As a U.K. government study said, Computerized trading, under scrutiny from securities regulators, isn’t spurring broad increases in market volatility even as it sometimes creates “instability” that may lead to crashes.
High-speed automated trading on exchanges and other venues may lead to “feedback loops” that compound problems and efforts to manage risk may worsen those events, the report said. Changes in volume, news reports and delays in market-data distribution can exacerbate the swings, it said. The study predicted that computer-driven trading will increase.
The report, commissioned as part of the U.K. government’s Foresight Project on the future of computer trading in financial markets, aims to assess the “risks and benefits” of automated buying and selling, according to written comments by John Beddington, chief scientific adviser to the U.K. government. He oversaw the project, which includes 16 additional academic papers. Understanding the impact of computerized trading on financial services and the broader economy may help policymakers develop a “resilient regulatory framework,” he said.