A few weeks back we highlighted for you a study on HFT, presented by Alex Frino, CEO of the Capital Markets Cooperative Research Centre (CMCRC), in which he claimed that HFT diminished volatility. We questioned his results in a morning note to you on August 18th, and we showed skepticism based on who the CMCRC’s “partners” and funders are, as well as who supplied the data for Mr. Frino’s study.

More importantly, we sent a few emails asking to see his study. Alas, we have not received any response. But we didn’t stop there. We have a friend who is head of trading in Australia for one of the largest global money managers. He reached out to Mr. Frino, his fellow countryman, and also has not met with success in gaining access to Mr. Frino’s study.

Hmmm. Mr. Frino has no issue touting his “academically supported” claims to the press; see his footprint here, in The Trade News. He claims:

– “In Australia, we find a negative relationship between HFT and price volatility for equity markets. This means rather than exacerbating price moves, they have a stabilising effect on prices.”
– “We do not find, for any of the markets that we’ve looked at, a positive relationship between HFT activity and price volatility. On this basis, we do not find credible the recent assertions that HFT activity is contributing to market volatility.”

Bryce Kelly, head of product strategy in Asia for Instinet, our alma mater, agrees with Alex Frino: “HFT are market-makers and volatility sellers, so in weeks like w/c 8 August they tend to see a lot of opportunity and likely ramp up trading activity. But it’s probably a stretch to say that they were a cause of the volatility.” Instinet runs dark pools and sells algorithms, and has “liquidity partners, it should be noted.

What we would like to examine for this study is:

– the sources for its data, and potential conflicts.
– the assumptions made for the study
– the thought process and reasoning connecting the data and assumptions to the conclusion of the author.

We recall how flawed the Brogaard (often cited still as an affirmation of how beneficial HFT is for the markets, despite its laughable assumptions, and data inclusions, and more importantly, exclusions: See our blog post from October 2010.) was.

Perhaps some of you can succeed in gaining access to the study, or helping us gain access to the study? Here is their contact information: http://www.cmcrc.com/index.php/contact. Perhaps you may have better luck than we do!

Let us close this morning’s note by highlighting an op-ed in the Financial Times by Stuart Baden Powell, head of European electronic trading strategy at RBC Capital Markets, a competitor of ours; it is excellent. Here is the link: HFT Debate Needs More Integrity. The link may require you to register with the FT’s site, which is well worth it. We’ll tease you with a quote, though:

“There is little merit to wearing a “pro” or “anti” HFT lens, the market should be pro “intellect” and pro “integrity”. An investment in knowledge can often pay the best interest, and integrity should be second to none. The more objective intellectual capital is deployed to the functioning of the secondary markets, the better return for the millions of retail investors whose pensions are supporting it.”