What is HFT or High Frequency Trading?

Business Times journalist Sivanithy wrote an article(yesterday) on SGX’s initiative to consult the public on HFT trading in the SGX. The introduction of the HFT is now a matter of when, so what is this public consultation all about? Should not the SGX try to educate the public on what this HFT is all about, the pros and cons of this newcomer?
 
Sivanithy asked a few very basic and pertinent questions. What is HFT and the need for SGX to educate the public on this new animal that it assumed everyone knows what it is but the truth is that no one knows. It is not as simple as what people think, that HFT is there to provide liquidity in the market to benefit the other traders.
 
Without knowing how this animal works, what kind of advantage it has over the rest of the players, no one knows how dangerous or what harm it can cause to the market. One thing for sure, HFT is not here to do charity. Its mission is simply to take advantage of any arbitrage situation to take profits. Technically, it can only make profits and not losses. So, how is this going to benefit the other players? How can the exchange allow HFT or any other instruments to enter the market with a clear cut advantage, to make profits while other players lose?
 
This applies to Algorithm trading. The Algo players have the advantage of their super computers to compute and take positions to make profits. It is like a sure bet. And who are the losers or the sure losers? The exchange should have enough data by now on who are the big net gainers from the market. Both Algo traders and HFT traders are more or less guaranteed to profit from the system with the aid of high tech equipment. This is a violation of the exchange’s guiding principle and responsibility of providing a level playing view.
 
What is the SGX and MAS’s positions on this? Is it fair to the rest of the traders? Are they breaking their own rules and regulations?
 
There is a need to tell the whole story on the capabilities of the HFT and Algo trading technology? Don’t just tell the people how good they are. The public and the govt need to know how harmful they are. The public were told how good the Lehman Bonds and toxic notes were but nothing about how bad they could turn out. We need to learn from that mistake and handle this new animal with great care.
 
What information is made available to them and not to the other traders and how they can take advantage of the information to make assured profit? If the technology can assure them of profits, how can they be allowed to do so when other traders enter the market with the risk of losing instead of making profits? How can SGX/MAS allow HFT and Algo traders to play in the market when they can only be winners and paying a small clearing fee? Is this the case?
 
The public and other traders have the right to know what they are up against. There is a need for transparency and disclosure on what these two systems can do and are doing. How many Algo computers are already hooked onto the SGX computers and how many HFT computers will be allowed into the system?
 
It is the responsibility of MAS and SGX to provide a level playing field and fair play. Period. The public cannot be let into a market blindfolded without knowing how dangerous these new players are and what they are up against, and with their hands tied.