Jul 23, 2013

The high speed dark side.


The segment of High Frequency Trading is currently designated as the ultimate technology in systems investments, because of the ability to manage orders directly to book on a high speed.


There is much controversy regarding this technology, either for lack of structure and procedures of software development, causing risk of failure, or the misuse of some participants due to the price manipulation caused by these systems.


FCA, British authority, fined by the 1st time a case of market abuse caused by the misuse of high-frequency systems, due to an abusive practice that uses high speed to send and cancel a high volume of orders in the book, pressing prices artificially.



 

The FCA also mentioned that he sent letters requesting detailed testing and supervision to 10 companies that have high frequency technology.


Other cases of market manipulation have been observed, as reported by NANEX in Nanex ~ Quote Spammer Spotted.

 
The ability to issue orders in a high speed has its advantages, such as ability to exploit arbitrage strategies. The American market, due to the high fragmentation, enables more of this type of distortion and is more flashy for this type of investment.


These interventions, as well as the project for creating quality procedures for trading systems firms (www.at9000.org) started in the middle of last year, represent, on my point of view, significant advances for the global financial environment.


Rodrigo Sucupira Rodrigo Sucupira
Rodrigo is a Automation and Control Engineer - Escola Polit├ęcnica / USP. Interested on Financial Engineering, writes articles about Finance and Technology.
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