Technology’s Latest Market Manipulator? High Frequency Trading: the Strategies, Tools, Risks, and Responses

June 16, 2012

The development of high frequency trading technology has created significant controversy in the financial markets, especially in light of the increased use of tools such as naked access, flash orders, and co- location. This recent development argues that the SEC is correct in both banning naked access, because it increases risk of market detriment, as well as eliminating flash orders, due to their potential to aid in market manipulation. Further, the SEC’s lack of regulatory response to high frequency trading and co-location should be maintained. Since neither mechanism presents a risk of market detriment or manipulation on its own, and both seem to be criticized solely because they break from traditional market fundamentals, it would unnecessarily stifle technological development to insist on banning or minimizing the use of these strategies.