High Frequency Regulations… Yay or Nay?

Yvonne submits the following guest post:


High Frequency Trading Regulations… Yay or Nay?

Some argue that HFT improves market liquidity, while others say:
“Vilifying high-frequency trading because we don’t like that the market is going down, because there’s a lot of economic uncertainty, doesn’t make a lot of sense,” Lawrence Leibowitz told a conference in New York hosted by Barclays.

I think that HFT has proven that is capable of achieving market growth which is great; however, there should be more regulations because of the associated risks of HFT. Although I usually think that when government gets involved, they generally cause a greater harm than they do good, in this case regulations would be beneficial because of things like the “flash crash” of May 2010 which many blame HFT for although the following article says otherwise.

  http://www.cfozone.com/index.php/Newsflash/index.php?option=com_content&task=view&id=8997&Itemid=1

What do you think?

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About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

3 comments

  1. If people want to be stupid enough to program their computers to buy and sell their stocks – and they misprogram "flash crashes," then that's their own problem, HFT is a nice way to part unintelligent people from their money. Why should we have to regulate stupidity?

  2. I honestly believe that Wall Street should not be using this type of strategy on the first place. The problem is that if they use it, then it makes sense to have someone oversee what they do, and make sure that the firms who are using these high-frequency algorithm based models mess up the markets.The reason I think that firms should avoid them, it's because these "super-computers" make millions of transactions per minute based on a huge amount of raw data that they analyze. The problem is that when you have a "Black swan" -an almost impossible to predict event, these firms will continue operating based on the raw data and make really dumb decisions, such as start selling stocks, securities as they go down along with other firms at the same time. When that happens, you have a massive liquidy trap. Kind of what happened with LCTM in 1994.

  3. I agree with Blackswan that Wall Street should not be using HFT to begin with. I believe that HFT systems should be used with caution because they can manipulate the market within a matter of seconds. However, since they are being used as a means of acquiring competitive advantage, there should be regulation to prevent instances such as the flash crash of May 2010.

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