HFT Revenue to Increase as Volume Rebounds, Tabb Predicts

Revenue from high-frequency stock trading may increase by about 22 percent to $2.2 billion in 2013 as volume in U.S. equity markets rebounds following a three-year slump, according to Tabb Group LLC.

Trading volume may increase by 6 percent this year after declining from 2010 to 2012, Adam Sussman, director of research at Tabb, predicted in the report. High-frequency trading revenue reached $7.2 billion at its peak in 2009 before declining to $1.8 billion in 2012, the report said.

“While this is an improvement from last year, the strategy in U.S. equities will not return to its heydays,” he wrote.

High-frequency trading involves using computer strategies to make rapid buy and sell orders, sometimes amounting to thousands of transactions per second. HFT may represent 52 percent of American equity trading this year, an increase of 1 percentage point, because of “better trading opportunities,” Sussman wrote.

A daily average of about 6.4 billion shares changed hands in the U.S. last year compared with almost 9.8 billion in 2009, data compiled by Bloomberg show.

Trading volume will increase this year because stocks have offered better returns than bonds, the U.S. economy has stabilized and lawmakers have avoided the so-called fiscal cliff of automatic tax increases and spending cuts, the report states.

Fund managers may make bigger bets on fewer companies, Sussman wrote, citing recent trades in Dell Inc. (DELL) and Herbalife Ltd. (HLF) as examples. Trading of Dell has surged since the company began talks to go private, while Herbalife’s volume jumped as hedge-fund managers Bill Ackman, Carl Icahn and Daniel Loeb tussled publicly over whether the company is a pyramid scheme.

“There is a strong possibility that the market will encounter periods of medium-term volatility that will boost short-term volumes,” Sussman wrote. “At the same time, investors will decide to pour money back into the market. The combination of all these factors points to a relatively good year for the U.S. equities business.”

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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