Brokerage Firms Address High Frequency Trading Concerns

by on Apr 30, 2014

Within the past couple of weeks, three firms – Charles Schwab,
schwab_etrade_tradekingE*TRADE and TradeKing – have responded to the popular high-frequency trading topic. Charles Schwab posted a public message clearly stating its stance on high-frequency trading, E*TRADE posted a private message from its CEO briefly mentioning the topic and TradeKing posted a link to its high-frequency trading Forum on its Facebook page.

The varying response strategies raise questions as to how other brokerage firms will address and deliver content on the high-frequency trading issue, what stances other brokerage firms will take and, most importantly, how high-frequency trading will affect firms’ relationships with their clients.

A Closer Look at the Firms’ Response Strategies

Charles Schwab
Charles Schwab’s Founder and Chairman, Charles Schwab, and President and CEO, Walt Bettinger, responded to the high-frequency trading topic by delivering a press release on the firm’s public website. The firm does not condone high-frequency trading and refers boldly to the topic as a growing cancer in the capital market system that needs to be fixed. In addition, the founder and the CEO provide solutions, such as establishing cancelation fees, stopping the practice of selling preferential access or data feeds, and/or making high-frequency trading all together illegal.

E*TRADE
In a different vein, E*TRADE’s CEO, Paul Idzik, posted a message on the private E*TRADE website stating that the firm opposes those who attempt to game the capital market system. While not as bold as the Charles Schwab press release, the message briefly mentions high-frequency trading and states that it supports fair trading practices for all traders.

 

ETRADE_CEO_Message_(Truncated)
E*TRADE CEO Message (Truncated)
TradeKing
TradeKing only posted a link to its public Forum page on its Facebook account. The firm has not provided any opinion on the high-frequency trading topic; however, the firm encourages clients to express their opinions and comments on its high-frequency trading Forum page.
TradeKing_Facebook_Post
TradeKing Facebook Post
It is interesting to see how each firm responded to the high-frequency trading issue and it is important to analyze their responses in order to understand how clients will react. The first approach was to attack the topic head-on and publicly state the company’s position outright. This was Charles Schwab’s approach in its High-Frequency Trading press release. The second approach was to provide a private message to current clients stating that the company believes in a fair market, while not explicitly stating its view on high-frequency trading. This strategy was used in the message from E*TRADE’s CEO. The last method, and perhaps the most cautious, was for the company to not comment on the high-frequency trading issue at all and instead provide a forum for clients and users to express their views. This was the tactic taken by TradeKing.

Closing Thoughts
It is still too early to tell which of the three approaches will receive the best response from users and clients; however, we do know that brokerage firms feel pressured to provide a response to the high-frequency trading topic. Additionally, the responses provided by brokerage firms with regards to high-frequency trading can have a powerful effect on whether users and clients view them as part of the solution or as part of the problem. After taking this information into account, brokerage firms should take a well-thought-out and deliberate strategy when addressing the sensitive topic of high-frequency trading.