Error!

X

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

X

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

X

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Financial Professionals

Forgot password

Forgot Your LordAbbett.com password?

If you are a registered user, but have forgotten your LordAbbett.com password, please enter your email address.
Once your email address is verified, we will send you an email with instructions on how to reset your password.

EMAIL ADDRESS
e.g. joe@firm.com

Financial Professionals

Forgot Password

Thank you.

An email has been sent to with instructions on resetting your password.

Financial Professionals

Reset Password

NEW PASSWORD
Your password must be a minimum of characters.
CONFIRM NEW PASSWORD

Financial Professionals

Reset Password

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

Financial Professional*

  • Gain access to exclusive LinkedIn Groups
  • Simplify your login
LOGIN WITH LinkedIn
LOGIN WITH LinkedIn

A verification Email Has Been Sent

Close

An email verification email has been sent to .
Follow the instructions to complete the email validation process.

I have not received my verification email

Check your SPAM mailbox and make sure that twelcome@lordabbett.com is allowed to send you mail.

I'm still having trouble

If you're still having trouble verifying your email address. feel free to contact us.

1-888-522-2388
clientservices@lordabbett.com


OK

We're sorry. We found no record of the email address you provided.

Close

Register For a LordAbbett.com Account
Using Your Email Address.

  • Registered Financial Advisors gain access to:
  • Our data mining tool, Insight & Intelligence
  • Best in-class practice management content
  • Educational events, videos and podcasts.
  • The Lord Abbett Review - Subscribe now!

Registered but Having Problems?

If you believe you are registered and are having problems verifying your email address, feel free to contact us.

1-888-522-2388 clientservices@lordabbett.com

Terms & Condition

X

These Terms of Use ("Terms of Use") are made between the undersigned user ("you") and Lord, Abbett & Co. ("we" or "us"). They become effective on the date that you electronically execute these Terms of Use ("Effective Date").

A. You are a successful financial consultant that markets securities, including the Lord Abbett Family of Funds;

B. We have developed the Lord Abbett Intelligence System (the "Intelligence System"), a state of the art information resource that we make available to a limited community of broker/dealers through the Internet at a secure Web site (the "LAIS Site"); and

C. We wish to provide access to the Intelligence System to you as an information tool responsive to the demands of your successful business pursuant to these Terms of Use. Accordingly, you and we, intending to be legally bound, hereby agree as follows:]

1. Overview. · Scope. These Terms of Use (which we may amend from time to time) govern your use of the Intelligence System. · Revisions; Changes. We may amend these Terms of Use at any time by posting amended Terms of Use ("Amended Terms of Use") on the LAIS Site. Any Amended Terms of Use will become effective immediately upon posting. Your use of the Intelligence System after any Amended Terms of Use become effective will be deemed to constitute your acceptance of those Amended Terms of Use.We may modify or discontinue the Intelligence System at any time, temporarily or permanently, with or without notice to you. Purpose of the Intelligence System. The Intelligence System is intended to be an information resource that you may use to contribute to your business research. The Intelligence System is for broker/dealer use only; it is not to be used with the public in oral, written or electronic form. The information on the Intelligence System and LAIS Site is for your information only and is neither the tax, legal or investment advice of Lord Abbett or its third-party sources nor their recommendation to purchase or sell any security.

2. Your Privileges. · Personal Use. Your use of the Intelligence System is a nontransferable privilege granted by us to you and that we may deny, suspend or revoke at any time, with or without cause or notice. · Access to and Use of the Intelligence System. The User ID and password (together, an "Access ID") issued by us to you (as subsequently changed by you from time to time) is for your exclusive access to and use of the Intelligence System. You will: (a) be responsible for the security and use of your Access ID, (b) not disclose your Access ID to anyone and (c) not permit anyone to use your Access ID. Any access or use of the Intelligence System through the use of your Access ID will be deemed to be your actions, for which you will be responsible. · Required Technology. You must provide, at your own cost and expense, the equipment and services necessary to access and use the Intelligence System. At any time, we may change the supporting technology and services necessary to use the Intelligence System. · Availability. We make no guarantee that you will be able to access the Intelligence System at any given time or that your access will be uninterrupted, error-free or free from unauthorized security breaches.

3. Rights in Data. Our use of information collected from you will be in accordance with our Privacy Policy posted on the LAIS Site. Our compliance with our Privacy Policy will survive any termination of these Terms of Use or of your use of the Intelligence System.

