Haldane Says Regulators Should Examine Risks from High-Frequency Trading

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.

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