High frequency trading - page 2

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Computerized and High-Frequency Trading : computerized_and_high-frequency_trading.pdf

The use of computers to execute trades, often with very low latency, has increased over time, resulting in

a variety of computer algorithms executing electronically targeted trading strategies at high speed. We

describe the evolution of increasingly fast automated trading over the past decade and some key features

of its associated practices, strategies, and apparent profitability. We also survey and contrast several

studies on the impacts of such high-speed trading on the performance of securities markets. Finally, we

examine some of the regulatory questions surrounding the need, if any, for safeguards over the fairness

and risks of high-speed, computerized trading.
 

Any HFT books specifically written for MT?

 

HIGH-FREQUENCY TRADING - CFA institute : HIGH-FREQUENCY TRADING.pdf

Investor Issues and Perspectives CFA Institute staff have tracked the evolution of high-frequency trading (HFT) in global capital markets over the last five years, with a view toward understanding potential impacts on market integrity and efficiency, to avoid potential unintended consequences, as well as to inform our perspectives on public policy and regulatory initiatives. The primary issues of focus have been:
• Does HFT potentially harm the resilience of markets due to the speed and automated character of such trading, as in the “flash crash?”

• Does HFT sacrifice the integrity of markets by using preferred access to order information to inform trading and disadvantage other market participants?

• To what extent does HFT improve market depth and supply liquidity?

• Does HFT improve the price discovery process?

• What is the appropriate regulatory framework for HFT?
Files:
high-frequency_trading.pdf  124 kb
 

High Frequency Trading A bibliography of evidence-based research March : hft-bibliography-2015.pdf

This is a bibliography of resources on the capital markets, particularly on some of the negative effects of high frequency trading (HFT). Since the December 2013 edition of this document there has been an explosion of fact-based evidence on the damaging effects of HFT. This year's bibliography highlights a wide variety of academic, government, and industry data-driven research from institutions around the world, including MIT, Harvard, Princeton, the Federal Reserve Bank, the Bank of England, the University of Chicago, BlackRock, Cornell, the SEC, the European Central Bank, Yale, Cambridge, the London School of Economics, the United Nations, and many others.

Research listed here also explores how the most common business model employed by today’s high frequency traders - unregulated or under-regulated market making, often called “scalping” - can be abusive and disruptive. Several of these studies even predate automation.

Along with evidence-based research, separate sections of this bibliography include press editorials, op-eds, other commentary, and a variety of statements from government bodies and government officials from around the world about high frequency trading.
Files:
hft-bibliography-2015.pdf  686 kb
 

Equity Market Structure Literature Review - Part II: High Frequency Trading : https://www.sec.gov/marketstructure/research/hft_lit_review_march_2014.pdf

The following is Part II of a series reviewing recent economic literature on equity market structure. This SEC staff review summarizes those economic papers that analyze recent financial market data (2007 and later) and reach findings that in the view of staff of the Division of Trading and Markets are most relevant to important market structure issues facing the SEC.2 Part I focused on papers that address market fragmentation – both visible and dark.3 It also briefly noted the SEC’s comprehensive review of equity market structure and gave an overview of the objectives of the staff’s literature review. Part II summarizes and discusses papers that address high frequency trading (“HFT”). These papers analyze non-public datasets in which market activity can be attributed to trading accounts that have been identified as engaging in HFT (“HFT Datasets”). A forthcoming Part III of the literature review will address a series of papers that do not have access to datasets in which market activity could be attributed to HFT accounts, but rather use various measures calculable from publicly available market data to proxy for HFT. Such HFT proxies include high message rates, bursts of order cancellations and modifications, high order-to-trade ratios, small trade sizes, and increases in trading speed. These proxies generally are associated with the broader phenomena of algorithmic trading and computer-assisted trading in all their forms.
 

The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response : the_high-frequency_trading_arms_race_-_frequent_batch_auctions_as_a_market_design_response.pdf

The high-frequency trading arms race is a symptom of flawed market design. Instead of the continuous limit order book market design that is currently predominant, we argue that financial exchanges should use frequent batch auctions: uniform price double auctions conducted, e.g., every tenth of a second. That is, time should be treated as discrete instead of continuous, and orders should be processed in a batch auction instead of serially. Our argument has three parts. First, we use millisecond-level direct-feed data from exchanges to document a series of stylized facts about how the continuous market works at high-frequency time horizons: (i) correlations completely break down; which (ii) leads to obvious mechanical arbitrage opportunities; and (iii) competition has not affected the size or frequency of the arbitrage opportunities, it has only raised the bar for how fast one has to be to capture them. Second, we introduce a simple theory model which is motivated by, and helps explain, the empirical facts. The key insight is that obvious mechanical arbitrage opportunities, like those observed in the data, are built into the market design – continuous-time serialprocessing implies that even symmetrically observed public information creates arbitrage rents. These rents harm liquidity provision and induce a never-ending socially-wasteful arms race for speed. Last, we show that frequent batch auctions directly address the flaws of the continuous limit order book. Discrete time reduces the value of tiny speed advantages, and the auction transforms competition on speed into competition on price. Consequently, frequent batch auctions eliminate the mechanical arbitrage rents, enhance liquidity for investors, and stop the high-frequency trading arms race.
 

