The Mysterious Ethics of High-Frequency Trading

Cooper, Ricky; Davis, Michael; Vliet, Ben Van

doi:10.1017/beq.2015.41

Cited by 31 publications

(26 citation statements)

References 48 publications

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“…Reviewing the extant literature on HFT and algorithmic trading, we observe that computerization is a key factor in executing trading strategies, yet often treated as a black box. Unpacking financial technology, or FinTech, is crucial for understanding the shift from human to algorithmic trading (Mackenzie, 2014) yet more work is needed to understand how this shift alters the traditional relationship between investors and their market access intermediaries, such as HFTs and non-HFT firms (Cooper et al, 2016), and between HFTs and regulators. Questions also arise about the impact of computerized HFT on market movements, and whether HFT has positive market effects (by generating competition among market participants, reducing trading costs and providing liquidity)…”

Section: Data Collection and Analysismentioning

confidence: 99%

The Regulatory, Technology and Market ‘Dark Arts Trilogy’ of High Frequency Trading: A Research Agenda

Currie

Seddon

2017

Journal of Information Technology

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International audienceComputerization has transformed financial markets with high frequency trading displacing human activity with proprietary algorithms to lower latency, reduce intermediary costs, enhance liquidity and increase transaction speed. Following the “Flash Crash” of 2010 which saw the Dow Jones Industrial Average plunge 1000 points within minutes, high frequency trading has come under the radar of multi-jurisdictional regulators. Combining a review of the extant literature on high frequency trading with empirical data from interviews with financial traders, computer experts and regulators, we develop concepts of regulatory adaptation, technology asymmetry and market ambiguity to illustrate the ‘dark art’ of high frequency trading. Findings show high frequency trading is a multi-faceted, complex and secretive practice. It is implicated in market events, but correlation does not imply causation, as isolating causal mechanisms from interconnected automated financial trading is highly challenging for regulators who seek to monitor algorithmic trading across multiple jurisdictions. This article provides information systems researchers with a set of conceptual tools for analysing high frequency trading

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Section: Data Collection and Analysismentioning

confidence: 99%

The Regulatory, Technology and Market ‘Dark Arts Trilogy’ of High Frequency Trading: A Research Agenda

Currie

Seddon

2017

Journal of Information Technology

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“…HFTs have no such obligation legal or ethical, so use of the term is wrong and purely derogatory. The regulators have picked up such comments, and the SEC recently broke new ground in claiming that merely placing orders in the book in a certain pattern may be ''deceptive'' and therefore, market manipulation (Cooper et al, 2016).…”

Section: The Language Of Price Discoverymentioning

confidence: 99%

“…In this kind of reasoning the larger spreads and slower market response times provided by LFT-only markets is a necessary insurance premium charged by LFT firms for the maintenance of continuous markets. An orderliness necessary to maintain confidence in the markets so that people will continue to trade (Cooper et al, 2016).…”

Section: The Language Of Price Discoverymentioning

confidence: 99%

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High-Frequency Trading and Conflict in the Financial Markets

Cooper

Seddon

Vliet

2017

Journal of Information Technology

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International audienceThe last few decades has seen an ever-increasing growth in the way activities are productized and associated with a financial cost. This phenomenon, termed financialization, spans all areas including government, finance, health and manufacturing. Recent developments within finance over that past decade have radically altered the way trading occurs. This paper analyses high-frequency trading (HFT) as a necessary component of the infrastructure that makes financialization possible. Through interviews with HFT firms, a software vendor, regulators and banks, the effects of HFT on market efficiency, and its impact on costs to long-term investors are explored. This paper contributes to the literature by exploring the conflict that exists between HFT and traditional market makers in today’s fragmented markets. This paper argues that society should be unconcerned with this conflict and should instead focus on the effects these participants have on the long-term investors, for whom the markets ultimately exist. In order to facilitate the best outcomes, regulation should be simple, aimed at keeping participants’ behavior stable, and the interactions among them transparent and straightforward. Financialization and HFT are inextricably linked, and society is best served by ensuring that the creative energy of these market participants is directed on providing liquidity and removing inefficiencies

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“…On the ethical problems of HFT, seeAngel and McCabe (2013),Cooper et al (2016),Lin (2014) andMadonna (2013).27 Dark pools are electronic trading networks that facilitate anonymous trading, hiding it from the market to prevent their strategy from becoming known. They are, in a way, defense mechanisms against high-frequency operators(Koehn and Koehn 2014).…”

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confidence: 99%