Thursday 12 April 2012

High Frequency Trading on Bursa Malaysia?

Article from The Malaysian Insider:

"Trading of equities on Bursa will be a new ballgame once computer-driven ultra-high frequency trading is introduced, said Edgar Perez, author and former Citigroup vice president.

High-speed trading already makes up six per cent of trades on the Bursa derivatives market and the stock exchange operator is reported to be gearing up for the introduction of ultra-fast trading of equities."

I am not a fan at all of High Frequency Trading (HFT), there are elements to it that are (in my opinion) not ethical. Is Bursa Malaysia seriously considering HFT? I am afraid they are:

"Bursa said in its 2011 financial results press conference that it expects growth in HFT as the new trading style, which is practised by elite hedge fund traders, is now in demand by the rest of the market."
Bursa Malaysia is now a listed company, retail investors are not very active anymore (like in the heydays of 1993) so Bursa might consider HFT to add to their profit.

There is no free lunch here, what HFT traders make, comes from other players, in this case the "normal" investors or traders, who get slightly worse prices on their trades.




Another article from Bloomberg is supposed to counter the fears that many (including me) have:

"High-Speed Trading Is Progress, Not Piracy".

I am not impressed, especially if I read statements like:
  • "Their quote-and-cancel rates may be high"
  • "Momentum ignition (in which traders take a position and then start rumors or place orders to quickly drive the market up or down) and layering (where traders place orders in the market-order books to imply substantial buying or selling pressure without the intention of executing) could both open the door to market manipulation".
I am probably an old fashioned guy, but for me things should be pretty simple:
  • A company is an unique relationship between people who have time but no money (founders/managers, employees) and people who have money but no time (investors)
  • Investors will receive shares, Founders/Managers will receive shares and wages, employees receive wages
  • There are rules and regulations in place, and a regulator is holding a close watch to check if all is fair and square
  • When there are many persons holding shares in one company, it makes sense to create an orderly market for the shares
I fail to see where HFT fits in the above.

I hope Bursa Malaysia will seriously consider the interests of all market participants before they make the decision to introduce HFT in Malaysia. It might be good for their bottom line, it might be good for trading volume, but it might alienate the retail investors even more.

I would recommend to just focus on the basics, and increase much needed enforcement, thereby bringing back confidence and credibility to the market. Retail investors will then return back, although it might take a long time.

4 comments:

  1. Will you attend the angel investor forum organized in KL? I heard it from BFM.
    Besides that I am now listening BFM. Mr. Koon Yew Yin, the so called Malaysia Warren Buffett defending his investment in Xing Quan is ok. lll He said that there are cash inside, the factories are genuine but if we read Moola's blog we will find some fishy things.

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  2. We are considering to sponsor it, if that happens we definetely will be there, otherwise may be just one of our team.

    In general, I strongly think that investors in Chinese stocks listed in Malaysia (or Singapore) will be disappointed. Some of them will turn out to be (partial) scams, this brings down the valuation of all, and then the better ones are taken private for a very low price. The same is happening here in Singapore, one more will be delisted soon for the wrong reasons (hanky-panky). And a fund will look for the right ones, and buy them over, but since they are trading at crazy low PE's, they only have to offer a bit more and still buy them at the cheap.

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  3. I wonder why Mr. Koon is called Malaysia Warren Buffett. His investment style is quite different from Warren. Besides that there are other retail investors with higher return than him. The Malaysia Warren Buffett should be Mr. Fong Siling, the ex chief editor of Nan Yang Siang Pau. He is extremely famous in Malaysia Chinese community for his ability to pick underdog with good growth prospect. In fact he should be considered as my master. I started to invest after reading his book and I learn the basic from him.

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  4. Unfortunately I can't read or speak Manderin (the last only a bit), only learned European languages at school. I would have loved to learn more about local investors and fundmanagers, but I had to stick to the ones that wrote in English, like Dr. Tan from iCapital and Dr. Neoh from Dynaquest and English articles in the papers.

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