Senator Ted Kaufman (D, DE) echoed the thoughts of many market observers in a recent speech, when he called for greater regulation and controls around the growing practice of High Frequency Trading among Wall Street firms.
High Frequency Trading (HFT) has recently come to the attention of the investing public following the case of Sergei Aleynikov, a programmer of stealing the "goose that laid the golden egg", otherwise known as the the source code of Goldman Sachs' high frequency trading algorithms.
Many people were wondering how, in the wake of the worst economic times we've had for decades, Goldmans were able to continue to post mega profits.
HFT is the answer.
Basically it is the practice of sending multiple orders into electronic markets at high speed in order to expose where big institutional volume might be waiting, then canceling those orders before they have a chance to be filled.
Many see this as nothing more than a sophisticated way of front running the markets.
Sen Kaufman, in his speech, outlined five key points for regulators (particularly the SEC) to focus on in order to better control the spread of such activities.
These five points basically came down to the following:
Only time will tell whether these regulations will actually be introduced and if they are, whether they will be successful.
High Frequency Trading (HFT) has recently come to the attention of the investing public following the case of Sergei Aleynikov, a programmer of stealing the "goose that laid the golden egg", otherwise known as the the source code of Goldman Sachs' high frequency trading algorithms.
Many people were wondering how, in the wake of the worst economic times we've had for decades, Goldmans were able to continue to post mega profits.
HFT is the answer.
Basically it is the practice of sending multiple orders into electronic markets at high speed in order to expose where big institutional volume might be waiting, then canceling those orders before they have a chance to be filled.
Many see this as nothing more than a sophisticated way of front running the markets.
Sen Kaufman, in his speech, outlined five key points for regulators (particularly the SEC) to focus on in order to better control the spread of such activities.
These five points basically came down to the following:
- Provide better guidance on which practices are acceptable and which are not.
The market needs more clarity on issues like flash orders, co-location and naked (i.
e.
unfiltered) access. - Gain more understanding of what high frequency traders are actually doing and open up that knowledge to the public.
Transparency is important - Clearly define rules and regulations around what constitutes market manipulation in the light of the new HFT paradigm.
- Make pre-trade risk checking mandatory for any firms who access electronic markets
- Introduce a cancellation fee for when firms are canceling more than a certain percentage of their orders.
Only time will tell whether these regulations will actually be introduced and if they are, whether they will be successful.
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