METIS Discussion Paper on High-Frequency Trading (HFT)

Eye catching events such as the Flash Crash of the Dow Jones in 2010 and the enormous acceleration in the speed of electronic trading have brought High-Frequency Trading (HFT) to the forefront of public attention. Market practitioners are debating whether HFT has an adverse effect on market quality and whether slower competitors and institutional investors are disadvantaged by the new technology or not.

Against this background, METIS has produced a discussion paper, addressing and evaluating imminent and controversial questions concerning High-Frequency Trading. The paper draws on insights gained from interviews with market experts, representing viewpoints from traders, institutional investors, and infrastructure providers.

A brief summary of our key findings:

  • Effect on market quality: Primary indicators of market quality, such as liquidity, market depth, and price discovery, have improved with the rise of HFT.
  • Abusive market practices: Evidence indicates, that HFT may pursue abusive market strategies, however the extent is difficult to quantify.
  • Impact on institutional investors: Institutional investors are not disadvantaged by HFT and may also employ High-Frequency Trading for their own transactions.
  • Regulatory initiatives: Regulatory Initiatives are necessary to contain adverse effects of HFT, but will have to consider their effects on positive practices carefully.

For further Information please do not hesitate to contact:

Dr. Thomas Ruppelt
Telefon:         +49 89-520389-27
Telefax:         +49 89-520389-29