HFT roils the forex market


It's hardly a secret that high-frequency trading firms are desperate to expand out of equities, where they have been hit hard by a dearth of volume, and into other asset classes in which the returns might be higher.

The forex market has been on top of the industry's wish list for years. But as high-frequency trading gathers speed in this market, some issues are cropping up. In some ways, the inchoate controversy in the currency market resembles the controversy we've grown accustomed to in the stock market.

The Wall Street Journal reports that high frequency trader GSA Capital Partners has accused Thomson Reuters of being "too lenient in sanctioning a high-speed trader."

To protest against the big trading platform, GSA has refused to post prices of its trades on the system. In particular, GSA is miffed about the "light penalty received by rival high-frequency trading firm Lucid Markets. Thomson Reuters briefly suspended Lucid after a probe into its trading practices late last year, according to people with knowledge of the decision. Lucid broke Thomson Reuters's trading rules by hooking up several servers to its platform at once, the people said, allowing Lucid to obtain vital trading data just ahead of its competitors. Lucid has said it acted in line with the rules…People with knowledge of the decision said the suspension was for a brief period over the holidays."

GSA says the light penalty damages confidence in a widely used trading platform. At some point, the big platforms will have all the headaches that stock exchanges now have. They will have to offer ever more powerful high frequency services, and manage increasingly more controversies. The largely unregulated market will suffer charges that it is not necessarily fair and transparent--and that might spark formal regulatory actions. That is precisely what the industry wants to avoid. So it would behoove all to come together and voluntarily set some standards.

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