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  2. INTERACTIVE
April 14, 2014 01:00 AM

Effects of various HFT strategies

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    Effect on stakeholder
    HFT strategyDescriptionInstitutional

    investor

    Institutional

    broker-dealer

    Retail

    investor

    Retail

    brokerage

    ETF market makingArbitrage between the ETF and underlying securitiesPositive: Provides liquidityPositive: Provides liquidityPositive: Provides liquidityPositive: Provides liquidity
    Statistical arbitrageUsing correlations to determine trade behaviorNeutralNeutralNeutralNeutral
    News feed arbitrageUsing low-latency news feeds to position tradesNeutralNeutralNeutralNeutral
    Rebate arbitrageLayering passive orders to collect rebates from venuesMostly negative: Could intensify flash crashesNegative: Increases venue costsNeutral: Reduces spreads and time to fillNegative: Increases venue costs
    Momentum detectionUsing strategies to identify spread breaches to position tradesNegative: Increases market impactUnknown: No effect if clients are unawareNeutral: Orders are too smallNeutral: Orders are too small
    Order flow detectionIdentifying block orders using electronic meansNegative: Increases market impactUnknown: No effect if clients are unawareNeutral: Orders are too smallNeutral: Orders are too small
    Order flow predictionPredicting block trades and profiting from themNegative: Increases market impactUnknown: No effect if clients are unawareNeutral: Orders are too smallNeutral: Orders are too small
    Latency arbitrageIdentifying Smart Order Routers processes to position tradesNegative: Increases market impactUnknown: No effect if clients are unawareNeutral: Orders are too smallNeutral: Orders are too small
    Source: Oliver Wyman

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