4. Your Conduct in the Use of the Intelligence System. You may access, search, view and store a personal copy of the information contained on the LAIS Site for your use as a broker/dealer. Any other use by you of the Intelligence System and the information contained on the LAIS Site these Terms of Use is strictly prohibited. Without limiting the preceding sentence, you will not: · Engage in or permit any reproduction, copying, translation, modification, adaptation, creation of derivative works from, distribution, transmission, transfer, republication, compilation or decompilation, reverse engineering, display, removal or deletion of the Intelligence System, any portion thereof, or any data, content or information provided by us or any of our third-party sources in any form, media or technology now existing or hereafter developed, that is not specifically authorized under these Terms of Use.

· Remove, obscure or alter any notice, disclaimer or other disclosure affixed to or contained within the Intelligence System, including any copyright notice, trademark and other proprietary rights notices and any legal notices regarding the data, content or information provided through the Intelligence System.

· Create a hyperlink to, frame or use framing techniques to enclose any information found anywhere on the LAIS Site without our express prior written consent.

· Impersonate any person, or falsely state or otherwise misrepresent his or her affiliation with any person in connection with any use of the Intelligence System.

· Breach or attempt to breach the security of the Intelligence System or any network, servers, data, or computers or other hardware relating to or used in connection with the Intelligence System; nor (b) use or distribute through the Intelligence System software or other tools or devices designed to interfere with or compromise the privacy, security or use of the Intelligence System by others or the operations or assets of any person.

· Violate any applicable law, including, without limitation, any state federal securities laws. 5. Your Representations and Warranties. You hereby represent and warrant to us, for our benefit, as of the time of these Terms of Use and for so long as you continue to use the Intelligence System, that (a) you are, and will continue to be, in compliance with these Terms of Use and any applicable laws and (b) you are authorized to provide to us the information we collect, as described in our Privacy Policy.

6. Disclaimer of Warranties.

· General Disclaimers.

THE INTELLIGENCE SYSTEM, THE LAIS SITE AND ALL DATA, INFORMATION AND CONTENT ON THE LAIS SITE ARE PROVIDED "AS IS" AND “AS AVAILABLE” AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND. WITHOUT LIMITING THE PRECEDING SENTENCE, LORD ABBETT, ITS AFFILIATES, AGENTS, THIRD-PARTY SUPPLIERS AND LICENSORS, AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, DIRECTORS, OFFICERS AND SHAREHOLDERS (COLLECTIVELY, THE “LORD ABBETT GROUP”) EXPRESSLY DISCLAIM ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, AND NONINFRINGEMENT. YOU EXPRESSLY AGREE THAT YOUR USE OF THE LAIS SITE, THE INTELLIGENCE SYSTEM, AND THE DATA, INFORMATION AND CONTENT PRESENTED THERE ARE AT YOUR SOLE RISK AND THAT THE LORD ABBETT GROUP WILL NOT BE RESPONSIBLE FOR ANY (A) ERRORS OR INACCURACIES IN THE DATA, CONTENT AND INFORMATION ON THE LAIS SITE AND THE INTELLIGENCE SYSTEM OR (B) ANY TERMINATION, SUSPENSION, INTERRUPTION OF SERVICES, OR DELAYS IN THE OPERATION OF THE LAIS SITE OR THE INTELLIGENCE SYSTEM.

· Disclaimer Regarding Investment Research.

THE INTELLIGENCE SYSTEM INCORPORATES DATA, CONTENT AND INFORMATION FROM VARIOUS SOURCES THAT WE BELIEVE TO BE ACCURATE AND RELIABLE. HOWEVER, THE LORD ABBETT GROUP MAKES NO CLAIMS, REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY, TIMELINESS, COMPLETENESS OR TRUTHFULNESS OF SUCH DATA, CONTENT AND INFORMATION. YOU EXPRESSLY AGREE THAT YOU ARE RESPONSIBLE FOR INDEPENDENTLY VERIFYING YOUR INVESTMENT RESEARCH PRIOR TO FORMING YOUR INVESTMENT DECISIONS OR RENDERING INVESTMENT ADVICE. THE LORD ABBETT GROUP WILL NOT BE LIABLE FOR ANY INVESTMENT DECISION MADE BY YOU OR ANY OTHER PERSON BASED UPON THE DATA, CONTENT AND INFORMATION PROVIDED THROUGH THE INTELLIGENCE SYSTEM OR ON THE LAIS SITE.

· Survival.

THIS SECTION 6 SHALL SURVIVE ANY TERMINATION OF THESE TERMS OF USE OR YOUR USE OF THE INTELLIGENCE SYSTEM..

7. Limitations on Liability.

NONE OF THE MEMBERS OF THE LORD ABBETT GROUP WILL BE LIABLE TO YOU OR ANY OTHER PERSON FOR ANY DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, SPECIAL OR EXEMPLARY DAMAGES (INCLUDING LOSS OF PROFITS, LOSS OF USE, TRANSACTION LOSSES, OPPORTUNITY COSTS, LOSS OF DATA, OR INTERRUPTION OF BUSINESS) RESULTING FROM, ARISING OUT OF OR IN ANY WAY RELATING TO THE INTELLIGENCE SYSTEM, THE LAIS SITE OR YOUR USE THEREOF, EVEN IF THE LORD ABBETT GROUP HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS SECTION 7 WILL SURVIVE ANY TERMINATION OF THESE TERMS OF USE OR YOUR USE OF THE INTELLIGENCE SYSTEM.

8. Miscellaneous Provisions.

· Governing Law. This Agreement will governed by and construed in accordance with the laws of the State of New York, without giving effect to applicable conflicts of law principles.

THE UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT OR ANY VERSION THEREOF, ADOPTED BY ANY STATE, IN ANY FORM ("UCITA") WILL NOT APPLY TO THESE TERMS OF USE. TO THE EXTENT THAT UCITA IS APPLICABLE, THE PARTIES HEREBY AGREE TO OPT OUT OF THE APPLICABILITY OF UCITA PURSUANT TO THE OPT-OUT PROVISION(S) CONTAINED THEREIN.

The Intelligence System is not intended to be used by consumers, nor are the consumer protection laws of any jurisdiction intended to apply to the Intelligence System. You agree to initiate and maintain any action, suit or proceeding relating to these Terms of Use or arising out of the use of the Intelligence System exclusively in the courts, state and federal, located in or having jurisdiction over New York County, New York.

YOU HEREBY CONSENT TO THE PERSONAL JURISDICTION AND VENUE OF THE COURTS, STATE AND FEDERAL, LOCATED IN OR HAVING JURISDICTION OVER NEW YORK COUNTY, NEW YORK. YOU AGREE THAT YOU WILL NOT OBJECT TO A PROCEEDING BROUGHT IN YOUR LOCAL JURISDICTION TO ENFORCE AN ORDER OR JUDGMENT OBTAINED IN NEW YORK.

· Relationship of Parties. The parties to these Terms of Use are independent contractors and nothing in these Terms of Use will be construed as creating an employment relationship, joint venture, partnership, agency or fiduciary relationship between the parties.

· Notice. All notices provided under these Terms of Use will be in writing and will be deemed effective: (a) when delivered personally, (b) when received by electronic delivery, (c) one business day after deposit with a commercial overnight carrier specifying next day delivery, with written verification of receipt, or (d) three business days after having been sent by registered or certified mail, return receipt requested. We will only accept notices from you in English and by conventional mail addressed to: General Counsel Lord, Abbett & Co. 90 Hudson Street Jersey City, N.J. 07302-3973 We may give you notice by conventional mail or electronic mail addressed to the last mail or electronic mail address transmitted by you to us.

· Third-Party Beneficiaries. The members of the Lord Abbett Group are third-party beneficiaries of the rights and benefits provided to us under these Terms of Use. You understand and agree that any right or benefit available to us or any member of the Lord Abbett Group hereunder will also be deemed to accrue to the benefit of, and may be exercised directly by, any member of the Lord Abbett Group to the extent applicable.

· Survival. This Section 8 will survive any termination of these Terms of Use or your use of the Intelligence System. The undersigned hereby signs these Terms of Use. By electronically signing and clicking "Accept" below, these Terms of Use will be legally binding on me. To sign these Terms of Use, confirm your full name and enter your User ID and Password (as your electronic signature) in the fields indicated below and click the “I Accept” button.

 

Equity Perspectives

Although the influx of rapid trading techniques can influence trading conditions, steps may be taken to mitigate their impact.  

