More than half of institutional traders believe that
controlling the effects of high frequency trading (HFT) should
be a high priority for regulators, according to the results of
Liquidnet's Institutional Voice survey.
The survey, based on 111 responses from firms in North
America, Europe and Asia-Pacific, found that traders ranked HFT
just below fragmentation of liquidity when asked what should be
on regulators' to-do lists.
"The majority of asset management firms, who trade on behalf
of the millions invested in mutual and pension funds, are fully
aware of the impact that their large orders have on the
"As the market evolves, traders at these firms continue to
find ways to trade in size and interact directly with each
other to source block liquidity and avoid falling prey to
predatory HFT trading strategies," said Seth Merrin, founder
and CEO of Liquidnet.
Traders said that trading behaviour had been modified to
mitigate the impact of predatory trading strategies. This
included traders taking more control over where their orders
were executed, being more cautious about protecting trading
information, and using off-exchange and HFT-free trading
The survey found that in obtaining best execution in trades,
sourcing block liquidity was still the most important factor
for traders (82%). Market impact costs (59%) and information
leakage (43%) were cited as the next most important
The great rotation out of fixed income into equities was
categorised as "in full swing" or "just starting" by over
two-thirds (71%) of the respondents, confirming the view that
record-low bond yields are prompting investors to rotate
out of bonds and into stocks.
There was general optimism from respondents about the shift
away from bonds, but nearly half of traders surveyed said
declining equity trading volumes was their main worry, this
figure rising to 54% among US traders.
In Emea, traders were most concerned about increased
scrutiny by regulators with half saying it was their main
Traders picked the US (56%), Europe (47%) and Asia (32%) as
the regions that would offer the best investment potential in
2014. This is a departure from the results of the 2011 poll, in
which traders favoured emerging markets.