With pressure mounting from the regulators to drive down risk and volatility in the markets, Michelle Price looks at how the global exchanges now appear to be turning their backs on high-frequency traders.
Ever since the flash crash of 2010, exchanges have tried to limit volatility and annihilate systematic risk from the market, and with high-frequency trading being widely blamed for the onset of the crash, the industry is looking for ways to curb the level of HFT in the future.
GreySpark upholds the opinion that the exchanges brought about the issue themselves from the initial desire to make the markets more competitive, by encouraging high-volume HFT. This in turn put a huge strain on the technology. As exchanges continue to invest in upgrades to their technology, the capital markets consultancy questions this investment given that exchanges only gain a fee via order execution, and that the ‘deadweight’ of traffic from HFT isn’t in their interest to uphold.