Geography 3422A/B Study Guide - Commodity Futures Trading Commission, Ben Bernanke, Algorithmic Trading

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Superfast Traders Feel Heat as Bourses Act3/11/2013 10:48:00 AM
Superfast Traders Feel Heat as Bourses Act
More than 100,000 Treasury futures contracts were traded just
after Ben Bernanke, Federal Reserve chairman, began speaking
about the US economy
o The volume of trading was such that it raised suspicions that
a computer program or “fat fingered” dealer was to blame
o One theory was that an “algo” run by a so-called high-
frequency trader had erroneously fired off orders in electronic
bursts at ultra-fast speeds
o The gossip showed how widespread the fear has become that
HFT algorithms (which make up the bulk of activity in futures
and equities) could cause big market swings (like what
happened in 20 minutes of trading in the “flash crash” of
2010)
HFTs use sophisticated programs to interpret or
anticipate market signals
The computers trade in fractions of seconds and earn
profits by exploiting tiny price differences thousands of
times a day
HFTs have drawn the attention of regulators and some exchanges
are now acting
o Deutsche Börse said it would issue punitive charges to traders
if they sent too many orders into the exchange that didn’t
result in deals
o Its an attempt to clamp down on what it calls “stupid algos”
Kay Review a UK government-sponsored study into UK equity
markets found that a majority of asset managers, corporate
treasurers and others were critical of HFT
Commodity Futures Trading Commission, the US regulator, said
it would begin a review of HFT and algorithmic trading
o That follows a move by the Securities and Exchange
Commission to require brokers to have proper risk controls in
place before allowing their HFT clients to piggyback on their
systems to access exchanges
o The SEC has also instigated a limited system of single stock
“circuit-breakers” to prevent sudden price swings
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Document Summary

Superfast traders feel heat as bourses act3/11/2013 10:48:00 am. Hft algorithms (which make up the bulk of activity in futures and equities) could cause big market swings (like what happened in 20 minutes of trading in the flash crash of. Hfts use sophisticated programs to interpret or anticipate market signals. The computers trade in fractions of seconds and earn profits by exploiting tiny price differences thousands of times a day. Kay review a uk government-sponsored study into uk equity markets found that a majority of asset managers, corporate treasurers and others were critical of hft. Commodity futures trading commission, the us regulator, said it would begin a review of hft and algorithmic trading: that follows a move by the securities and exchange. Commission to require brokers to have proper risk controls in place before allowing their hft clients to piggyback on their systems to access exchanges: the sec has also instigated a limited system of single stock.

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