Understanding High Frequency Trading (HFT)

Executive Summary

This paper is designed to cover the definitions of HFT set by regulators, the impact HFT has made on markets, the actions taken by exchange operators to maintain market integrity, and the regulatory response that are enacted or are being considered.

Among the key findings of this paper, is that HFT is not a strategy but a technology that financial firms are embracing around the world. Measuring the extent of HFT is recognized as complex, but trends are evident that HFT activity has plateaued on many of the markets where it was first introduced, and HFT continues to expand globally in new markets.

Exchanges have enacted many safeguards to ensure orderly markets. Regulators are reacting to concerns about HFT with new measures. The WFE sees the need to put the management of HFT issues as a central concern for markets, and to coordinate information and principles between market operators.

Introduction

All around the world and across all markets, economic pressures and competition are pushing businesses to find the most effective ways to invest and hedge risks.

Today strategies using algorithmic trading and HFT play a central role on financial exchanges, alternative markets, and banks’ internalized (over-the-counter) dealings.

Exchanges have adapted to the speed and automation of today’s markets by deploying sophisticated risk mitigation and surveillance technology, and are continuing to innovate in these areas to further enhance the safety, stability and integrity of the markets.

This paper sets out the challenges faced to maintain efficient markets, and the actions that the WFE and its member exchanges support.

 

 

 

Report Date: 
Wed, 05/29/2013