Speaking at a recent lunch in Sydney, Mr Merrin was full of praise for the actions ASIC has taken in relation to high-frequency trading in Australia.
Liquidnet is a US-based brokerage firm that provides liquidity to large institutional traders via ‘dark pools’, effectively shielding them from the effect of HFT arbitrage ahead of the trade.
“[ASIC] have said, ‘Look, if you’re going to execute in the dark you have two choices: either provide some price improvement that you can’t find on the exchange or provide some volume that you can’t find on the exchange’,” Mr Merrin said.
In the US, the Securities and Exchange Commission is dragging the chain on HFT reform – and Europe has “completely screwed [it] up”, Mr Merrin said.
“I think the debate [about HFT] is pretty much over as to ‘are they good, are they bad?’,” he said.
Any institution that deals with trading on a regular basis has seen the impact of HFT on its orders, Mr Merrin said.
“Not all HFT is bad, but there are certain elements out there where the HFT folks are simply trading ahead of the institutions,” he said.
“They’re finding a supply/demand imbalance and using that as a signal to start trading ahead of them.
“What that results in is a tax on everybody’s returns who invests with the pension funds and mutual funds – and that’s simply not right.
“What’s pissing off the superannuation funds is the trailing of returns that the active managers have had. And this is not just in Australia, this is in the world,” Mr Merrin said.
