High frequency trading does not pose a significant threat to financial stability in Sweden but does raise the spectre of market abuse, according to the country's regulator.
Finansinspektionen initiated an investigation into HFT and its effect on the Swedish equity market last autumn, commissioning an independent report and carrying out surveys of participants.
The results show that high-frequency and algorithmic trading have "limited" effects. Although, overall there are signs that certain aspects of liquidity have deteriorated and that the market has become more volatile, this cannot be blamed on the emergence of HFT and is down to lots of factors.
Most survey respondents are relaxed about HFT, accepting that trading has undergone a transformation as a result of new legislation and technological developments.
However, there is still considerable concern about market abuse. The majority of firms surveyed are worried that a "large portion of high frequency trading was being used to manipulate the market" and there are concerns that abuse has become more extensive and difficult to identify as a result of the sharp increase in the number of orders and trades.
Finansinspektionen says that although the risk associated with HFT are not as great as feared, market participants must still strive to ensure real time monitoring and improve their coordination to spot abuse. In the longer term, the watchdog says, Europe-wide supervision should come into force through MiFID II.