Market View From the Top from Spicers CEO Gordon Noble-Campbell

High frequency share trading highlights dramatic change

17 May 2010

Among the interesting pieces of information that passed across my desk this week was a note highlighting the dramatic change that’s occurred in share trading in the US given the greater proliferation of computer-generated transactions – in particular, the types of tools used by the so-called “high-frequency traders”.

Over the past five years (since 2005), the volume of daily share trades on the New York Stock Exchange has increased over seven times from 3 million to 22 million. (By way of comparison, the total number of trades on the NZX on Friday was 1,670).

During the same period in the US, the average trade execution time has reduced from 10 seconds five years ago, to 0.7 of a second today – which for many traders is still considered too slow. Of course, technology is being blamed for the spasm that markets experienced on 6 May, and in light of that, it’s worthwhile remembering that daily market volatility is not necessarily an indicator of fundamental value – a point reinforced by the post-dip-bounce.

From a longer-term perspective, the table below shows the year-to-date performance (to 10 May) of 80 share markets around the world, including New Zealand. As the table illustrates, China and parts of Europe have been worst affected by wavering sentiment. Russia is the only BRIC country up year to date with a gain of 2.71%. India is down 1.54%, Brazil is down 4.91%, and China is down 18.96%. (New Zealand registers a YTD return of minus 2.29%).

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