High-frequency trading (HFT) involves rapidly buying and selling securities, typically with a holding period of less than 10 seconds, in an attempt to capture relatively minor profits across a number of trading venues. This rapid activity gives high-frequency traders a broad presence in the equity markets, and they generally are responsible for up to 70% or more of the overall daily trading volume. But while most high-frequency traders use algorithms—that is, mathematic formulas used to execute trades—not all traders who use algorithms are high-frequency traders.

Proponents of HFT suggest that its market presence can compress bid/ask spreads and, therefore, improve liquidity within the equity market. But narrower bid/ask spreads comprise a relatively small cost in the trading process. A much larger cost is incurred when the execution of a trade affects market prices. For example, if a buy order pushes the price of a stock higher as the trade is being executed, this movement can negatively affect the return on that investment.

Due to HFT’s effects on trading conditions, executing a trade without influencing a stock’s price has become more challenging. This is the primary reason why HFT can affect the creation of alpha1 by investors who remain focused on investment fundamentals. As a result, these investors need to take the proper precautions to mitigate the effects of HFT.

Techniques Focus on “Footprints”
High-frequency traders use several techniques, many of which begin by identifying time or volume schedules that fundamentally focused traders may use to avoid influencing market prices when trading. The identification of these “footprints” provides the HFT program with an opportunity to trade ahead of existing orders at better prices.   

One HFT technique that can influence market prices involves the relatively small rebates offered by equity exchanges in order to generate trading flow and, consequently, revenue. Once an HFT program identifies the footprint of an existing order, it can trade ahead of that order—thus potentially affecting the price of the stock—while also collecting a rebate. The HFT could then fill the existing order at a price that is disadvantageous to that investor. Meanwhile, the high-frequency trader would benefit from the rapid accumulation of rebates that it collected from the various trading venues.  

Another way an HFT program might transact with an investor is in the market-making capacity. This process may start with an HFT program identifying an existing order and how much price discretion the order has to buy or sell a stock. Price discretion could be determined, for example, by the existing order’s response to a series of offers to sell stock from a high-frequency trader. Once this discretionary amount is identified, the HFT program could trade ahead of the existing order and then fill that order at its price threshold. As a result of this process, the market maker would provide the investor with liquidity, but at a potential cost of moving from its initial price toward its discretionary threshold.

HFT programs also can use so-called predatory algorithms. Once an HFT program identifies an order, it might adjust its quotes for the stock, therefore prompting the investor to adjust as well. For example, if this process results in an investor raising its bidding price for a stock, the HFT program might sell the stock short 2 to the investor at that price. Yet, considering that the sequential bidding process inflated the price of the stock, the HFT program could cover its short position once the stock price presumably reverts to tis previous level. 

Prior to HFT’s emergence, one trading rule of thumb was that an order comprising 15% or less of a stock’s average daily trading volume might be executed without unduly influencing its market price. Yet the tendency of high-frequency traders to influence stock prices while a trade is being executed means that smaller trades may be more likely to influence market prices. And when many of these trades occur throughout a trading day, they can contribute to increased market volatility and higher degrees of correlations.  

Automating Correlations
Depending on whether risk is on or off, an HFT program may be set to buy several asset classes reflecting that particular environment. The ability to position for risk-on or risk-off conditions was enabled by the expansion of the exchange-traded fund industry across asset classes. The culmination of this HFT positioning  can have the effect of automating levels of correlations across securities, asset classes, and levels of the capital structure.  

If risk is on during a particular trading day, this might be reflected by rising values of, for example, futures on the S&P 500® Index,3 the euro, and the price of put options on the VIX index.4 By conducting a series of trades across asset classes that reflect the risk-on environment, potential arbitrage5 opportunities may be diminished as the assets move in tandem, thus giving the impression of an automated response to market conditions.   

This automation has been readily apparent during recent periods of volatility, which is when HFT strategies tend to become more active and potentially more profitable. Take, for instance, the change in trading conditions and in HFT activity that occurred following the downgrade of the U.S. credit rating on August 5, 2011.

