As reported by SF Gate, Andrew Haldane, the Bank of England’s Executive Director for Financial Stability, said regulators should address stability risks posed by technological advances to speed up financial-market trading.
“This rapidly changing topology of trading raises some big questions for risk management,” Haldane said in a speech at the International Economic Association 16th World Congress in Bejing today. “While this evolution in trading may have brought benefits such as a reduction in transaction costs, it may also have increased abnormalities in the distribution of risk and return in the financial system.”
The rise of practices such as high-frequency trading, a computer-driven trading method that can permit thousands of transactions in a second, has created a “race to zero” among firms seeking market advantage, he said. The consequences include the so-called flash crash of May 6, which erased $862 billion in value from U.S. equities in less than 20 minutes in a rout fueled by waves of computerized trading.