How high-frequency traders act on CAC40 stocks – AMF
French market authority AMF has released a study focused on the activity of market participants engaged in high-frequency trading (HFT) on CAC 40 stocks.
The reseach takes a look with at the presence of high-frequency traders in the order book, the way they provide and consume liquidity and changes in their behaviour during periods of intense stress.
The AMF has analysed the HFT activity over a nine-month period from November 2015 to July 2016 that has been marked by a number of swings in market volatility.
The regulator’s study has found out that high-frequency traders are important contributors to liquidity during normal market conditions.
HFTs are present at the best ask or best bid 91% of the time and the amount they offer at the best prices represents 70% to 80% of the total amount present at these limits, the research underlines.
The report specifies that depending on the level of market depth studied, the amount ranges from €41,000 (at best bid/ask limit) to €225,000 (aggregated for the three best bid/ask limits) hence exceeding the average trade size, which ranges from €8,000 to €12,000 for the CAC40 stocks.
AMF’s study also points out that orders rarely go over the best limit: only 2.5% of aggressive orders hit at least two different price limits, and only 0.4% hit three different price limits.
The report reveals that on an intraday basis, high-frequency traders enter the order book gradually and help to reduce the bid ask spread at the beginning of the day but reduce their presence in the order book ahead of announcements that are likely to affect share prices.
On average, HFTs consume more liquidity than they provide, particularly during periods of high volatility, AMF’s study highlights.
Among other findings, periods of intense stress prompt an increased presence of HFTs.
AMF notes their market share and liquidity consumption increase sharply following announcements that impact the stock market.
The full study is available here.