High-Frequency Trading: is there really a place for it?

Not long since my previous post, but a story published yesterday caught my eye upon which I feel compelled to provide comment. Most of my time over the past year has been spent speaking to regulators, investment banks, central banks and exchanges regarding market manipulation in one form or another. Ultimately, the regulators and exchanges want to ensure a fair and open market place, the central banks want to provide a stable trading environment that won’t bankrupt the economy, and the investment banks want to avoid costly fines and reputational damage. There is one glaringly obvious obstacle standing in the way of this at the moment – High-Frequency Trading (HFT).

Rather interestingly, the NASDAQ (the most recent victim of the problems caused by HFT) was the first electronic exchange to have been created, in the early 70’s. At this time, the rest of the world was blissfully writing documents on typewriters, calling people using tethered home phones, and were exchanging messages using something called ‘the post’ (having researched this, it appears to be some form of paper-based system that requires human intervention).

Read more