A few years ago, with the development of ETF and the introduction of stock index futures, high-frequency trading also appeared in Shanghai and Shenzhen stock markets, and many self-operated departments of securities companies and some private equity funds participated in it. Recently, some Public Offering of Fund are eager to try. The Oolong Finger Incident of Everbright Securities was caused by system failure and other reasons when the quantitative strategic investment team of its self-operated department was arbitrage.
High frequency trading has its unique advantages. Generally speaking, the profit model in securities trading can be divided into two categories: obtaining company dividends and the bid-ask spread of stock prices. The former has a long investment cycle, while the latter may be realized in a short time. In essence, high-frequency trading is an ultra-short-term trading. Its investment logic is that it does not focus on the value of the investment object, but only from the perspective of possible bid-ask spread, and uses the spread between futures and spot, and between ETF simulation value and spot value to seek spread income by buying quickly and selling quickly. Although judging from each specific transaction, the price difference is not large, because it is repeated in a short time, and the accumulated income is not low. In particular, many high-frequency transactions are hedged by arbitrage, so the risk is controllable in theory. Especially in a balanced market structure, it can usually create good performance and far outperform the market. At the same time, this kind of transaction contributes a lot to the turnover, so some securities companies will also take high-frequency trading as an important means to increase the market share of brokerage business. Only from the perspective of active market, it does have its corresponding function.
However, as an operation mode, high-frequency trading also has many defects objectively. First of all, there is nothing wrong with focusing on short-term operation to find the bid-ask spread, but it is still different from the concept of long-term investment and value investment. It is obviously inappropriate to excessively advocate high-frequency trading. Secondly, high-frequency trading enlarges the trading volume and effectively improves the efficiency of capital use. However, because the flow is purely for speculative purposes, that is, it is impossible to find value or optimize the allocation of funds, it is difficult to have a positive impact on the real economy, and it may not play a role in the normal operation of the stock market. Its excessive proportion is not a good thing. Third, high-frequency trading needs high technical content, and its own software and hardware investment is quite large, which is bound to be a game for a few people. If the management is not strict, its operation behavior can easily mislead other investors and become a means of law of the jungle. Therefore, how to maintain the fairness and justice of the market while conducting high-frequency trading is always an unavoidable problem. In overseas established markets, high-frequency trading is often criticized by various public opinions, and its scale has also declined in recent years. Especially after the international financial crisis in 2008, the regulatory authorities in some countries strengthened the supervision of various financial innovative products, including high-frequency transactions. At present, the market share of high-frequency trading is generally expected to decline by about 30%, only about half of the peak period. In China, high-frequency trading is still a new thing, but there are different views from the beginning, especially under the condition of not implementing "T+0" trading, high-frequency trading itself has logical defects. In the case of relatively limited market capacity, its operating space has also been questioned. The "816 incident" of Everbright Securities exposed many problems in risk control, forcing relevant parties to adopt a more cautious attitude.
There is no doubt that the modern securities market needs high-frequency trading, but it should develop moderately and put risk control in the first place. If we blindly promote high-frequency trading for a utilitarian purpose, it will only bring unpredictable risks. In this regard, Everbright Securities paid a heavy price, and its lessons should be firmly remembered by all parties concerned.