SGX, consult the public on HFT

SGX, consult the public on HFT

There is a sense of painful resignation, infused with no small amount of frustration and even impending doom among retail players and their brokers, following news that the Singapore Exchange (SGX) is pressing ahead with plans to introduce high-frequency trading (HFT) to the local equities market.

Since it appears to be a question of when and not if, the exchange should address the myriad issues before opening its doors to a mode of trading that is controversial and has yet to prove beneficial to markets as a whole.

The first thing that the SGX and the Monetary Authority of Singapore should note is the absence of a proper understanding of how exactly HFT works, the activity being so complicated that very few individuals can properly claim to have full understanding or to be experts.

If anything, the fragmentary knowledge that can be gleaned from surfing the Internet or from anecdotal testimony of traders has probably created more confusion than clarity.

A natural consequence of ignorance and the shock of the new is, of course, fear - and this has manifested itself in complaints to the press and vitriolic criticism of SGX making its rounds in cyberspace and in dealing rooms.

The exchange may well counter that these fears are unfounded and that HFT offers boundless liquidity and efficiency benefits that would ultimately improve the lot of all traders.

Be that as it may, it's worth noting that HFT's advantages are as yet unproven and the fear of the unknown pales in comparison to the fear of losing one's livelihood. For this reason, the exchange would do well to tread carefully.

Over the past few years, retail brokers have suffered a massive loss of income because of declining commissions (inevitable, given deregulation and ultimately to the benefit of end-users but painful nonetheless); thinning volume; a cancelled lunch break; a China or S-chip segment mired in governance scandals whose crash is seen as largely responsible for keeping retail customers away; and, more recently, sudden trading curbs imposed by the exchange that appear to have driven all but the most die-hard retail punters from the market.

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