A major study which analysed the vast majority of activity in the UK’s FTSE 100 in a 30 day period finds that HFT is the main supplier of liquidity during major macroeconomic announcements.
  Kiril Alampieski CMCRC PhD Graduate University of Sydney A/Professor Andrew Lepone CMCRC Research Associate U. of Sydney Keywords: Capital markets, market quality  
High Frequency Trading (HFT) dominates trading volumes across the world’s larg- est trading venues. From being virtually non-existent as a participant in markets at the turn of the millennium, HFT now constitutes the majority of trading volume in most developed markets. As a result of the phenomenal growth of HFT, together with the hysteria created by the “Flash Crash” in the US in May 2010, it has become vital that research be conducted to see what changes HFT has on liquidity, particu- larly in periods of increased uncertainty and volatility. A comprehensive study by Dr Kiril Alampieski and supervised by Associate Pro- fessor Andrew Lepone uses data from the UK market to address the concerns sur- rounding this lack of knowledge. The study uses a unique dataset provided by the UK’s Financial Service Authority (FSA) containing national trade and order book data from the London Stock Exchange (LSE), CHI-X Europe and BATS Europe for all stocks in the FTSE 100 for 30 trading days in 2010. HFT activity and its effect on liquidity was analysed during a particular event: the sudden increase in information flow into the market driven by U.S. macroeconomic announcements. Alampieski’s study compares HFT with all other types of trading. The results provide empirical evidence that HFT participation provides the primary source of liquidity after a major announcement, with HFT being much quicker to return to normal levels of liquidity once the announcement is over. The study also noted that after these macroeconomic announcements when uncertainty was increased, HFT provided much needed liquidity to enable non-HFT participants to trade. His study is particularly significant because it was conducted at a time when there was a great need for empirical research into HFT and its effects on liquidity. The sheer size of the research also adds to the significance as the results of the study were based on the use of an extremely large and unique dataset provided by the FSA which used data from LSE, CHI-X and BATS which accounts for the vast majority of activity in the FTSE 100.
Author(s): Kiril Alampieski, Andrew Lepone