A recent white paper co-authored by Brattle economists analyzes high-speed trading in securities markets in light of recent controversies about the impact of these strategies. The paper has been published as a special issue in the May 2014 issue of The Financial Review.
Computerized, high-speed order submission, cancellation, and trading has been riding a wave of technological momentum and innovation over the past decade. In light of recent high profile controversies about high-frequency trading (HFT) and other less transparent corners of the markets, the Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) are conducting ongoing investigations of the impacts of these strategies, as well as proposing further regulatory oversight and solutions to address their potentially adverse side effects.
The paper describes the evolution of increasingly fast automated trading over the past decade and some key features of its associated practices, strategies, and apparent profitability. The authors also survey and contrast several studies on the impacts of such high-speed trading on the performance of securities markets. Finally, they examine some of the regulatory questions surrounding the need, if any, for safeguards over the fairness and risks of high-speed, computerized trading.
The paper, “Computerized and High-Frequency Trading,” was co-authored by Brattle academic advisor Michael A. Goldstein, principal Frank C. Graves, and senior associate Pavitra K. Kumar and can be downloaded below.