Regulators and advisors have a role to play when it comes to easing investor fears over high frequency trading (HFT). They just have to be clear about what HFT means, according to experts speaking at OSC Dialogue 2012 in Toronto on Tuesday.
“There’s no clear industry definition of what an HFT is,” said Tom Kloet, CEO of the TMX Group Ltd. who spoke as part of a panel on Tuesday. “We need a definition of what we’re looking at before we can regulate it.”
The Investment Industry Regulatory Organization of Canada [IIROC] has floated a definition as part of study, according to the panel moderator Maureen Jensen, executive director of the Ontario Securities Commission (OSC). However, Kloet argued that the definition is still too broad and any regulation based on that will “capture a whole bunch of people” who may not truly be involved in high frequency trading.
The panel raised several issues in regards to HFT, with or without a definition, including public sentiment. “There is a lingering discomfort with high frequency trading,” said Margot Howard, commissioner, OSC, “and that needs to be addressed.” Investors want to know that regulators understand the technology and have the resources to detect issues in regards to HFT.
Another issue that advisors and regulators need to do is to make sure that investors understand high frequency trading, said Margaret Franklin, CEO of Kinsale Private Wealth Inc. Sometimes investors, specifically institutional investors, feel that the game is “stacked against them,” said Franklin, because with HFT there is a chance for someone else to get in or out of the market a millisecond faster then them. In fact, HFT is just one issue among many (costs is another), she said, that clients will often come into the office and just vent about.
“They find it so frustrating yet the need for financial services, the need for what we do,” said Franklin, “has never been more important.”