Good books. Thanks seekers

 

High-Frequency Trading: Background, Concerns, and Regulatory Developments : high-frequency_trading_-_background_concerns_and_regulatory_developments.pdf

High-frequency trading (HFT) is a broad term without a precise legal or regulatory definition. It is used to describe what many characterize as a subset of algorithmic trading that involves very rapid placement of orders, in the realm of tiny fractions of a second. Regulators have been scrutinizing HFT practices for years, but public concern about this form of trading intensified following the April 2014 publication of a book by author Michael Lewis. The Federal Bureau of Investigation (FBI), Department of Justice (DOJ), Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), the Office of the New York Attorney General,and the Massachusetts Secretary of Commerce have begun HFT-related probes.

Critics of HFT have raised several concerns about its impact. One criticism relates to its generation of so-called phantom liquidity, in which market liquidity that appears to be provided by HFT may be fleeting and transient due to the posting of and then the almost immediate cancellation of trading orders. Another concern some have is that HFT firms may engage in manipulative strategies that involve the use of quote cancellations. In addition, some observers allege that HFT firms are often involved in front-running whereby the firms trade ahead of a large order to buy or sell stocks based on non-public market information about an imminent trade.

Another criticism is that HFT has increased the level of potential market systemic risk whereby shocks to a small number of active HFT traders could then detrimentally affect the entire market.A related concern is whether HFT could exacerbate market volatility. These concerns have percolated since the “Flash Crash” of May 6, 2010, when the Dow Jones Industrial Average (DJIA) fell by roughly 1,000 points in intraday trading—the largest one-day decline in the history of the DJIA. The crash was analyzed in an investigative report by the SEC and CFTC which, among other factors, looked at the role that HFT may have played and determined that it was not the cause, but may have exacerbated the crash. Another area of criticism is that HFT often involves two-tiered markets, in which HFT firms pay extra for the right to access data feeds, or to collocate their servers within exchanges’ servers—all of which is designed to give some traders

an advantage over others.

HFT’s supporters argue that the increased trading provided by HFT adds market liquidity and reduces market volatility. They argue that HFT is a technological innovation that is the latest evolutionary stage in a long history of securities market making. They assert that HFT has reduced the bid-ask spreads in stock trading, thereby lowering trading costs.

Congressional interest in HFT and the Flash Crash has manifested itself in the 113th Congress both legislatively and in the congressional oversight of the SEC and CFTC. Legislatively, S. 410 (Harkin), H.R. 880 (DeFazio), and H.R. 1579 (Ellison) would levy taxes on various financial trades, including trades conducted by HFT traders. H.R. 2292 (Markey) would require the CFTC to provide a regulatory definition of HFT in the derivatives markets it oversees and require those who do HFT to register with the CFTC.
 

Algorithmic and High-frequency trading: an overview : quant_congress_usa_2011_algo_trading_last.pdf

Institutional clients need to trade large amounts of stocks . These amounts are often larger than what the market can absorb without impacting the price.

The demand for a large amount of liquidity will typically affect the cost of the trade in a negative fashion (``slippage’’)

Large orders need to be split into smaller orders which will be executed electronically over the course of minutes, hours, day.

The procedure for executing this order will affect the average cost per share, according to which algorithm is used.

In order to evaluate an algorithm, we should compare the average price obtained by trading with a market benchmark (``global average’’ of the daily price, closing price, opening price, ``alpha decay’’ of a quant strategy, etc).
 

High-frequency trading in the foreign exchange market ... : high-frequency_trading_in_the_foreign_exchange_market.pdf

In March 2011, the Markets Committee established a Study Group to conduct a fact-finding study on high-frequency trading (HFT) in the foreign exchange (FX) market, with a view to identifying areas that may warrant further investigation by the central banking community. This initiative followed from a number of previous discussions by the Committee about factors contributing to changes in the structure of the global FX market.

The Study Group was chaired by Guy Debelle, Assistant Governor of the Reserve Bank of Australia. The Group drafted an interim report for review by the Committee in May 2011. The finalised report was presented to central bank Governors at the Global Economy Meeting in early September 2011, where it received endorsement for publication.

The subject matter of this report is clearly part of the core expertise of the Markets Committee, which has a long-standing interest in the structure and functioning of the FX market. I hope this report will serve as a timely input to the ongoing discussion about the impact of technological changes, including the rise of algorithmic trading in general and HFT in particular, on the functioning and integrity of financial markets. The FX market focus of this report should also be a valuable complement to a discussion that has so far been based mostly on developments in equity markets.
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