The Board of Directors of the World Federation of Exchanges (WFE), submitted a letter of support to U.S. Securities and Exchange Commission Chair Mary Jo White. The letter commends the regulator’s determination to ensure the safety of regulated markets and offers the WFE’s full assistance as the SEC continues to develop guidelines on exchange oversight and risk mitigation.

(29 May 2013, PARIS) The World Federation of Exchanges (WFE) today released a review on High Frequency Trading (HFT), describing it as a technology that financial firms are embracing around the world. Besides, the study notes the many initiatives and risk management practices that exchanges have adopted to enhance the safety, stability and integrity of the markets.

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.


Executive Summary : The WFE especially welcomes this IOSCO public consultation given the importance of innovation for markets, and the need for its greater understanding. Exchanges believe that they can provide useful insight thanks to their front line role in monitoring, detecting and preventing market abuse, as well as in developing technology. The WFE appreciates the difficulty to deal properly with microstructure phenomena in isolation without considering the overall market structure. The absence of a level playing field in regulation among trade execution venues is one example. This level of fragmentation impairs the ability for listed companies to understand the market in their shares. It weakens the trust in capital markets; it diminishes the capacity of exchanges in raising capital to promote economic growth.

News Article

Enhancing Our Equity Market Structure - Speech from US Securities and Exchange Commission chair Mary Jo White

Read more at : Speech

The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published its Final Report on Regulatory Issues Raised by the Impact of Technological Changes on Market Integrity and Efficiency, containing Recommendations aimed at promoting market integrity and efficiency and to mitigate the risks posed to the financial system by the latest technological developments including high frequency and algorithmic trading.

Views Article

The Australian Securities and Investments Commission (ASIC) is Australia's corporate, markets and financial services regulator. An independent government body, its priorities are to ensure confident and informed investors and financial consumers, fair and efficient financial markets, and efficient registration and licensing.

It is quite troubling and perplexing to witness the technology mishaps that have occurred recently in the world of capital markets. For more than two decades, technology has shaped and continues to define the architecture of capital markets globally; hence, it is imperative at this stage in the evolution of the markets to come to certain realizations about the inherent risk that lies in this dependency on information technology for the industry overall.

In addition to major market events that have been blamed on technology such as the Flash Crash in May 2010, news organizations have reported many technology related snafus over the last couple of months:

Exchanges in their current form can be traced back to Amsterdam, with the creation of an exchange to trade shares in the Dutch East India Company. An in 1652, it was this very company that established a trading post in the shadow of Table Mountain, changing the course of South African history, for better and for worse.

Transparency used to be for a very limited group. In the old world, the public never saw the limit order book. The best that traders and investors could see was the last trade, and they might be told the current bid and ask in the pit. Of course, specialists at stock exchanges held the order books for their stocks, which meant that they were the only market participants who could see them. Big floor brokers in the futures markets would see the portion of the order book created by their own customers’ orders, so again they had an exclusive view of at least the piece of the order book for the futures contracts they filled orders for.

Over the past years, high-frequency trading has progressively gained a foothold in financial markets, enabled and driven by an interplay of legislative measures, increased competition between execution venues and significant advances in information technology.

High Frequency Traders, or HFTs for short, are at the eye of the regulatory storm that has unfolded post the 2007-2009 financial crisis. Fuelled by the Flash Crash on the 6 May 2010 in the USA as well as the upcoming revision of MiFID in Europe, opinions about this relatively new class of market participants are being put forward at a staggering pace. But what are the facts we should take into account before we make opinions about how to regulate or consciously not regulate HFTs?

Think back to 2009 when high frequency trading (HFT) first became a topic of interest. At the time very little research existed on the issue -- essentially all we knew was that high frequency traders were fast and technologically sophisticated. They spent heavily to achieve low-latency, by purchasing co-located servers and by employing programmers who could optimize data analysis techniques. Since then researchers, including myself, have started studying HFT in greater depth. My work specifically looks at the activities and impact of HFT on U.S. equity markets, and my research has uncovered several key characteristics of high frequency traders.

PARIS (Reuters) - The 20-minute "flash crash" will reverberate for quite some time to come. For years, America's stock markets were the envy of the world, the model for modern trading -- fast, stable, efficient and for the most part transparent.

But after the Dow Jones industrial average plunged nearly 700 points on May 6 before sharply rebounding, that perception changed, possibly for good.

An exchange used to be a place – yes, a physical place -- where people would come together to buy or sell, hoping to achieve the best price for themselves. The more the exchange was able to attract all of the buy and sell interests in a product, the more the prices on the exchange would reflect the truestate of supply and demand.

Traditionally exchanges have been monopolies. They were owned by their members, blessed by governments, and acted like utilities. The cost of building a market center, developing a network, and gaining critical mass virtually ensured an exchange’s success. The more liquidity an exchange attracted, the more critical it was to trade there. This created a virtuous cycle where the big got bigger and the small became irrelevant. For decades this allowed larger exchanges to operate virtually unopposed, as they may as well have carved the adage “Where Liquidity Begets Liquidity” on their marble cornerstone.

Since May 6, 2010, CME Group has engaged in a detailed analysis regarding trading activity in its markets on that day. Our review indicates that our markets functioned properly. We have identified no trading activity that appeared to be erroneous or that caused the break in the cash equity markets during this period.

Derivatives provide a tool for investors to implement strategies for managing counterparty, market and liquidity risk. Order matching, i.e. the transfer of investors’ trading intentions into actual trades, price discovery and centralized clearing are at the heart of the production function of derivative markets. They thereby play a key role in market-based economies.


WFE Annual Meeting, Paris 2010 - Panel 1 Exchange Strategy

WFE Annual Meeting, Paris 2010 - Panel 1 Exchange Strategy