High-Frequency Trading No Threat To Stability – Swedish FSA

As reported by Gustav Sandstrom  Of DOW JONES NEWSWIRES, High-frequency trading on financial markets is unlikely to pose any significant threat to financial stability, but upcoming international regulation may be needed to handle the potential risks, Sweden’s Financial Supervisory Authority said in a press briefing Tuesday.

High-frequency trading, which is carried out by computer software that employs algorithms, has been on the rise in Sweden and abroad, and some market watchers have been concerned that the split-second trades could make financial markets more volatile.

But international studies indicate that high-frequency trading doesn’t have much impact on market volatility, at least not under normal market conditions, FSA investigator Niklas Johansson said Tuesday.

The FSA interviewed a number of Stockholm-based market participants last autumn, and found no majority view that high-frequency trading would either increase volatility or reduce liquidity in the market, said the FSA’s executive director for markets, Anna Jegnell.

High-frequency trading firms are usually small, so they tend to have little impact on the wider market’s stability, Jegnell said.

Still, many market participants are concerned that high-frequency trades might be used in manipulative trading strategies, especially as the increasingly global and fragmented nature of financial markets has made supervision more difficult, she said, adding that there is a need for more cross-border market supervision.

Much of the potential risks involved in high-frequency trading will be addressed in the upcoming European Mifid 2 and Market Abuse Directive regulatory frameworks, the FSA’s head of division infrastructure supervision for markets, Jan Sjodin, told Dow Jones Newswires Tuesday. The FSA doesn’t aim to introduce any separate Swedish regulation of high-frequency trading, he added.

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