In: Business and Management

Submitted By sandipiimb
Words 30328
Pages 122
High-Frequency Trading

Peter Gomber, Björn Arndt, Marco Lutat, Tim Uhle

Chair of Business Administration, especially e-Finance E-Finance Lab Prof. Dr. Peter Gomber
Campus Westend • RuW P.O. Box 69 • D-60629 Frankfurt/Main

Commissioned by

Executive Summary
High-frequency trading (HFT) has recently drawn massive public attention fuelled by the U.S. May 6, 2010 flash crash and the tremendous increases in trading volumes of HFT strategies. Indisputably, HFT is an important factor in markets that are driven by sophisticated technology on all layers of the trading value chain. However, discussions on this topic often lack sufficient and precise information. A remarkable gap between the results of academic research on HFT and its perceived impact on markets in the public, media and regulatory discussions can be observed. The research at hand aims to provide up-to-date background information on HFT. This includes definitions, drivers, strategies, academic research and current regulatory discussions. It analyzes HFT and thus contributes to the ongoing discussions by evaluating certain proposed regulatory measures, trying to offer new perspectives and deliver solution proposals. Our main results are: HFT is a technical means to implement established trading strategies. HFT is not a trading strategy as such but applies the latest technological advances in market access, market data access and order routing to maximize the returns of established trading strategies. Therefore, the assessment and the regulatory discussion about HFT should focus on underlying strategies rather than on HFT as such. HFT is a natural evolution of the securities markets instead of a completely new phenomenon. There is a clear evolutionary process in the adoption of new technologies triggered by competition, innovation and regulation. Like all other technologies, algorithmic trading (AT)…...

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