FTSE Global Markets
Ruth Hughes looks at the relationship between high frequency trading (HFT) and market volatility.
The article initially examines the findings of a recent working group that revealed that there is no direct evidence that high-frequency, computer based trading has increased volatility. Moreover, high-frequency trading provides the bulk of liquidity in the markets.
GreySpark first exemplifies the various definitions of HFT, maintaining that HFT is essentially algorithmic trading, meaning that when looking at the relationship between HFT and volatility, you really need to be looking at what a particular algorithm is doing, rather than HFT as a practice. There is a large variety of HFT strategies, with some being more complex, and some being deemed as more simplistic.
The article goes on to examine different factors that cause volatility in the market, including the role of technology. Additionally, GreySpark maintains that the transaction tax would not cause serious difficulties for the HFT space, highlighting that any form of tax would become priced into an algorithm.
Political factors also need to be considered, and regulating a market is not time to make political capital. Once all the politicisation has died down following the upcoming wave of regulation, expert regulators should consult with the industry, resulting in sensible regulation rather than onerous.