Invesco head criticises high frequency trading

Kevin Cronin, global head of equities trading at Invesco, which invests more than $500bn in shares, has questioned the usefulness of high-frequency trading, increasing pressure on a practice already under fire after recent mishaps.

It is facing US regulatory scrutiny after algorithms of agency broker Knight Capital erroneously traded 148 US-listed stocks, causing prices in at least ten of them to move by more than 10%. In Germany, fund trade body Bundesverband Investment und Asset Management is pushing for better regulation of fast-trading. In its views, high-frequency traders simply seek to exploit high volumes of orders placed by professional investors.

Predicting patterns

As a longer-term investor, Invesco is increasingly surrounded by quick-fire traders whose micro-second transactions can comprise up to 70% of daily volume. Its equities team constantly re-evaluates and retrospectively assesses the efficacy of its strategies, and its ability not to flag its trading intentions to competitors, including computers aiming to predict and exploit others’ trading patterns.

Cronin (pictured) is mindful of their potency to deplete alpha in strategies, and therefore also the final return for Invesco’s clients. His criticisms of them carry weight, as Invesco allocates about $630bn to equities.

He says: “Regulators and others have to be sure that all of the elements they put into the market are there first and foremost for the benefits of long-term investors… and whether in the US or Europe that they make markets efficient, effective and conducive to capital formation in the long term. Other virtuous things will come from that.”

According to Bernhard Langer, chief investment officer, global quantitative equity at Invesco, says high-frequency trading (HFT) “is changing the environment, in a way that has nothing to do with there being good or bad [listed] companies.

“Some [HFT] funds cancel 90% of their orders, so it looks like there is liquidity, but if you actually need it, the orders are cancelled. With this, the whole feeling of trading has changed dramatically.”

Cronin does not argue generally, nor has he claimed in testifying on the matter for US mutual fund trade body the Investment Company Institute in Washington, that types of trading should be banned.


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