According to Foresight Working Paper, Rules to Tackle “Algo” Speed Traders Could Backfire

Rules to tackle "algo" traders could backfire-study

Rules to tackle “algo” traders could backfire-study

As reported by Tommy Wilkes from Reuters, the European Union’s draft law MiFID II, a reform of Brussels’ earlier Markets in Financial Instruments Directive (MiFID), will introduce tougher regulation of financial markets including for high- frequency trading.

Speed traders use powerful computers to churn out thousands of trades in fractions of a second to profit from tiny price discrepancies, sparking criticism that they increase market volatility and instability.

The HFT industry hit the headlines in May 2010, when it was blamed for the “flash crash” in the United States, when the stock market plummeted more than 1,000 points, or nearly 10 percent, in a matter of minutes.

The fall was initially caused by one large erroneous trade from a funds firm, but the losses were rapidly magnified when computer-driven high-frequency traders followed the move down.

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About yocijourney

God does not play dice
This entry was posted in Business, Finance, High Frequency Trading, Insider Trading, Market Making, Regulatory Updates, SEC and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

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