The “Senior Supervisors Group” (SSG) from major nations has issued a report finding serious micro- and macro-prudential concerns resulting from growing market reliance on high-frequency trading (HFT) and other forms of algorithmic (algo) trading. Although not ready now to urge prescriptive limits or even prohibitions, the SSG lays out a series of risk controls that banks should require of HFT business units and trading desks, as well as governance requirements bank senior management and boards should demand. Because many of the new standards would limit HFT trading profitability and/or increase client cost, banks may be reluctant to introduce them absent express mandates to do so. Bank requirements could also have little impact on HFT from both a firm-specific and systemic perspective if it largely shifts to non-banks. To date, securities regulators have been reluctant to constrain HFT or impose specific risk controls, focusing instead on data reporting.
The full report is available to retainer clients. To find out how you can sign up for the service, click here