The post–downgrade period has come to epitomize intense market volatility as the VIX index surged to levels not seen since the financial crisis of 2008–09. As the markets gyrated, trading volume jumped by about 80%, with most of that trading volume coming from high-frequency traders, who increased their trading volume by about 300% during that time, according to Bloomberg. In all, this group was responsible for about 75% of the trading volume during the post–downgrade period.6

As market volatility and HFT activity increased, so too did the correlation levels among major equity categories. For example, correlations among constituents of the S&P 500 jumped to 0.93 following the downgrade, whereas it had been at 0.56 six months earlier. (1.00 represents a perfect correlation between two entities.) Similar surges in correlation occurred within broader large cap and small cap equity indexes. (See Chart 1.)   
 

Chart 1. A Correlation Surge Coincided with HFT’s Post–Downgrade Activity
Based on correlations levels within the S&P 500, Russell 1000,7and Russell 20008 indexes 

Source: Citi.
For illustrative purposes only and does not reflect the performance of any Lord Abbett mutual fund or any particular investment.
The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy.  Investments in small companies involve greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations, and illiquidity.

While the exact relationship between HFT and asset correlations may be difficult to quantify at a given point in time, the post–downgrade period shows that an association between the two factors exists and can be measurable to a degree. 

Preventative Measures
Given the amount of hyperbole in the press about HFT, there are indications that U.S. regulators will continue to look at the practice and its effects on the capital markets. While any initiative to regulate order types, quote cancellations, holding periods, or trading rebates could be a positive development, institutionally sized trading desks still need to implement their own measures to insulate their trades from HFT’s influence.

The first step a firm can take to protect its trades against HFT’s influence involves avoiding the trading patterns that these programs might identify. 

One preventive measure regards the selection of a trading venue that provides the “purest” source of liquidity for institutional investors. Indeed, certain trading centers, such as Liquidnet, do not allow rebates, predatory algorithms, or HFT market makers. With those exclusions, Liquidnet can provide a source of seamless liquidity between institutionally sized buyers and sellers.

The way traders submit orders to the numerous venues can also avoid recognition by HFT programs. The submission process can be important because an order that is routed to a specific exchange could be identified by an HFT program that, subsequently, cancels its quote, requiring the order to move to a different market center, where it might be executed at a different price. In order to avoid that scenario, we may use a customized algorithm that simultaneously submits orders at up to 60 market centers. This method can ensure access to the volume needed to fully execute an intended order, but without needing to move to a new venue and a new price. This submission process also can throw off HFT programs because it may prompt them to execute trades sooner than intended.   

While the use of trading algorithms can automate the trading process, they also require constant monitoring and frequent modifications when in use. Indeed, a firm might interrupt an algorithm’s schedule anywhere from 10 to 300 times as a trade is being executed. When traders go silent for an hour or two, this often leads an HFT program to unwind a position at a favorable price. which in essence is using the speed of an HFT program against it.

The attention placed on electronic-trading issues, including HFT’s influence on trading conditions, Knight Capital’s $440 million trading error,9 and the trading problems surrounding Facebook’s initial public offering, may make it seem that software programs are running amuck in the equity markets. 

Yet the greater point may be that in an environment increasingly dominated by electronic trading, human monitoring of these processes has also become more critical. The need for heightened human oversight is underscored by the patience, experience, and spontaneity required of traders and investors to mitigate the influence of HFT in order to receive the best trade executions for their clients. 
 

1Alpha measures the portion of an investment’s return arising from asset-specific, nonmarket risk.
2 A short stock sale is a transaction where one party sells borrowed shares to another investor. The goal of the party that borrowed the shares is to return the shares, but at a lower price. 
3 The S&P 500® Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries.
4 The CBOE Volatility Index (VIX) measures market expectations for near-term volatility that are conveyed by option prices on the S&P 500 Index. 
5 Arbitrage involves simultaneous transactions in order to profit from price differences.
6 Nina Mehta, “High-Frequency Firms Tripled Trades Amid Rout, Wedbush Says,” Bloomberg, August 12, 2011.
7 The Russell 1000 Index measures the performance of the large cap segment of the U.S. equity universe.
8 The Russell 2000 Index measures the performance of the small cap segment of the U.S. equity universe.
9 “Knight Capital Group Provides Update Regarding August 1 Disruption to Routing in NYSE-listed Securities,” Knight.com, August 2, 2012
 

About the Author

RELATED BLOG

 

videoRead our blog for more of Ted Oberhaus's views on high-frequency trading. Join the conversation.

RELATED COMMENTARY