For those who have read the Flash Boys: A Wall Street Revolt by Michael Lewis, the thought of high frequency traders lurking in the background every time you make a trade is worrying. Although the book focuses only in the US stock market, does Asia have to worry about High Frequency Traders? Let’s take a look at Malaysia in particular.
Basic Idea Of High Frequency Trading
High Frequency Trading (HFT), as described in the book, is a form of electronic trading which focus on speed of the order signal. As the US market is structured with multiple exchanges, when investors placed an order into the system, it has different time lag between the signals arriving at different exchanges. Therefore, a HFT firm will take the signal from the first exchange and rush to buy the order before the investor in the next exchange in hope that it can turn around and sell it to the same investor at a higher price.
The Short Answer
Malaysia, home to the largest number of listed companies in Southeast Asia, has generally been more of a domestic market. For High Frequency Trading (HFT) to happen, there needs to be multiple exchange so that the traders can use the information they obtained from one exchange to act on their trade in the other exchange. In Malaysia, or most Asian markets, there is only one exchange operating in each country. For Malaysia, Bursa Malaysia is the sole exchange operator. Therefore, with this restriction, it seems almost impossible for the type of HFT described in the book to happen in Malaysia.
The Long Answer
However, that being said, electronic trading is still active in Malaysia. As anyone armed with the ability to write code can create an electronic trading system which can be used in the market.
Value Invest Asia
The infrastructure in Malaysia is still too young to have the environment to allow HFT firm to flourish. The Singapore Exchange (SGX:S68) is the first exchange in ASEAN that is considering setting up more infrastructure to allow HFT to operates in. If HFT is to come to ASEAN, maybe Singapore might be the first to experience it.
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All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any shares in the companies mentioned above.
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