Has Regulation Affected the High Frequency Trading Market?

Authors

Kevin O'Connell, Catholic University of America (Student)Follow

Abstract

As technology rapidly advances society, there are a few industries that have not been drastically impacted by disruptive technology. The financial markets are no different. Over the past ten years, algorithmic trading has quickly revolutionized the financial markets and continues to dominate an industry that for many years remained largely uninfluenced by society’s technological advances. Algorithmic trading is “a type of trading done with the use of mathematical formulas” and market data “run by powerful computers” to execute trades. One of the most commonly used platforms of algorithmic trading is high frequency trading. High frequency trading (“HFT”) uses a computerized algorithm and pre-determined market parameters to execute large orders through the use of high speed.

HFT and high frequency traders are not inherently bad, as depicted in Flash Boys. In fact, HFT has actually made trading more efficient and provided numerous benefits for investors who are looking to improve their position in the market. However, the issue at hand is that HFT is used as a tool by bad actors to manipulate the market. The popularity in HFT has triggered U.S. Securities and Exchange Commission (“SEC”), the U.S. Commodity Futures Trading Commission (“CFTC”), and the Financial Industry Regulatory Authority, Inc. (“FINRA”) to focus resources and attention on preventing HFT from creating an unfair and unbalanced market. This Comment focuses on the regulatory measures made by those aforementioned agencies and analyzes the possible regulatory framework that could lie ahead.

Recommended Citation

Kevin O'Connell, Has Regulation Affected the High Frequency Trading Market?, 27 Cath. U. J. L. & Tech 145 (2019).
Available at: https://scholarship.law.edu/jlt/vol27/iss2/7