Feeds

High-frequency traders attract regulator’s interest

Big-iron trading systems face crackdown

Maximizing your infrastructure through virtualization

Financial authorities in the UK and US are considering a new batch of regulations to limit the use of high-frequency trading computer systems by investment houses.

The chairman of the US Commodity Futures Trading Commission (CFTC), Gary Gensler, said that the UK and US are actively looking at regulations on high-frequency trading systems as a way of minimizing any potential harm in terms of market stability and unequal trading practices. The possible measures include forcing all companies engaging in such trades to register, and changing the way stock orders are processed.

High-frequency trading systems use massively beefed up servers with fast data connections and specialized software algorithms to identify arbitrage opportunities, place huge orders for stocks, and then cancel most of them dependent on where the value of the stock goes. The trades themselves make tiny amounts of money, but the volume and low-risk nature of the business have made such trading systems highly attractive to banks.

Last year, an architect of such systems from Goldman Sachs was sent down for eight years after attempting to take the trading system he helped develop to a rival. During the trial it was revealed that high-frequency trading had made the bank over $500m since 1999, and it is now estimated that high-frequency systems make up the majority of trades in the US exchanges, and hardware manufacturers are designing systems specifically for the practice.

The downside is that the systems may cause problems for the market. The Securities and Exchange Commission and CFTC report into the so-called Flash Crash of May 6, 2010 (when the Dow Jones Industrial Average lost nine per cent of its value, and then regained most of it in minutes) found that high-frequency traders were part of the problem behind the market volatility. Most high-frequency operations also sell all holdings at the end of the day, and so contribute nothing to stock price stability

At the moment, the proposed regulations look to be minor, but they will be unwelcome in this notoriously publicity-shy area of market trading.

"In my experience, those who talk about high-frequency trading the loudest are quite often the ones who know the least," said Andreas Preuss, deputy chief executive of Deutsche Börse AG, told The Wall Street Journal. "In my personal view, on the technological scene, they are the most professional and have the highest standards that exist." ®

Top three mobile application threats

More from The Register

next story
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
Nadella: Apps must run on ALL WINDOWS – PCs, slabs and mobes
Phone egg, meet desktop chicken - your mother
White? Male? You work in tech? Let us guess ... Twitter? We KNEW it!
Grim diversity numbers dumped alongside Facebook earnings
Microsoft: We're making ONE TRUE WINDOWS to rule us all
Enterprise, Windows still power firm's shaky money-maker
HP, Microsoft prove it again: Big Business doesn't create jobs
SMEs get lip service - what they need is dinner at the Club
ITC: Seagate and LSI can infringe Realtek patents because Realtek isn't in the US
Land of the (get off scot) free, when it's a foreign owner
Dude, you're getting a Dell – with BITCOIN: IT giant slurps cryptocash
1. Buy PC with Bitcoin. 2. Mine more coins. 3. Goto step 1
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
prev story

Whitepapers

Top three mobile application threats
Prevent sensitive data leakage over insecure channels or stolen mobile devices.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Top 8 considerations to enable and simplify mobility
In this whitepaper learn how to successfully add mobile capabilities simply and cost effectively.
Application security programs and practises
Follow a few strategies and your organization can gain the full benefits of open source and the cloud without compromising the security of your applications.
The Essential Guide to IT Transformation
ServiceNow discusses three IT transformations that can help CIO's automate IT services to transform IT and the enterprise.