BIS Report on the Future of Computer Trading in Financial Markets

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On October 23, the Department for Business, Innovation and Skills published a report entitled ‘The Future of Computer Trading in Financial Markets – An International Perspective’. The report is an analysis of the potential benefits and risks of algorithm driven high-frequency trading, with a discussion of regulatory priorities for the future. The report finds that computer-based trading improves liquidity, reduces transaction costs and ensures that market prices are more efficient. In addition, the report found no direct evidence that high-frequency trading has increased either market volatility or market abuse.

However, the report did find that in specific circumstances, computer-based trading can lead to market instability and periodic illiquidity, and suggested that to address this policy-makers should consider the following priorities:

  • Immediate evidence-based regulatory action at the European level to assess and introduce ways to manage the adverse side-effects of computer-based trading and incentivise accident-avoiding practices and behaviour.
  • The implementation of accurate, high resolution, synchronised timestamps as a key means for assisting analysis of financial markets.
  • The development of software for automated forensic analysis of adverse/extreme market events.

 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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