading type funds use algorithmic strategies to try and exploit perceived short-term inefficiencies in markets. The current debate on alternative liquidity pools has been timely given the Australian Government's recent decision to change the supervisory structure in the domestic equity market space.
C A p i TA L M A R k e T S Alternative pools of liquidity ThE hoT TopICs in the global equity market space right now are ‘dark pools’, ‘high frequency trading’ (so-called ‘dark pools’) match and ‘flash orders’, and how they affect the functioning of the world’s stock markets. With up volume buyers and sellers continued growth in the market share of alternative trading systems, competition has accelerated, and in the ‘upstairs’ or undisplayed the economics and the impacts of some business liquidity market to achieve the models are being questioned. With so many competitors chasing liquidity flows, there are claims best executions possible. that some innovations have resulted in an unlevel playing field, benefiting a few at the expense of many. They use technology to make This debate can be very confusing, with much self-serving rhetoric coming from exchanges, the process more efficient, brokers, investment managers, hedge funds and principal traders – all with different agendas, risk by linking wholesale orders appetites and investment criteria. Realistically, no together and allowing single outcome will keep everyone happy. Controls certainly need to be maintained to ensure capital anonymous interactions markets maintain their integrity, but not at the expense of innovation and better outcomes for the between buyers and sellers. market overall, in terms of both implicit and explicit transactions costs. sAm mACquEEN is Joint Head of Liquidnet Australia, based in Sydney. Liquidnet Australia lodged its application for an Australian market licence in May 2007 and, while it awaits regulatory approval, local trades matched by its system are routed for execution to an ASX-member broker and remain subject to ASX market rules. firstname.lastname@example.org 44 INFINANCE december 2009 The magazine for Finsia members C A p i TA L M A R k e T S The debate is really about whether technology is making the industry more efficient. While financial This undi
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