Singapore Exchange Seeks High-Frequency Traders

The above is the titled of an article by Jonathan Burgos on Oct 28 in Bloomberg News. It quoted Magnus Bocker, the CEO of the Singapore Stock Exchange that this is the way to go to improve liquidity and quality of the Exchange. HFT accounted for a fraction of the liquidity in the trading of equities but 30% of the trading of derivatives, according to spokesperson Loh Wei Ling. HFT is thus in the system but would now go a big way into the main activity of the Exchange.
 
When Bocker first came on board he introduced several changes to facilitate trading, to improve liquidity, efficiency and trading volumes. Among these were smaller bid size, lower commission, no lunch break, allowing computers to be plugged into the SGX and located nearby to take advantage of the proximity and benefitted from the speed to make profits.
 
“The more liquidity and the more trading generally makes the market better, lowers trading cost and helps smaller investors,” said Larry Tabb. How would this statement measure up to the reason for Bocker to want to introduce HFT as stated below?
‘Bocker is seeking more business with the daily average value of equity trades down to about S$1.5 billion ($1.2 billion) this year, a 36 percent plunge from 2007, according to data compiled by Bloomberg.’
 
And David Gerald, President of SIAS, has this to say, ‘…allowing high-frequency traders will introduce unfamiliar risks to investors .…“A knife is good as well as dangerous,….Investors must know the risks and decide for themselves whether they want to invest or not. There are many products out there which are very risky and investors have to be educated on the risks and they must make an informed decision.’
 
Comforting words indeed. But with the HFT in full play, has the nature of stock trading been changed when profit and loss are incurred by virtue of computer speed and nothing else, and with funds using their computers to trade or cheat against the small investors? What is a stock exchange? Definitely it is not meant to be a jackpot machine or a computer game.
 
Would the authorities seriously look at HFT and the nature of stock market trading, the unfair advantages of big funds with big war chests and high speed computers profiting from the innocent and unsophisticated small investors without the aid of computers and information from the computers of the Exchange. What happens to fair trading practices and a level playing field? The MAS owes all investors big and small the responsibility to ensure that it is fair game and not a loaded dice. Would the MD of MAS, Ravi Menon, care to comment on this? My personal opinion is that this is worse than Lehman Bonds and toxic notes. Is David Gerald’s warning of a dangerous knife enough, sufficient, to the unsophisticated small investors? Anyone in the govt thinks that HFT is ok and acceptable to be allowed into our stock market? HFT is like throwing some piranhas into our reservoir and then ask what happened when all the fishes were gone, like where have all the small investors gone.
 
Should all remisiers, dealers and investors be made to take a course and test on HFT, to know the risk involved and to sign a letter that they know what they are in for and would be responsible for their own tradings?
 
An easier way to increase trading volume is to open the market 24 hours. By virtue of tripling the trading hours, the volume must increase by 3 folds. Or maybe cut commission to zero where traders can trade freely.
 
Over the last few days, the volume of trades must have opened some eyes that all is not well. No, Rip Van Winkle still snoring away?