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 market.
“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 venues.
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 considerations.
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 concern.
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.