The “Flash Boys” effect is more muted in Europe.
Michael Lewis’s book on high-frequency trading provoked an uproar on Wall Street about market fairness and resonated with more than two-thirds of U.S. financial-industry participants. In Europe, however, the skeptics are fewer and their disbelief in the system less intense, a ConvergEx Group LLC survey found.
“In the U.S., high-frequency trading flow from a customer standpoint had a very negative connotation,” Joseph Cangemi, the chief executive officer of ConvergEx’s London unit, said during an interview.“In Europe, customers are less reactionary and seem to have a more temperate approach mostly because HFT is one of the many issues up for discussion here with new regulation, Mifid II, being introduced.”
Only 42 percent of European financial-industry participants say equity markets aren’t fair to all, according to ConvergEx, which provides brokerage and trading-related services. About 28 percent think they are, in fact, fair. The results contrast with a similar ConvergEx survey released last month, which revealed that 70 percent of respondents said the U.S. equity market isn’t fair and only 18 percent said it was.
Published at the end of March, “Flash Boys” argues that high-frequency traders, exchanges and brokerages have rigged the American stock market. It details IEX Group Inc.’s attempt to cleanse the system from within. In the days after the book was released, U.S. Securities and Exchange Commission Chairman Mary Jo White responded by saying markets aren’t rigged.
An European Union regulation called Mifid, or the Markets in Financial Instruments Directive, has been adopted by lawmakers and now moves to the Paris-based European Securities and Markets Authorities for writing detailed rules on issues including dark pools and automated, computerized trading.
EU norms on HFT already include standards meant to keep price increments for securities from being too small, mandatory tests of trading algorithms and requirements that market makers provide liquidity for set amount of time.
In the U.S., the main derivatives regulator said this week it’s debating whether requiring a new registration for high-speed traders would give overseers better access to information collected by exchanges including the CME Group Inc.
ConvergEx’s survey had 131 European financial industry participants and was conducted from May 6 to May 9. Respondents included asset managers, hedge funds, banks and broker-dealers. It has a margin of error of plus or minus 10 percent.
A fifth of participants in ConvergEx’s European survey say high-frequency trading is helpful or very helpful, compared with 19 percent in the U.S. survey. About 39 percent consider it to be harmful or very harmful, compared with 51 percent in the U.S. poll.
The survey found 68 percent of European respondents didn’t make changes to the way they interact with the market despite the debate on HFT, while 20 percent made slight or significant changes. The same figures in the American survey were 71 percent and 22 percent, respectively.
Thirty-four percent in Europe favor more regulation, compared with 43 percent in the U.S. About 32 percent want less regulation, compared with 19 percent in the U.S.
“The U.S. survey’s sentiment was much more emotional, driven by hype by the Michael Lewis book,” said Cangemi, a former governor of the New York Stock Exchange and former chairman of the U.S. Security Traders Association. “We’ve had some conversations with clients here, but not with the same amount of fervor as I’d imagine in the U.S.”
ConvergEx’s New York-based CEO, Eric Noll, previously ran transaction services at Nasdaq OMX Group Inc., an exchange operator.