Preserving Capital Markets Efficiency in the High-Frequency Trading Era

Automation and new technology have dramatically changed trading on equity markets over  the past 20 years, and algorithmic and High-Frequency Trading (HFT) have become prominent in U.S. and European financial markets, while regulation has been slow to adapt. Despite increasing liquidity, narrowing spreads, and diminishing short-term volatility, HFT can lower market quality and stability and render marketplaces more vulnerable, especially during crises or periods of uncertainty.

Regulations affecting HFT have prioritized, in both the U.S. and Europe, preventing market disruption and manipulation, while failing to closely consider how HFT-related inequalities in information interact with the allocative function of price discovery. … Read more