«
»

Investigations into High Frequency Trading

It is not surprising to hear that the Committee of European Securities Regulators (known as CESR) is now looking into the high frequency trading practices that are becoming more and more common as banks and trading firms with big budgets adopt new technology.

CESR is the European counterpart to the SEC (Securities and Exchange Commission) in the United States, with its headquarters in Paris, France. It is CESR’s responsibility to watch over the financial markets and investigate any trading activities that may create a negative impact on equality, liquidity and efficiency of the market as a whole.

High frequency trading (HFT), which is mostly spearheaded by proprietary trading firms using ultra-fast computers located in close proximity to the exchanges, involves trading  in and out of stocks at high speed, often involving hundreds, or even thousands of transactions per second. The investigation has also been prompted by the high percentages that high frequency traders command of the overall market. HFT actually accounts for up to 70% of the activity in the US and 50% in the European equity markets, according to websites like the High Frequency Trading Review. It is no wonder that high frequency trading has drawn the attention of the CESR and the SEC.

The main concern of the regulators is with regard to fair trading practices. HFT is expensive, which means that only those firms with big budgets can afford to engage in the practice. And if these firms have an unfair advantage in that they can see, and trade on, prices ahead of traditional long-only investment firms, that could constitute front-running, which is illegal. But the big Wall Street firms that have the money to invest in high-frequency trading also have clout with government officials through lobbying, giving them support to control markets.

It makes perfect sense that the CESR and SEC would want to look a little deeper into this activity. It is however a very sensitive issue which will more than likely be a debate going into the future. The outcome of this situation will no doubt be attention-grabbing.

Share and Enjoy:
  • Digg
  • Sphinn
  • del.icio.us
  • Facebook
  • Mixx
  • Google Bookmarks
  • Reddit
  • De.lirio.us
  • StumbleUpon
  • Technorati
  • Yahoo! Buzz
  • YahooMyWeb

Related posts:

  1. New Regulation Around High Frequency Trading
  2. Securities Trading and Penny Stocks
  3. Practice Trading Stock in the Morning
  4. Grow Your Retirement Fund With Value Stocks
  5. Advantages Of Spread Betting

This entry was posted on Monday, May 17th, 2010 at 12:28 am and is filed under Day Trading. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

Comments are closed.