FinanceProfessor.com: SEC Speech: Harnessing Tomorrow’s Technology for Today’s Investors and Markets, by Chairman Elisse Walter, on February 19, 2013

Wednesday, March 06, 2013

SEC Speech: Harnessing Tomorrow’s Technology for Today’s Investors and Markets, by Chairman Elisse Walter, on February 19, 2013

High Frequency trading has been in the news (and in class) quite a bit lately. While high frequency trading seems to have peaked, it is still in the news (For example Warren Buffett sort of talked about it, regulators in the US and Germany are looking into it). So a short "lesson"

So from Wikipedia:

"High-frequency trading (HFT) is the use of sophisticated technological tools and computer algorithms to trade securities on a rapid basis.^[1]^[2]^[3]
HFT usually uses proprietary trading strategies that are carried out by computers. Unlike regular investing, an investment position in HFT may be held for only seconds, or fractions of a second (though sometimes it may extend to longer), with the computer trading in and out of positions thousands or tens of thousands of times a day.[4"

An interesting 60-Minute piece:

Recently SEC Chairman Elisse Walter discussed this and the SEC's moves in the area:

SEC Speech: Harnessing Tomorrow’s Technology for Today’s Investors and Markets, by Chairman Elisse Walter, on February 19, 2013:

"...last year, the SEC put in motion two initiatives that will dramatically increase the quality and quantity of the data we receive and improve our understanding of the way today’s markets function. ...MIDAS stands for Market Information Data Analytics System. It captures all orders posted on the national exchanges, all modification and cancellation of those orders, all trade execution of those orders, and all off-exchange executions....

It can help us monitor and understand mini-flash crashes, or pick up on possibly troublesome or illegal behavior, for example, by noting excessive cancellations of message traffic. But what’s critical in the context of long-term investor protection is that it will give us dramatically better insight into the function of a market that moves many millions of dollars in millionths of a second. It will be like the first time scientists used high-speed photography and strobe lighting to see how a hummingbird’s wings actually move. This information has the capacity to give regulators — as well as academics and other stakeholders — unprecedented insight into the way markets work today"