Only A Matter of Time Untill Next Flash Crash?

As reported by The Financial Times’ John Plender, the good news about the extreme market volatility of the past month is that there has been no repeat so far of last year’s notorious Flash Crash, in which $1,000bn was wiped off share values in half an hour. Yet that is no reason to be complacent about the activities of high frequency traders who are engaged in a high-tech arms race to reduce trade execution times to millionths of a second.

High-Frequency Trading Leaders Forum 2011

For conventional investors there is a long-standing concern about the uneven playing field on which they compete with traders who can afford to co-locate their high-tech kit expensively beside exchanges to reap a time advantage. While it is true that the bigger fry have always had a natural advantage in capital markets against the small, it is a legitimate goal of regulation to try to level the playing field as far as possible. And it would be good to have a regulatory verdict on whether predatory algorithmic traders are artificially manipulating prices at the expense of slower or less sophisticated market participants.

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