[ I N - D E P T H | A L G O T R A D I N G ]
BMO ’ s Ross takes a more nuanced view . He does not expect there to be a decline in high-frequency strategies . Under normal conditions , he counters , high-frequency traders reduce volatility , but at times of stress , they can serve to create a “ phantom ” illusion of liquidity . The order books look full , but no-one is really willing to step in and take the risk . “ People think there ’ s more liquidity in the market than there really is .”
Liquidity auctions Ross also points to US volatility auctions as showing a weak point in algorithms . The US had a level 1 cross-market trading halt on
9 March for the first time in 20 years , and this was followed by three more such halts .
Market-wide circuit breakers force a pause to let markets reset from extraordinary spikes in volatility . The halts led to volatility auctions designed to allow price discovery . “ That ’ s not really what we saw ,” Ross says .
“ It ’ s easier to shut down the machine than the human .”
RAY ROSS , CO-HEAD OF ELECTRONIC TRADING , BMO CAPITAL MARKETS
48 // TheTRADE // Fall 2020