* High frequency trading a vital source of income-NYSE chief
* Multiple factors cutting into trading volume- NYSE chief
By John McCrank
NEW YORK, April 30 (Reuters) – Increased scrutiny by U.S.
regulators and politicians of high-frequency traders is creating
an incentive for them to move to less regulated markets inside
and outside the United States, Duncan Niederauer, chief
executive of NYSE Euronext, said on Monday.
High-frequency trading firms, which electronically place
thousands of very short-term bets to make markets and profit
from tiny price imbalances, have grown rapidly in the United
States and Europe in the past decade and are vital sources of
income for exchange groups.
NYSE reported a 44 percent drop in quarterly profit on
Monday, due to a steep slowdown in trading and costs from its
failed merger with Deutsche Boerse. Stripping out one-time
items, the results missed analysts’ expectations by a penny.
On a conference call with analysts after the results,
Niederauer was asked to what extent a decline in
high-frequency-trading volume affected the Big Board parent’s
results, and if so was it likely to be temporary.
Niederauer said lower volatility, lower overall volume and
increased diversification by the high-frequency community into
other asset classes and geographies were all cutting into
high-frequency trading volume.
He added that some high-frequency traders may be leaving the
more regulated markets in response to increased “rhetoric from
the regulators and politicians.”
“If you and I were high frequency folks, and every day we’re
reading headlines in the paper, informed or uninformed, that
say, ‘we are going to be bringing a lot more scrutiny to bear,’
it is a rational decision to look at other market opportunities
or to trade in the less regulated markets.”
Niederauer said dark pools were now likely benefiting from
increased liquidity thanks to more traffic from high-frequency
traders. Execution of trades on dark pools, such as Liquidnet
and Goldman Sachs Group Inc’s Sigma X, is anonymous and
allows blocks of shares to be bought and sold without prices
being revealed until after trades are completed.
Algorithmic trading accounts for more than 50 percent of
activity on the largest U.S. and European trading venues.
It has come under increased scrutiny since the May 6, 2010
“flash crash,” when the Dow Jones industrial average dropped
more than 800 points in minutes, before rebounding. Critics say
high frequency trading exacerbated the speed and severity of the
fall.
Niederauer said that another result of the increased
scrutiny in the United States was that high-frequency firms were
accelerating shifts to non-U.S. markets.
“I don’t think the high frequency guys have left the U.S.
market entirely, but I do think that they have shifted some of
their volume to the less regulated market, which you have to say
is a rational decision on their part.”
