As Jim Kim reported on Fierce Finance IT last month, it’s been a tough year so far for high-frequency trading firms. Not too long ago, it seemed they would continue to carve out a larger share of trading volume, to the consternation of many. But we may be seeing a plateau, at least for the short term.
High-frequency trading now accounts for 54 percent of overall domestic stock trading, down from 61 per cent in 2009, according to the Tabb Group. In Europe, the share fell to 35 percent from 38 percent last year.
Larry Tabb summed up the situation saying “We haven’t been seeing any big names blow up but it’s more about people downsizing. And we’ve seen some people get out altogether,” notes the Financial Times.
Margins are being crimped from several directions. Profitable trades are harder to come by as overall volumes and volatility dip. Dark pools continue to siphon off volume from exchanges, and that complicates matters. At the same time, companies have jacked up expenses stemming from massive investments in their infrastructure, to stay at the leading edge of industry.
So we may be at inflection point of sorts in the maturation of the industry. The heady early-days growth curve may be flattening, ushering in a wave of consolidation. For some critics of the practice, these may be seen as healthy trends.