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By William Hutchings Of FINANCIAL NEWS
Veteran fund manager Mark Mobius has hit out at high-frequency traders, a growing force in global equity markets, who use software to spot patterns and profit from tiny price movements.
Referring to a review instigated by the US Congress this summer, Mobius, an emerging markets fund manager at U.S. firm Franklin Templeton, said in an interview with Financial News: “I am very glad Congress is cracking down on high-frequency trading. Some pundits say it???s great, because liquidity increases. I don???t think so. It???s not fair to the investors.”
The US Securities and Exchange Commission is looking at high-frequency trading strategies and, prompted by a letter from Senator Charles Schumer, last month proposed a ban on flash-trading, where exchanges sell information on trades milliseconds before it is made public.
In August, Financial News revealed that the Financial Services Authority was examining the impact of high-frequency trading on the U.K. equity market, and had approached as many as 10 asset managers to establish whether intervention was needed.
Financial regulators are still struggling to assess the full impact of high-frequency trading on equities markets, according to 96% of buyside and sellside trading firms that responded to a poll by data provider Thomson Reuters, published this month.
While regulators try to catch up, high-frequency traders??? influence is thought to be growing: consultant Tabb Group has published research estimating they will account for about 75% of all U.S. equity flow, compared with 30% four years ago. Sources at trading firms and exchanges said they generate about half of all orders in European markets.
Mobius said: “The answer is transparency, where they say, OK, we???ll allow you to do this, but we???re going to let everybody know what you???ve done. Then we???ll be able to see what the process is and what???s happened so people can then take it into consideration in their own trading process. All efforts to regulate boil down to transparency, in my view. That goes for derivatives as well.”