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Tightened regulations threaten to clamp down on HFT and algo trading

Matthew Finnegan | April 22, 2013
Increased regulation is threatening to impact on the use of high frequency and algorithmic trading, a panel of industry figures has claimed.

Increased regulation is threatening to impact on the use of high frequency and algorithmic trading, a panel of industry figures has claimed.

Speaking at TradeTech in London, Francois Bonnin, CEO of John Locke Investments, said that fears around use of powerful computers to transact large numbers of orders at fast speeds are likely to decrease as a more measured approach is taken to the technology.

"There has been a lot of stress around high frequency trading, where people really did question the value of it. I think it is the scare of the unknown, rather than anything else," he said. "When it will be understood a little better it will be just another aspect of our industry, nothing to blame, nothing to go against."

However Tim Rowe, head of trading platforms at the newly formed Financial Conduct Authority (FCA), warned that ongoing negotiations around the European Commission led MiFID II regulations, which have proposed rules such as tighter controls on the speeds at which high frequency trades are conducted, could have wider impacts on the choice to use technology in trading.

"What I am concerned about in particular is that as negotiations progress we are still in a world whereby the ability to trade in the dark where it is legitimate to do so, and the ability to trade with algorithms, which everybody does now, may well become suppressed," he said.

"There are people in the regulatory community and in the government community who are concerned by HFT, and they are concerned about the level of dark trading, all of which are legitimate concerns. But the perhaps issue is one of scale. The way that it has transferred into the negotiations for MiFID II is to say things like[...]lets impose strict requirements around running algos, as if algo trading is somehow equated to HFT, and HFT is inherently bad."

However Bonnin added that the use of engineers, or quants, in algo trading is likely to continue to increase as the business of trading becomes increasingly 'industrialised'.

"Engineer work - gathering fundamental thoughts into algo trading, and not trading that lasts for a couple of milliseconds - this is a movement that is natural. That is going to be the name of the game for the future. It is diminishing the cost and making the job industrial. Rather than a small one-to-one job, it is more of an industry that we are putting together."

 

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