18 December 2017
visit www.avoka.com

HFT improves market fairness - research

09 December 2013  |  4074 views  |  0 Graph 2

New research from Australia's Capital Markets Cooperative Research Centre (CMCRC) has found that the presence of high-frequency traders improves market fairness by reducing end-of-day (EOD) price dislocation.

EOD prices are often used to determine the expiration value of directors' options, the price of seasoned equity issues, evaluate broker performance, calculate net asset values of mutual funds, and compute stock indices.

"On the one hand there's clear incentive to manipulate the closing price by ramping end of day trading to push the closing price to an artificial level," says Professor Michael Aitken, CMCRC CEO. "However, EOD dislocation could also simply reflect price pressure brought on by the fact that the market is about to close for 18 hours. Either way, EOD dislocation of prices is not a good look for markets."

The researchers examined data from 22 exchanges from around the world, from 2003-2011. They found that the presence of HFT decreases the probability of end-of-day (EOD) dislocation by 21%.

The study also examined specific dates when EOD price dislocation was most likely to be manipulation, including dates when options expire and end of month/quarter calendar dates. The data showed that in the presence of HFT, EOD price dislocation was less pronounced on these dates as well.

Aitken says that policy mechanisms, including trading rules, surveillance and enforcement, appeared to have had less of an effect in mitigating EOD price dislocation than HFT, suggesting that the market may indeed be capable of disciplining itself.

He says: "There is an established negative relationship between liquidity and EOD prices (i.e. the higher the liquidity the harder it is to manipulate or the less prices will move) and that HFT by either providing additional liquidity at these points (or because market participants know that HFT are present in a marketplace) appears to reduce EOD dislocation, whether it is caused by fair means or foul."

Data and methodology available for download:» Download the document now 344.4 kb (PDF File)

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

HFT makes markets more efficient - ECB paper

HFT makes markets more efficient - ECB paper

06 November 2013  |  6367 views  |  0 comments | 5 tweets | 7 linkedin
Europe nears agreement on HFT rules

Europe nears agreement on HFT rules

23 October 2013  |  6975 views  |  0 comments | 2 tweets | 1 linkedin
SEC preps public Web site for HFT data and research

SEC preps public Web site for HFT data and research

04 October 2013  |  9583 views  |  0 comments | 7 tweets | 2 linkedin
New York attorney general goes after HFT cheats

New York attorney general goes after HFT cheats

25 September 2013  |  7178 views  |  1 comments | 2 tweets | 1 linkedin
Regulators begin HFT crack down on market spoofing algorithms

Regulators begin HFT crack down on market spoofing algorithms

22 July 2013  |  10781 views  |  1 comments | 3 tweets | 1 linkedin
Thomson Reuters suspends early peeks at consumer data for HFT clients

Thomson Reuters suspends early peeks at consumer data for HFT clients

09 July 2013  |  5596 views  |  0 comments | 3 tweets | 1 linkedin
Aussie watchdog relaxes plans to constrain dark pools and HFT

Aussie watchdog relaxes plans to constrain dark pools and HFT

20 June 2013  |  6098 views  |  0 comments | 5 tweets | 3 linkedin
Beware of the dark, but HFT no bogey man says Aussie regulator

Beware of the dark, but HFT no bogey man says Aussie regulator

18 March 2013  |  6629 views  |  3 comments | 2 tweets | 3 linkedin
Germany's HFT licensing plans draw market criticism

Germany's HFT licensing plans draw market criticism

15 January 2013  |  5311 views  |  0 comments | 1 linkedin
Australia plans 'kill switches' to curb HFT risks

Australia plans 'kill switches' to curb HFT risks

21 November 2012  |  6368 views  |  0 comments | 3 tweets
No link between HFT and market manipulation - research

No link between HFT and market manipulation - research

13 November 2012  |  9117 views  |  12 comments | 7 tweets | 5 linkedin

Related blogs

Create a blog about this story (membership required)
visit www.niceactimize.comvisit www.response.ncr.comvisit www.atos.net

Top topics

Most viewed Most shared
satelliteRipple completes XRP Lockup
11127 views comments | 3 tweets | 2 linkedin
Banks tap Ethereum smart contracts for MiFID II complianceBanks tap Ethereum smart contracts for MiF...
9634 views comments | 19 tweets | 21 linkedin
Banks and fintech startups join forces on blockchain-based supply chain pilotBanks and fintech startups join forces on...
7673 views comments | 19 tweets | 22 linkedin
Nordea takes Open APIs into live productionNordea takes Open APIs into live productio...
7248 views comments | 6 tweets | 26 linkedin
Digital banking startup Loot secures £2.2 million seed roundDigital banking startup Loot secures £...
7165 views comments | 5 tweets | 11 linkedin

Featured job

Find your next job