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The flash crash

Thursday 10 June 2010 - by Luke Nelson


Some market commentators have come to the defence of HFT. The Federation of European Securities Exchanges argues that HFT represents a further natural step in the evolution of markets that allows more accurate, granular and faster pricing of securities. It contends that HFT leads to higher fungibility of securities, on a specific venue and between venues, and it can be seen as improving liquidity, leading to higher long term market efficiency and increasing transaction flow.

Though brief, the crash of 6 May is likely to have deep and worldwide implications. World Federation of Exchanges corporate communications manager Sibel Yilmaz says that recent volatility in the markets has underscored the importance of international coordination, not only by exchanges but by regulators and policymakers as well. She argues that it is important to coordinate market reforms globally and urges the adoption of these standards by all exchanges on a global scale.

Despite the crash occurring on US exchanges, it is likely that it will impact on European policy. Prior to the events of 6 May, the Economic and Monetary Affairs Committee of the European Parliament had embarked on an initiative report to investigate regulation of trading in financial instruments.

On 28 April, rapporteur Kay Swinburne MEP explained that the advent of technology had brought with it the widespread use of algorithmic trading, including HFT, and that this issue would come under examination in the report. Given the events of 6 May it is also increasingly likely that HFT will also come under the scrutiny of the European Commission as it embarks on its review of the Markets in Financial Instruments Directive.



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