The government is to sponsor a study into how high-frequency financial trading and the use of algorthmic trading systems are affecting the UK’s economy.
The Future of Computer Trading in Financial Markets project will be led by Westminster’s chief scientific advisor Sir John Beddington. It will attempt to understand the precise risks automated trading poses to the integrity, stability and competitiveness of financial markets.
Beddington’s investigation will also look into how the technology might advance over the coming decade.
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"It’s essential to develop a better understanding of how computer trading in financial markets might evolve," said Beddington, "in order to help protect the UK and other economies against technology-led economic instabilities."
The automation of high-value stock trading has faced intensified scrutiny following this year’s ‘Flash Crash’. On 6 May, global financial markets suddenly lost $1 trillion in value, before quickly recovering it again within a few hours. The incident was caused by a single automated trade, the selling of $4.1 billion in stock index futures. At less than 20 minutes, the unusually quick time for the sale caused other stocks to fall, triggering a chain reaction of other automated sell-offs.
Shortly afterwards, Gary Gensler, chairman of the US Commodity Futures Trading Commission, called for tighter regulation of high-frequency trading. "You can’t stop technology but I think we have to update our regulations,” he said in May. "A lot of the algorithms, are really just rote, even dumb. They just do what they have been programmed to do, repeatedly."
