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Comprehensive Risk Management Required for Effective High-Frequency Trading

By 26 Apr, 2013November 11th, 2019Press Releases

Cognito Europe

  • HFT can be a force for good by adding efficiencies to capital markets
  • Survey shows overwhelming support for more circuit breakers and other safeguards

LONDON – 24th April 2013 – A new piece of research from GreySpark Partners, a London-based capital markets consultancy, published today examines how appropriate risk management practices can offset risks posed by high-frequency trading. HFT can increase liquidity, reduce volatility and enhance price discovery and price improvement in global capital markets. HFT firms and venues where HFT is present are failing to safeguard their operations if they do not correctly implement the necessary risk management measures.

The GreySpark report, High-Frequency Trading: the Good, the Bad and the Ugly, shows how – through a holistic approach to risk management thinking – HFT trading firms and venues can create essential processes to adhere to so that investments and markets are not at risk. By examining HFT risk management through business-centric and technology-centric approaches, the report breaks down the steps trading firms can take to ensure they are correctly implementing key warning systems and circuit breakers. The report also provides advice on how to correctly audit these risk management systems.

Anna Pajor, a senior consultant in GreySpark’s Capital Markets Intelligence Practice and lead author of the report, said: “Our research found overwhelmingly in favour of the need for the greater integration of circuit breakers in all high-frequency trading systems that can be used to complement thorough testing procedures for trading algorithms. We are advocating these risk management steps as examples of necessary risk measures. However, the most successful risk management strategy is the one that assumes a holistic approach.”

Bradley Wood, a founding Partner of GreySpark, added: “All of our recommendations should be considered as the first step in making the trading environment safer, but not as the last. With the increasing fragmentation, electronification and interdependence of markets – as well as complexity of trading systems – the effort to improve risk management can never be considered as completely finished. Instead, it is an on-going exercise that requires careful planning and the effective execution of a comprehensive strategy over time.”

High-Frequency Trading: the Good, the Bad and the Ugly is the second part of a two-part report examining the current HFT landscape. Part one of GreySpark’s investigation into HFT, titled High-Frequency Trading: the Fast and the Furious, explained how HFT is defined and perceived by capital markets participants and regulators while also exploring the growing global regulatory landscape around all automated trading systems. Importantly, it surveyed 50 market participants, capturing their views on the accelerated pace of electronic trading and what steps regulators should take to ensure the safety of HFT systems as their use in global trading grows.

For further information on GreySpark’s research, please e-mail: