Becembei 17, 2u1S

via Electionic Submission

Ns. Nelissa B. }uigens
Secietaiy of the Commission
Commouity Futuies Tiauing Commission
Thiee Lafayette Centie
11SS 21st Stieet NW
Washington, BC 2uS81

Re: Concept Release on Risk Contiols anu System Safeguaius foi Automateu Tiauing
Enviionments RIN SuS8-ABS2; 78 FR S6S42

Beai Ns. }uigens:

Thank you foi the oppoitunity to pioviue comments to the Commouity Futuies Tiauing
Commission (CFTC) in connection with its Concept Release on Risk Contiols anu System
Safeguaius foi Automateu Tiauing Enviionments (the "Concept Release"). I am the CE0 of
RuN Auvisois, a tiauing fiim baseu in Austin, Texas. I am also pleaseu to seive on the
CFTC's Technology Auvisoiy Committee, the Boaiu of the Futuies Inuustiy Association
(FIA) anu the executive committee of the FIA's Piincipal Tiaueis uioup (FIA PTu).

The FIA last week submitteu an extensive iesponse to the Concept Release anu I wiite in
suppoit of the uetaileu submission. Ny fiim has consistently suppoiteu a iegulatoiy
enviionment that piomotes faii competition, encouiages innovation, enhances
tianspaiency, manages systemic iisk, loweis costs foi investois anu heugeis, anu gives
iegulatois the tools they neeu to uetect anu uetei abuses. It is impoitant to point out that
moves towaiu open, electionic maikets fuithei these valuable objectives. Noieovei, in
iecent yeais, as maikets aiounu the woilu have become incieasingly electionic anu
competitive, maiket quality has impioveu uiamatically, saving investois anu heugeis
billions of uollais. This has been ieflecteu in uozens of empiiical stuuies using uiveise
methouologies anu metiics.
1


Responsible iisk management iequiies a multi-layeieu stiuctuie of inuepenuent
safeguaius. The futuies inuustiy has, on its own initiative, uevelopeu anu put in place
many iisk contiols anu system safeguaius; the FIA anu its membei fiims have been at the
foiefiont in ueveloping best piactices foi theii use. Nonetheless, some aie conceineu that
the combination of electionic maikets anu computei tiauing has incieaseu the iisk of
ceitain kinus of maiket uisiuptions. This shoulu be an aiea foi ongoing collaboiation
between the financial inuustiy, goveinment anu the investing public.

1
The vast majoiity of eviuence is cleai that automation, competition anu "high fiequency tiauing" impiove
maiket quality. While some ciitics have claimeu otheiwise, we uige the Commission to make its own
assessment of the ielevant liteiatuie. We hope the attacheu liteiatuie ieview is helpful in that iegaiu.



Noieovei, iegulatois shoulu use appiopiiate technology in suppoit of theii oveisight anu
suiveillance functions. In many ways, electionic maikets with theii uetaileu, electionic
auuit tiails shoulu make this iesponsibility easiei. Some obseiveis have suggesteu that a
iegulatoiy uefinition of "Bigh Fiequency Tiauing" is neeueu. We agiee with the FIA view
that such a uefinition woulu be aibitiaiy anu counteipiouuctive; iegulatois shoulu focus
on iisk contiols foi anu suiveillance of !"" maiket paiticipants, iathei than just an aibitiaiy
subset.

Thank you again foi the oppoitunity to comment on the Concept Release.

Sinceiely,

s Richaiu B. uoielick
Richaiu B. uoielick
Chief Executive 0fficei
RuN Auvisois, LLC




















"#$% &'()*(+,- .'/0#+$ 1#2('/2*'( 3(4#(5
6(72(89(' :;<=

This biief liteiatuie ieview piesents a summaiy of iecent empiiical stuuies ielateu to
automateu oi "high fiequency tiauing" (BFT) anu its impact on vaiious maikets. Each
stuuy takes a unique appioach, yet all paint a consistent pictuie of maikets being impioveu
by competition anu automation.
>*2%?'@AB C .#2D( E/2/A(2 &#+0#+$A
Angel, Baiiis, Spatt
"Equity tiauing in the 21st
centuiy", Febiuaiy 2u1u
}une 2u1S (0puate)
0.S. equities, 199S - 2uu9 Tiauing costs have ueclineu,
biu-ask spieaus have
naiioweu anu available
liquiuity has incieaseu
Castuia, Litzenbeigei,
uoielick (RuN Auvisois)
"Naiket Efficiency anu
Niciostiuctuie Evolution in
0S Equity Naikets: A Bigh
Fiequency Peispective",
0ctobei 2u1u, anu
Naich 2u12 (0puate)
0.S. equities, 2uu6-2u11 Biu-ask spieaus have
naiioweu, available
liquiuity has incieaseu anu
piice efficiency has
impioveu
Aviamovic (Cieuit Suisse)
"Sizing 0p 0S Equity
Niciostiuctuie", Apiil 2u1u
"Who Let the Bots 0ut.
Naiket Quality in a Bigh
Fiequency Woilu", Naich
2u12
0.S. equities, 2uuS-2u1u


0.S. equities, 2uu4-2u11
Biu-ask spieaus have
naiioweu, available
liquiuity has incieaseu, anu
shoit-teim volatility
(noimalizeu by longei teim
volatility) has ueclineu; the
inciuence of "mini" ciashes
has not incieaseu
Basbiouck, Saai
"Low-Latency Tiauing", }uly
2u12
0.S. equities, full NASBAQ
oiuei book
}une 2uu7 anu 0ctobei 2uu8
Low latency automateu
tiauing was associateu with
lowei quoteu anu effective
spieaus, lowei volatility anu
gieatei liquiuity
Cumming, Zhan, Aitken
"Bigh Fiequency Tiauing
anu Enu-0f-Bay
Nanipulation", }anuaiy 2u1S
22 inteinational equities
maikets, iuentifying the
availability of colocation as a
pioxy foi BFT activity
Incieasing BFT activity was
founu to be the most iobust
anu significant pieuictoi of
a ieuuction in enu-of-uay
maiket manipulation


Weisbeigei, Rosa (2 Sigma)
"Automateu equity tiauing:
The evolution of maiket
stiuctuie anu its effect on
volatility anu liquiuity", }une
2u1S
0.S. equities anu CB0E vIX
uata
No eviuence that volatility
has incieaseu uue to iecent
maiket stiuctuie changes
Bollen, Whaley
"Futuies Naiket volatility:
What has Changeu.", August
2u1S
1S futuies contiacts on 4
leauing futuies exchanges
volatility attiibutable to
stiuctuial factois uiu not
change in most of these
contiacts ovei long time
peiious, suggesting BFT anu
automateu tiauing have not
impacteu volatility
}ones
"What uo we know about
high fiequency tiauing.",
Naich 2u1S
vaiious 0.S. equities uata
sets
Reviews empiiical eviuence
anu finus BFT acts to
"impiove maiket liquiuity,
ieuuce tiauing costs, anu
make stock piices moie
efficient"
Benueishott, Rioiuan
"Algoiithmic Tiauing anu
Infoimation", August 2uu9
Automateu vs. othei tiaues.
Beutsche Boise equities,
}anuaiy 2uu8
Automateu tiaues maue
piices moie efficient anu
uiu not contiibute to highei
volatility
Chabouu, Bjalmaisson, vega
anu Chiquoine
"Rise of the Nachines:
Automateu vs. othei tiaues.
EBS foiex maiket, 2uu6-
2uu7
Automateu tiaues incieaseu
liquiuity anu may have
loweieu volatility
Bebelle (Naikets Committee,
Bank foi Inteinational
Settlements)
"Bigh-fiequency tiauing in
the foieign exchange
maiket", Septembei 2u11
vaiious FX venues, notably
Reuteis anu EBS, anu vaiious
uates, notably Nay 6, 2u1u
anu Naich 17, 2u11
BFT is beneficial uuiing
noimal maiket peiious,
with similai behavioi to
tiauitional maiket
paiticipants uuiing high
volatility peiious
Biogaaiu, Benueishott,
Rioiuan
"Bigh Fiequency Tiauing anu
Piice Biscoveiy", }uly 2u12
BFT vs. othei tiaues. 0.S.
equities on NASBAQ, vaiious
peiious in 2uu8 - 2u1u
BFT was positively
coiielateu with peimanent
piice changes anu
negatively coiielateu with
tiansitoiy piice changes,
suggesting that BFT
impioves piice uiscoveiy


Biischey, Nicholas
"Bo Bigh-Fiequency Tiaueis
Anticipate Buying anu Selling
Piessuie.", Becembei 2u11
BFT vs. othei tiaues. 0.S.
equities on NASBAQ, vaiious
peiious in 2uu8 - 2u1u
BFT was positively
coiielateu with non-BFT,
coiioboiating Biogaaiu,
Benueishott anu Rioiuan
iesults
0'Baia, Yao, Ye
What's Not Theie: The 0uu-
Lot Bias in TAQ Bata, }uly
2u11
BFT vs. othei tiaues. 0.S.
equities on NASBAQ, vaiious
peiious in 2uu8 - 2u1u
0uu-lots anu tiaues of 1uu
shaies uiove the majoiity of
piice uiscoveiy; BFT was
moie likely to tiaue with
ouu-lots
ueiig
"Bigh-Fiequency Tiauing
Synchionizes Piices in
Financial Naikets", Novembei
2u12
BFT vs. othei tiaues. 0.S.
equities on NASBAQ,
Febiuaiy 2u1u, plus
Thompson Reuteis uata fiom
2uuu, 2uuS, anu 2u1u
"BFT facilitates infoimation
tiansfei between investois,
which incieases the accuiacy
of piices anu ieuistiibutes
piofits fiom infoimeu
inuiviuuals to aveiage
investois by ieuucing
tiansaction costs"
}ainecic, Snape
"An analysis of tiaues by high
fiequency paiticipants on the
Lonuon Stock Exchange", }une
2u1u
BFT vs. othei tiaues

LSE equities, Apiil - }une,
2uu9
BFT impioveu liquiuity anu
was unlikely to have
incieaseu volatility
Su, Aluingei, Labuszewski
(CNE uioup)
"Algoiithmic tiauing anu
maiket uynamics", }uly 2u1u
Automateu vs. othei tiaues.
CNE futuies, Nay 2uu8 -
Nay 2u1u
Automateu tiauing was
associateu with impioveu
liquiuity anu ieuuceu
volatility
Kiiilenko, Kyle, Samaui anu
Tuzun
"The Flash Ciash: The Impact
of Bigh Fiequency Tiauing on
an Electionic Naiket", Nay
2u11
CNE E-mini S&P-Suu equities
inuex futuies contiact,
Nay S - Nay 6, 2u1u
BFT tiaueis uiu not change
theii behavioi uuiing the
flash ciash; BFT weie net
buyeis uuiing the ciash, net
selleis uuiing the iecoveiy;
BFT may have inuuceu moie
tiauing uuiing the ciash


Backes (Euiex Au)
"Bigh-fiequency tiauing in
volatile maikets - an
examination", 0ctobei 2u11
Euiex FBAX: BAX equities
inuex futuies contiact
August 2S, 2u11
Buiing "FBAX flash ciash",
BFT acteu "in a way that
piotects the maiket by
placing a iapiu succession of
small, non-uiiectional buy
anu sell oiueis, thus
pieventing abiupt piice
movements", impioving
maiket quality uuiing a
peiiou of high stiess
Nenkvelu
"Bigh Fiequency Tiauing
anu the New-Naiket
Nakeis", Febiuaiy 2u12
Butch equities tiaueu on Chi-
X anu Euionext, 2uu7
A single high fiequency
tiauei playeu an impoitant
iole in the uevelopment of a
competitive maiket centei,
iesulting in bettei liquiuity
anu lowei tiauing costs
Lepone
"The Impact of Bigh
Fiequency Tiauing (BFT):
Inteinational Eviuence",
Septembei 2u11
BFT vs. othei tiaues.
Singapoie Exchange (SuX),
Austialia Secuiities
Exchange (ASX), NASBAQ
anu Lonuon Stock Exchange
BFT has become a majoi
pioviuei of liquiuity,
paiticulaily uuiing peiious
of maiket unceitainty
Fiino, Lepone anu Nistiy
"The New Bieeu of Naiket
Paiticipants: Algoiithmic
Tiauing on the ASX", Naich
2u12
Austialia Secuiities Exchange
(ASX), 0ctobei 2uu6 - 0ctobei
2uu9
Algoiithmic tiauing giew
fiom SS% to SS% of uollai
volume anu was a net
liquiuity suppliei.
Algoiithmic tiauing iates
incieaseu when spieaus
weie wiue, volatility low,
volumes low anu uepth low
Fiino anu Lepone
"The impact of high
fiequency tiauing on
maiket integiity: an
empiiical examination",
Nay 2u12
LSE anu Euionext tiaue
uata, }an 2uu6 - Bec 2u11
BFT was founu,
statistically, to uiive enu of
uay piices away fiom
uislocations. Auuitionally,
BFT was founu to not have
a statistically significant
ielationship with 'Ticking",
a pioxy of shoit-teim piice
manipulation


!"#$%&'()& "+, -.&,/+
"The uiveisity of high
fiequency tiaueis",
Septembei 2u12
NASBAQ 0NX Stockholm
Equities maiket
August 2u11, Febiuaiy 2u12
BFT maiket making, stat-aib
anu momentum stiategies all
mitigate intiauay piice
volatility
Baion, Biogaaiu, anu
Kiiilenko
"The Tiauing Piofits of Bigh
Fiequency Tiaueis",
Novembei 2u12
Auuit tiail of CNE ES
contiact, August 2u1u to
August 2u12
BFTs weie piofitable, using
a 1 minute measuie of
piofitability, anu eaineu
piofits tiauing with all
classes of counteipaities, up
to 1 bp. Piofitability was
consistent ovei the peiiou
Benos anu Sagaue, (Bank of
Englanu)
"Bigh-fiequency tiauing
behavioi anu its impact on
maiket quality: eviuence
fiom the 0K equity maiket",
Becembei 2u12
Full auuit-tiail uata foi foui
0K stocks in a ianuomly
chosen week in between
2u11-2u12
BFTs exhibiteu substantial
vaiiability in stiategies.
"Passive" appeaieu like
tiauitional maiket making,
while "aggiessive" tenueu
to tiaue in uiiection of
iecent piice moves. Both
weie moie active when
piices weie volatile anu
spieaus, naiiow. BFT hau a
highei infoimation-to-noise
iatio than non-BFT
Nalinova, Paik, Rioiuan
"Bo Retail Tiaueis Suffei
fiom Bigh Fiequency
Tiaueis.", Nay 2u1S
Canauian Equities uata "BFTs appeai to not impose
negative exteinalities on the
least sophisticateu maiket
paiticipants anu . may be
beneficial to slowei anu less
sophisticateu tiaueis"
Benueishott, }ones,
Nenkvelu
"Boes Algoiithmic Tiauing
Impiove Liquiuity.",
Febiuaiy 2u12
Automateu quoting facility,
NYSE equities, 2uuS
Automateu tiauing
naiioweu biu-ask spieaus,
loweieu tiauing costs, anu
impioveu piice efficiency
Rioiuan, Stoikenmaiei
"Latency, Liquiuity anu Piice
Biscoveiy", Novembei 2u11
Xetia high-speeu tiauing
system, Beutsche Boise,
2uu7
Bighei system speeus leu to
incieaseu liquiuity anu
impioveu piice uiscoveiy


Benueishott, Noulton
"Automation, Speeu anu
Stock Naiket Quality: The
NYSE's Bybiiu", Febiuaiy
2u1u
NYSE TAQ uatabase plus
otheis, }une 1, 2uu6 - Nay
S1, 2uu7
Intiouuction of automation
via the NYSE hybiiu system
impioveu piice uiscoveiy
Biogaaiu, Benueishott,
Bunt, Latza, Peuace anu
Ysusi (0K FSA)
"Bigh-Fiequency Tiauing
anu the Execution Costs of
Institutional Investois",
}anuaiy 2u1S
Technology upgiaue events
on the LSE, between 2uu8 -
2u1u
Bighei system speeus
coiielateu with incieaseu
BFT in two of foui events
investigateu. No
statistically significant
ielationship founu between
these technology upgiaues
anu institutional
tiansaction costs
uombei, Ainut, Lutat, 0hle
"Bigh-Fiequency Tiauing",
Naich 2u11

vaiious Suivey that highlighteu
beneficial aspects of BFT,
while noting that peiceiveu
pioblems aie laigely a
iesult of 0.S. maiket
stiuctuie
The uoveinment 0ffice foi
Science (0niteu Kinguom)
"Foiesight: The Futuie of
Computei Tiauing in
Financial Naikets", Final
pioject iepoit., 0ctobei 2u12
vaiious Wiue-ianging suivey that
involveu ovei Su stuuies
anu papeis fiom ovei 1Su
acauemics fiom ovei 2u
countiies
Litzenbeigei, Castuia,
uoielick (RuN Auvisois)
"The Impacts of Automation
anu Bigh Fiequency Tiauing
on Naiket Quality",
Novembei 2u12
vaiious equities uata sets Review papei that uetaileu
the iole that BFT playeu in
impioving maiket quality


Pinnington
"The B0T Stuuy: Phases I
anu II of IIR0C's Stuuy of
Bigh Fiequency Tiauing
Activity on Canauian Equity
Naiketplaces" (IIR0C),
Becembei 2u12
Canauian equities tiauing
between August 1, 2u11 -
0ctobei S1, 2u11
Focusing on BFTs with high
oiuei-to-tiaue (B0T) iatios,
the authoi quantifieu
seveial chaiacteiistics of
this foim of tiauing,
incluuing piofiles of stocks
tiaueu, volume shaie,
intiauay tiauing tienus, anu
venue maiket shaie
Beiman
"Tiansfoimational
Technologies, Naiket
Stiuctuie, anu the SEC", }une
2u1S

vaiious 0.S. equities uata
sets
A speech that outlineu tools
anu policies to investigate
anu unueistanu maiket
uynamics; obseiveu that
suuuen moves weie
geneially not causeu by
algos-gone-wilu, but iathei
by "olu-fashioneu human
mistakes"
Bell
"Bigh Fiequency Tiauing: Bo
Regulatois Neeu to Contiol
this Tool of Infoimationally
Efficient Naikets.", }uly
2u1S

vaiious 0.S. equities uata
sets
Suggesteu that BFT is
alieauy iegulateu in the
maikets, that BFT acts to
impiove maiket efficiency,
anu that theie iemain
oppoitunities to impiove
maiket stability

!"#$ &'((')#*+ $,-.#/$ 0/1$-2/. #032'4/0/*,$ #* '4/21(( 0125/, 6-1(#,78
>+$(DF "/''#A /+0 67/22 @&(9'*/'- :;<;B examineu many measuies of maiket quality
anu how they have changeu ovei time anu in iesponse to iegulatoiy anu stiuctuial changes
in the 0.S. equity maikets.
1
Biawing fiom a uiveise set of uata souices, they show that
theie has been significant impiovement in viitually all aspects of maiket quality. They
stateu that "execution speeus have fallen, which gieatly facilitates monitoiing execution
quality by ietail investois. Retail commissions have fallen substantially anu continue to fall.
Biu-ask spieaus have fallen substantially anu iemain low, although they spikeu upwaiu
uuiing the financial ciisis as volatility incieaseu. Naiket uepth has maicheu steauily
upwaiu. Stuuies of institutional tiansactions costs continue to finu 0.S. costs among the
lowest in the woilu."

1
Angel, }., Baiiis, L. anu Spatt, C., "Equity tiauing in the 21st centuiy",
http:papeis.ssin.comso1Spapeis.cfm.abstiact_iu=1S84u26


G/A2*'/F 1#2H(+9('$(' /+0 I?'(D#,J of RuN Auvisois, LLC @K,2?9(' :;<;F L70/2(0
M/',% :;<:B stuuieu iecent uata fiom the 0.S. equity maikets.
2
The authois examineu
tienus in a numbei of 0.S. equity maiket quality metiics ovei the peiiou fiom }anuaiy 2uu6
thiough }une 2u1u anu how these metiics uiffeieu by maiket capitalization anu by listing
venue. They piesenteu uata that confiimeu that ovei this peiiou quoteu biu-ask spieaus
ueclineu, quoteu maiket uepth incieaseu anu shoit-teim measuies of maiket efficiency
significantly impioveu. The upuateu Reseaich Note examineu the same metiics thiough the
enu of 2u11, a peiiou that incluueu significant macio-volatility suiiounuing the Euiopean
uebt ciisis anu 0.S. cieuit uowngiaue. The uata uemonstiateu that tienus towaiu
impioving maiket quality continueu in latei peiious, uespite the macio-economic shocks.
>4'/8?4#, of Cieuit Suisse @>7'#D :;<;F M/',% :;<:B showeu that in iecent yeais, biu-
ask spieaus ueclineu, uepth at the insiue quote incieaseu anu intia-uay volatility
noimalizeu by longei-teim volatility ueclineu substantially.
S
The authoi concluueu on this
last point that "|tjhis seems to be confiimation that the new maiket paiticipants aie
successfully finuing anu iemoving mispiicings, as well as uampening volatility that might
otheiwise be cieateu by laige institutional oiueis filleu uuiing the uay." Cieuit Suisse, in
Naich 2u12, ieleaseu a follow-up iepoit on the impact of BFT on maiket quality anu founu
that biu-ask spieaus ueclineu anu uepth at the insiue quote incieaseu. They also lookeu at
histoiical long-teim anu shoit-teim (intiauay) volatility anu founu that long-teim volatility
has iemaineu within histoiical noims while shoit-teim volatility has ueclineu ovei iecent
yeais. They concluueu that, with iegaiu to high fiequency tiaueis, "maikets aie not woise
foi theii piesence".
"/A9'?*,J /+0 6//' @N*D- :;<:B exploieu the natuie anu impact of low-latency
(algoiithmic) tiauing on the NASBAQ exchange uuiing }une 2uu7, a 'nominal' maiket
peiiou, anu 0ctobei 2uu8, a volatile, unceitain peiiou.
4
They iuentifieu peiious of high
maiket activity uue to algoiithms anu ielateu these to longei-teim maiket quality metiics
such as spieau, effective spieau anu uepth of liquiuity. They obseiveu in both peiious "that
highei low-latency activity implies lowei posteu anu effective spieaus, gieatei uepth, anu
lowei shoit-teim volatility".
G*88#+$F O%/+ /+0 >#2J(+ @N/+*/'- :;<=B lookeu at the inciuence of enu-of-uay maiket
manipulation, anu how BFT activity influenceu such behavioi.
S
Nanipulative behavioi was
moueleu by obseiving extieme enu-of-uay piice movements ielative to histoiical noims.

2
Castuia, }., Litzenbeigei, R., uoielick, R., anu Bwiveui, Y., 2u1u: "Naiket Efficiency anu
Niciostiuctuie Evolution in 0S Equity Naikets: A Bigh Fiequency Peispective",
http:www.igmauvisois.comuocsNaiketEfficiencyStuuy0ct2u1u.puf
Castuia, }., Litzenbeigei, R., uoielick, R. 2u12: "Naiket Efficiency anu Niciostiuctuie Evolution in 0S Equity
Naikets: A Bigh Fiequency Peispective: 0puate Naich 2u12",
http:www.igmauvisois.comuocsNaiketQualityStuuyNaich2u12.puf
3
Cieuit Suisse, 2u1u: "Sizing 0p 0S Equity Niciostiuctuie",
https:tiaueview.csfb.comeugePublicBulletinSeivefile.aspx.FileIB=14S77&m=1SS74S49SS
Cieuit Suisse, 2u12: "Who Let the Bots 0ut. Naiket Quality in a Bigh Fiequency Woilu", https:euge.cieuit-
suisse.comeugePublicBulletinSeivefile.aspx.FileIB=21SS2&m=21uu22272S
4
Basbiouck, }. anu Saai, u, "Low-Latency Tiauing",
http:papeis.ssin.comsolSpapeis.cfm.abstiact_iu=169S46u
5
Cumming, Zhan anu Aitken, "Bigh Fiequency Tiauing anu Enu-0f-Bay Nanipulation",
http:papeis.ssin.comsolSpapeis.cfm.abstiact_iu=214SS6S


BFT activity was estimateu baseu on the availability of colocation seivices by the exchange
anu an estimate of when BFT actually began using such seivices at meaningful volumes.
0sing a mouel that incoipoiateu legal, stiuctuial anu othei maiket quality metiics, the
authois founu that incieaseu BFT activity was the stiongest anu most iobust estimatoi of a
ieuuction in the iate of enu-of-uay manipulation. Theii mouel showeu that BFT activity
coiiesponueu to a ieuuction in manipulative behavioi by about 7u%.
P(#A9('$(' /+0 3?A/ of Two Sigma Secuiities @N*+( :;<=B investigateu changes in
maiket volatility in 0.S. equities maikets.
6
They founu that maiket stiuctuie changes uo
not appeai to have impacteu volatility, as volatility has not changeu measuiably in iecent
yeais. They also note seveial peiceiveu shoitcomings in cuiient equity maiket stiuctuie.
Q?DD(+ /+0 P%/D(- @>*$*A2 :;<=B lookeu at the volatility of 1S majoi futuies contiacts
using uata spanning ovei 1u yeais.
7
They conuucteu two expeiiments; fiist they compaieu
implieu volatility (the vIX) to iealizeu volatility of the ES contiact, anu founu that iealizeu
volatility was smallei than the vIX implieu volatility, suggesting that miciostiuctuie effects
weie not significant, anu that automateu tiauing was not influencing iealizeu volatility.
The seconu expeiiment useu a vaiiance-iatio like test, which uemonstiateu that, while
miciostiuctuie noise is piesent, it has not incieaseu measuiably ovei the past 1u yeais.
N?+(A @M/',% :;<=B ievieweu seveial theoietical anu empiiical stuuies on BFT anu its
impact on maiket quality.
8
}ones founu that, "baseu on the vast majoiity of the empiiical
woik to uate, BFT anu automateu, competing maikets impiove maiket liquiuity, ieuuce
tiauing costs, anu make stock piices moie efficient. Bettei liquiuity loweis the cost of
equity capital foi fiims, which is an impoitant positive foi the ieal economy." Fuitheimoie,
he noteu that histoiically, that when "theie has been a maiket stiuctuie change that iesults
in moie BFT, liquiuity anu oveiall maiket quality have impioveu."

!"/ &'((')#*+ $,-.#/$ /910#*/. 0125/, .1,1 $/,$ ,"1, .#$,#*+-#$"/. :/,)//*
1-,'01,/. ,21./$ 1*. ',"/2 ,21./$8
"(+0('A%?22 /+0 3#?'0/+ @>*$*A2 :;;RB iepoiteu on the impact of automateu tiauing
on the Beutsche Boise's Xetia maiket, an equity maiket wheie automateu tiauing activity
coulu be uistinguisheu.
9
The papei founu that automateu tiauing accounteu foi about half
of the total volume in the top Su volume stocks, anu that automateu tiauing was bettei than
non-automateu tiauing at uiiving piices towaiu efficiency. The authois also showeu that
automateu tiauing "contiibutes moie to the uiscoveiy of the efficient piice than human
tiauing." Fuitheimoie, they founu theie was "no eviuence of |automateu tiauingj behavioi
that woulu contiibute to volatility beyonu making piices moie efficient."

6
Weisbeigei, B. anu Rosa, P., 2u1S "Automateu equity tiauing: The evolution of maiket stiuctuie anu
its effect on volatility anu liquiuity", <LINK NEEBEB>
7
Bollen, N., anu Whaley, R., 2u1S "Futuies Naiket volatility: What has Changeu.",
http:www.futuiesinuustiy.oiguownloausvolatility_Stuuy_8-27-2u1S.puf
8
}ones, C., 2u1S: "What uo we know about high fiequency tiauing.",
http:papeis.ssin.comsolSpapeis.cfm.abstiact_iu=22S62u1
9
Benueishott, T. anu Rioiuan, R., 2uu9: "Algoiithmic Tiauing anu Infoimation",
http:papeis.ssin.comsolSpapeis.cfm.abstiact_iu=1472uSu


Similaily, in the foieign exchange maiket, G%/9?*0F "S/D8/'AA?+F T($/ /+0 G%#)*?#+(
@K,2?9(' :;;RB useu a uataset that sepaiately iuentifieu computei geneiateu tiaues fiom
human geneiateu tiaues anu showeu that an inciease in automateu tiauing may be
associateu with less maiket volatility, anu that automateu tiaueis tenueu to inciease
liquiuity piovision aftei exogenous maiket events such as macioeconomic uata
announcements.
1u

E(9(DD(F ?U .%( Q/+J U?' V+2('+/2#?+/D 6(22D(8(+2A @6(72(89(' :;<<B ieleaseu a
ielateu stuuy on the impact that giowing BFT paiticipation hau on the foieign exchange
maiket.
11
The authois baseu theii finuings on obseivations maue fiom seveial banks anu
othei foieign exchange maikets, in auuition to using histoiical uata fiom Reuteis anu EBS,
two of the laigest FX tiauing platfoims. They citeu a geneial consensus that BFT benefits
the maikets unuei noimal conuitions, anu theiefoie focuseu on two significant FX shocks:
Nay 6, 2u1u anu Naich 17, 2u11. In both cases, they founu eviuence suggesting that BFT
uiu not withuiaw fiom tiauing uuiing the shocks, anu that they may have been quickei to
iesume noimal tiauing as the shocks stabilizeu than tiauitional maiket paiticipants.
Q'?$//'0F "(+0('A%?22 /+0 3#?'0/+ @N*D- :;<:B investigateu the impact of BFT on 0.S.
equity tiauing on the NASBAQ anu BATS exchanges.
12
0sing a uata set pioviueu by the
exchanges that labeleu activity as eithei 'BFT' oi 'eveiything else', the authois examineu
the impacteu that BFT paiticipants have on the maiket. Theii analysis useu a well-known
iegiession fiamewoik

to isolate vaiious factois in the maiket anu how BFT impacts each of
these. 0veiall they founu that BFT tiaues weie positively coiielateu with peimanent piice
changes anu negatively coiielateu with tempoiaiy piicing eiiois, theieby impioving piice
uiscoveiy. By uistinguishing tiaues initiateu by BFT, the authois founu that maiketable
high fiequency tiaues actively uiove piices towaius faii value.
"#'A,%(- @E(,(89(' :;<<B useu the same BFT-labeleu NASBAQ uataset of Biogaaiu,
Benueishott anu Rioiuan (2u11) to investigate how BFT useu maiketable oiueis.
1S
Be
founu that BFT tiaueu with maiketable oiueis in the uiiection of pievious,
contempoianeous anu futuie non-BFT oiueis. This coiioboiateu the Benueishott anu
Rioiuan iesults, showing that BFT tiaueu in the uiiection of peimanent piice impact.
KW"/'/F X/? /+0 X( @N*D- :;<<B useu the same BFT-labeleu uataset of Biogaaiu,
Benueishott anu Rioiuan (2u11) to investigate the use of ouu-lots in tiauing.
14
They founu
that ouu-lots contiibuteu to Su% of the piice uiscoveiy piocess, anu that such tiauing
iepiesenteu a significant fiaction of all tiaues, paiticulaily foi highei piiceu stocks. They
showeu that BFT was moie likely to tiaue with ouu-lots. Finally, they iaiseu the concein

10
Chabouu, Alain, Bjalmaisson, Eiik, vega, Claia anu Chiquoine, Ben, "Rise of the Nachines:
Algoiithmic Tiauing in the Foieign Exchange Naiket" (0ctobei 2uu9). Feueial Reseive Boaiu Inteinational
Finance Biscussion Papei No. 98u, http:ssin.comabstiact=1Su11SS
11
Bank foi Inteinational Settlements, "Bigh-fiequency tiauing in the foieign exchange maiket"
(Septembei, 2u11), http:www.bis.oigpublmktcuS.puf
12
Biogaaiu, }. Benueishott, T., anu Rioiuan, R. "Bigh fiequency tiauing anu Piice Biscoveiy",
http:papeis.ssin.comsolSpapeis.cfm.abstiact_iu=1928S1u
13
Biischey, N. "Bo Bigh-Fiequency Tiaueis Anticipate Buying anu Selling Piessuie.",
https:www2.bc.euu~taillaiuSeminai_spiing_2u12_filesBiischey.puf
14
0'Baia, N. Yao, C. anu Ye, N. "What's not theie: The ouu-lot bias in TAQ uata",
http:papeis.ssin.comsolSpapeis.cfm.abstiact_iu=1892972


that the consoliuateu piicing feeu uoes not account foi ouu-lots, anu as such may not be as
useful as intenueu.
A similai stuuy uone by N/'+(,#, /+0 6+/7( @N*+( :;<;B useu uata fiom the Lonuon Stock
Exchange (LSE).
1S
Like the NASBAQ uata set, this set labeleu all activity by paiticipant
type; BFT, investment bank, ietail, etc., pioviuing a finei gianulaiity of paiticipation iates
anu behaviois. The authois useu a similai iegiession fiamewoik as Biogaaiu, Benueishott
anu Rioiuan in oiuei to isolate the impact of BFT on vaiious maiket metiics. They founu
that BFT paiticipants tenueu to pioviue liquiuity when spieaus weie wiue, uemanu
liquiuity when spieaus weie naiiow, that they weie moie likely to "smooth out liquiuity
ovei time anu |weiej unlikely to exaceibate stock piice volatility".
I('#$ @Y?4(89(' :;<:BF uevelopeu a mouel of BFT in which BFT actively tiaueu to
synchionize stock piices.
16
The NASBAQ BFT-labeleu uata set, coupleu with Thomson
Reuteis uata was useu to valiuate the mouel, which showeu that piice synchionization
seives to moie iapiuly tiansfei infoimation thiough the maiket, iesulting in moie efficient
piices. ueiig speculateu that such tiauing behavioi coulu also piopagate mis-piicings
thiough maikets.
6*F >D0#+$(' /+0 1/9*AH(5AJ# of the CNE uioup @N*D- :;<;B ieleaseu a iepoit on
automateu tiauing activity on the CNE futuies exchange.
17
They labeleu all paiticipants as
eithei "ATS" (automateu tiauing system) oi "non-ATS." They compaieu tiaue volume anu
messaging iates foi each paiticipant against maiket measuies such as liquiuity anu
volatility. ATS's impact on these measuies vaiies by futuies contiact, but as a whole, they
concluueu that ATS-baseu "volume anu message tiaffic tenu to be associateu with
enhanceu liquiuity anu ieuuceu volatility".
Z#'#D(+J?F Z-D(F 6/8/0# /+0 .*H*+ @M/- :;<<B investigateu the iole that BFT playeu in
the flash ciash on Nay 6, 2u1u.
18
With access to all tiaues anu accounts foi the CNE's S&P
Suu e-mini futuies contiact, they classifieu paiticipants by activity patteins, incluuing a
gioup of paiticipants that they chaiacteiizeu as "BFT". They founu that these paiticipants
accounteu foi a laige poition of tiauing anu that they uiu not change theii tiauing behavioi
befoie oi uuiing the flash ciash. BFT paiticipants weie net buyeis uuiing the ciash anu
net selleis uuiing the iecoveiy. The authois suggesteu that BFT uuiing a biief peiiou of
the ciash may have causeu othei paiticipants to think theie was moie liquiuity than tiuly
available.
Q/,J(A @K,2?9(' :;<<B, iepiesenting the Euiex futuies gioup, peifoimeu a similai
investigation into the ciash of the FBAX futuies contiact on August 2S, 2u11, which shaieu
many chaiacteiistics of the "flash ciash" in the 0.S.
19
Analysis of the behavioi of BFT

15

}ainecic, E. anu Snape, N., "An analysis of tiaues by high fiequency paiticipants on the Lonuon
Stock Exchange", http:mfs.iutgeis.euuNFCNFC17NSNC1u~447_Snape_}ainecic.puf
16
ueiig, "Bigh-Fiequency Tiauing Synchionizes Piices in Financial Naikets",
http:www.austingeiig.comieseaichhigh-fiequency-tiauing
17
The CNE uioup, "Algoiithmic tiauing anu maiket uynamics",
http:www.cmegioup.comeuucationfilesAlgo_anu_BFT_Tiauing_u61u.puf
18
Kiiilenko et al., "The Flash Ciash: The Impact of Bigh Fiequency Tiauing on an Electionic Naiket",
http:papeis.ssin.comsolSpapeis.cfm.abstiact_iu=1686uu4&iec=1&sicabs=2u1S789
19
Backes, "Bigh-fiequency tiauing in volatile maikets - an examination",
http:www.euiexchange.comuownloauuocumentspublicationsfactsheet_highfiequency.puf


uuiing this time founu that BFT playeu an impoitant iole in maintaining anu pioviuing
liquiuity uuiing the shaip uiop in the FBAX contiact. The authoi stateu that BFT acteu "in
a way that piotects the maiket by placing a iapiu succession of small, non-uiiectional buy
anu sell oiueis, thus pieventing abiupt piice movements".
M(+J4(D0 @>7'#D :;<<B stuuieu the uevelopment of the Chi-X Euiopean stock NTF in
2uu7 anu the simultaneous entiy of a laige high fiequency tiauing paiticipant on Chi-X.
2u

Be founu that this new paiticipant was laigely iesponsible foi the inciease in maiket shaie
of Chi-X anu ultimately leu to ieuuceu biu-ask spieaus foi the stocks that it tiaueu.
1(7?+( @6(72(89(' :;<<B summaiizeu the iesults of ieseaich conuucteu by the
Austialian oiganization Capital Naikets Coopeiative Reseaich Centie (CNCRC).
21
These
papeis examineu the impact of BFT on maiket quality foi maikets in Singapoie, Austialia,
the 0.S. anu the 0.K. Theii uata alloweu them to iuentify tiauing paiticipants anu classify
them into BFT anu non-BFT gioups. Following a methouology similai to Biogaaiu,
Benueishott anu Rioiuan, each of these papeis measuieu the impact of BFT on maiket
quality metiics. The finuings showeu a consistent pattein of impioveu maiket quality
coinciuing with giowing BFT paiticipation. They also uemonstiateu that BFT was active
uuiing all volatility conuitions anu "become the piimaiy pioviueis of liquiuity" in peiious
of high unceitainty.
&'#+?F 1(7?+( /+0 M#A2'- @M/',% :;<:B useu full book uata fiom the ASX to examine
how algoiithmic tiauing hau giown between 2uu6 anu 2uu9.
22
They founu that
algoiithmic tiauing giew steauily to ovei SS% of total uollai value tiaueu anu that
algoiithmic tiaueis weie net liquiuity supplieis. This stuuy also examineu the ielationship
between algoiithmic tiauing iates anu maiket quality anu founu that ielative algoiithmic
tiauing incieases when spieaus aie wiue, volumes aie low, volatility is low, anu uepths aie
small.
&'#+? /+0 1(7?+( @M/- :;<:B lookeu at BFT on the LSE anu Euionext Paiis to stuuy
whethei BFT paiticipateu in manipulative behavioi.
2S
0sing message tiaffic as a pioxy foi
BFT, anu using two uiffeient pioxy measuies foi maiket manipulation, "Bislocation Piice
Aleits" anu "Ticking", the authois founu no link between BFT activity anu maiket
manipulation. Specifically, the authois founu a negative ielationship between BFT activity
anu Bislocation Piice Aleits (implying that BFT actively ieuuces these events) anu no
statistical ielationship between BFT activity anu Ticking.
!"#$%&'()& "+, -.&,/+ 01)2%)(3)& 45647 examineu BFT stiategies on NASBAQ 0NX
Stockholm uuiing a high volatility peiiou (August 2u11) anu a low volatility peiiou

20
Nenkvelu, A., 2u11: "Bigh Fiequency Tiauing anu the New-Naiket Nakeis",
http:papeis.ssin.comsolSpapeis.cfm.abstiact_iu=1722924
21

Lepone, A., 2u11: "The Impact of Bigh Fiequency Tiauing (BFT): Inteinational Eviuence",
http:www.cmcic.com
22
Fiino, A., Lepone, A. anu Nistiy N., "The New Bieeu of Naiket Paiticipants: Algoiithmic Tiauing on
the ASX", woiking papei
23
Fiino, A., Lepone, A., "The impact of high fiequency tiauing on maiket integiity: an empiiical
examination", http:www.bis.gov.ukassetsfoiesightuocscomputei-tiauing12-1uS7-ui24-impact-high-
fiequency-tiauing-on-maiket-integiity.puf


(Febiuaiy 2u12).
24
They hau access to tiauei IBs foi each message, anu weie theiefoie
able to classify BFT into uiffeient stiategies, with a focus on BFT maiket making anu BFT
stat-aib anu momentum stiategies that they labeleu as "oppoitunistic". They founu that
maiket making accounteu foi the majoiity of quoting anu tiauing activity. Both maiket
making anu oppoitunistic tiauing by BFT acteu to mitigate intiauay piicing volatility.
Finally, they suggesteu that financial tiansactions taxes like those pioposeu in Euiope
woulu uispiopoitionately impact BFT maiket making, iesulting in gieatei maiket
volatility.
Q/'?+F Q'?$//'0F /+0 Z#'#D(+J? @Y?4(89(' :;<:B investigateu the piofitability of BFT
foi the CNE S&P Suu E-mini contiact.
2S
0sing full tiansaction uata with tiauei
iuentifications, the authois iuentifieu a set of tiaueis they labeleu as BFT, using
quantitative ciiteiia such as tuinovei iate, max position, etc. The authois useu this
classification to ueteimine the gioss tiauing piofits eaineu by these paiticipants between
August 2u1u anu August 2u12. 0sing a vaiiety of measuies of piofitability, the authois
founu that BFT was piofitable, incluuing stiategies that weie piimaiily aggiessive,
stiategies that weie piimaiily passive, anu stiategies that weie a blenu of the two. 0sing a
1-minute measuie of piofitability, anu assuming a zeio-sum tiauing mouels, the authois
founu that BFT eaineu piofits when tiauing with othei tiauing paiticipants, incluuing
funuamental selleis anu buyeis, othei maiket makeis, oppoitunistic tiaueis anu small
ietail tiaueis. |Bow much.j They also showeu that piofitability of BFT has iemaineu
ielatively stable thioughout the entiie peiiou stuuieu.
Q(+?A /+0 6/$/0( of the Bank of Englanu @E(,(89(' :;<:B, useu a unique uataset that
iuentifieu tiaueis to investigate the impact of BFT on maiket quality.
26
They ianuomly
chose one week of uata within the past two yeais, anu then selecteu foui iepiesentative
stocks to investigate. They iuentifieu BFT fiims baseu on vaiious infoimation souices,
incluuing meuia iepoits anu company web sites. The authois soiteu these BFTs by the
iatio of maiketable oiueis to iesting oiueis placeu, anu paititioneu the fiims in to two
equal gioups uenoteu "aggiessive" anu "passive". Investigating the natuie of tiaues placeu
by these two gioups, the authois founu that the "aggiessive" gioup tenueu to tiaue in the
uiiection of iecent piice changes, anu that the "passive" gioup tenueu to uo the opposite.
0sing a tick-time specification, the authois attempteu to ueteimine the uegiee to which
BFT auueu to piice uiscoveiy anu shoit-teim volatility. They founu that BFTs contiibuteu
to both infoimation anu noise anu tenueu to have a highei infoimation-to-noise iatio than
othei tiaueis, contiibuting positively in net to piice uiscoveiy.
M/D#+?4/F [/'JF 3#?'0/+ @M/- :;<=B lookeu at Canauian equity uata to ueteimine how
BFT activity impacts ietail tiaueis.
27
The authois useu the intiouuction of a new fee that
piimaiily applieu to BFT as an exogenous event that they coulu use as a causative link.

24
!"#$%&'()& "+, -.&,/+0 123) ,45)&$4%6 .7 34#3 7&)89)+:6 %&",)&$;0
http:papeis.ssin.comsolSpapeis.cfm.abstiact_iu=21SS272
25
Baion, Biogaaiu, anu Kiiilenko "The Tiauing Piofits of Bigh Fiequency Tiaueis",
http:www.sciibu.comuoc12u289479Baion-Biogaaiu-Kiiilenko
26
Benos anu Sagaue, "Bigh-fiequency tiauing behavioi anu its impact on maiket quality: eviuence
fiom the 0K equity maiket",
http:www.bankofenglanu.co.ukpublicationsBocumentswoikingpapeiswp469.puf
27
Nalinova K., Paik, A., Rioiuan, R., "Bo Retail Tiaueis Suffei fiom Bigh Fiequency Tiaueis.",
http:papeis.ssin.comsolSpapeis.cfm.abstiact_iu=218S8u6


They founu that BFT activity was ieuuceu aftei the change. They also founu that "BFTs
appeai to not impose negative exteinalities on the least sophisticateu maiket paiticipants
anu that they may be beneficial to slowei anu less sophisticateu tiaueis."
!"/$/ /4/*, $,-.#/$ #*4/$,#+1,/. ,"/ #031;, '& #032'4/0/*,$ ,' 1 0125/, ;/*,/2<$
,21.#*+ ,/;"*'('+78
"(+0('A%?22F N?+(A /+0 M(+J4(D0 @&(9'*/'- :;<:B examineu the impact on the NYSE
of theii auto-quoting facility intiouuceu in 2uuS.
28
This stuuy showeu that foi all stocks,
anu paiticulaily laige-cap stocks, automateu tiauing incieaseu liquiuity. It also
uemonstiateu that the inciease in automateu tiauing causeu a ieuuction in effective
spieaus, theieby ieuucing costs to investois.
SimilailyF 3#?'0/+ /+0 62?'J(+8/#(' @Y?4(89(' :;<<B iepoiteu on how a 2uu7
upgiaue to the Beutsche Boise's Xetia tiauing system focuseu solely on latency ieuuction,
positively affecteu maiket quality.
29
Aftei latency ieuuctions in the exchange's tiauing
systems, liquiuity incieaseu acioss maiket capitalization anu tiaue sizes, anu auveise
selection anu peimanent piice impact weie ieuuceu.
"(+0('A%?22 /+0 M?*D2?+ @&(9'*/'- :;<;B stuuieu the intiouuction of the NYSE hybiiu
system in 2uu6, which moveu the NYSE to a fastei anu moie automateu matching system.
Su

They founu that piices became moie efficient uue to fastei piice uiscoveiy anu ieuuceu
noise in piices.
Q'?$//'0F "(+0('A%?22F "*+2F 1/2H/F [(0/,( /+0 XA*A# @N/+*/'- :;<=B investigateu the
impact that BFT may have on the tiauing costs of institutional investois on the Lonuon
Stock Exchange.
S1
The authois investigateu foui technology upgiaues at the LSE that
mouestly ieuuceu the latency of theii matching engine. They founu a statistically
significant ielationship between latency anu BFT activity foi some maiket capitalizations
in two of the foui upgiaues. Peifoiming a two-stage iegiession to tiy to finu a causal link
between the inciease in BFT activity anu institutional tiansaction costs, the authois weie
unable to finu a statistically significant ielationship.
!"/$/ 313/2$ 32'4#./. 1* '4/24#/) '& ="#+" &2/6-/*;7 ,21.#*+> 1*. 2/(1,/. 0125/,
$,2-;,-2/ #$$-/$8
I?89(' (2 /D\ @M/',% :;<<B piesenteu backgiounu infoimation on BFT. Theii papei
analyzeu BFT anu "ceitain pioposeu iegulatoiy measuies."
S2
They claimeu that BFT is a
technology iathei than a stiategy, anu is a natuial evolution in the maiket place. They
highlighteu the beneficial aspects that BFT can pioviue, anu noteu that peiceiveu pioblems

28
Benueishott, T., }ones, C.N. anu Nenkvelu, A.}.,: "Boes Algoiithmic Tiauing Impiove Liquiuity.",
}ouinal of Finance, volume LXvI, No. 1, Febiuaiy 2u11
29
Rioiuan, R. anu Stoikenmaiei, A., 2u11: "Latency, Liquiuity anu Piice Biscoveiy",
http:papeis.ssin.comsolSpapeis.cfm.abstiact_iu=1247482
30
Benueishott, T. anu Noulton, P., Febiuaiy 2u1u: "Automation, Speeu, anu Stock Naiket Quality:
The NYSE's Bybiiu", http:www.hotelschool.coinell.euuieseaichfacultybiosieseaich-
papeisuocumentsAutomationSpeeuBybiiu_accepteu.puf
S1
Biogaaiu, Benueishott, Bunt, Latza, Peuace anu Ysusi, "Bigh-Fiequency Tiauing anu the
Execution Costs of Institutional Investois", http:www.fsa.gov.uklibiaiyieseaich
32
uombei, P., Ainut, B., Lutat, N., anu 0hle, T., Naich 2u11: "Bigh-Fiequency Tiauing",
http:www.fiankfuit-main-finance.comenuata-factsstuuyBigh-Fiequency-Tiauing.puf


with BFT aie laigely a iesult of 0.S. maiket stiuctuie iathei than anything inheient in BFT
itself. They pioviueu seveial iecommenuations foi policy makeis that woulu maintain the
beneficial aspects of BFT while pioviuing maikets with auuitional safety.
The &?'(A#$%2 ['?S(,2 @K,2?9('B by the 0.K. goveinment was a wiue-ianging stuuy
intenueu to "exploie how computei geneiateu tiauing in financial maikets might evolve in
the next ten yeais oi moie", with a paiticulai emphasis on stability, integiity, competition,
efficiency anu costs.
SS
It commissioneu ovei Su papeis anu involveu ovei 1Su acauemics
fiom 2u countiies. It concluueu that "the available eviuence inuicates that high fiequency
tiauing (BFT) anu algoiithmic tiauing (AT) may have seveial beneficial effects on maikets.
Bowevei, BFTAT may cause instabilities in financial maikets in specific ciicumstances.
This Pioject has shown that caiefully chosen iegulatoiy measuies can help to auuiess
conceins in the shoitei teim. Bowevei, fuithei woik is neeueu to infoim policies in the
longei teim, paiticulaily in view of likely unceitainties anu lack of uata."
1#2H(+9('$('F G/A2*'/ /+0 I?'(D#,J @3IM >04#A?'A] Y?4(89(' :;<:B publisheu a
ieview of maiket quality anu the impact of automation anu high fiequency tiauing.
S4

Looking at uata fiom seveial souices, they showeu that maiket quality has impioveu by
most measuies ovei the past uecaue, a iesult of incieasing automation, competition anu the
auvent of high fiequency tiauing. They examineu seveial uimensions of maiket quality anu
suggesteu that iegulatoiy initiatives coulu fuithei impiove maiket quality without
uamaging the impiovements seen to uate.
In the fiist two phases of a planneu thiee-phase stuuy, [#++#+$2?+ @E(,(89(' :;<:B, an
analyst with the Canauian secuiities iegulatoi, IIR0C, suiveyeu the tiauing behavioi of
tiaueis in Canauian equities maikets with high oiuei-to-tiaue iatios (B0T).
SS
The authoi
investigateu the natuie of such tiauing, noting that B0T tiaueis accounteu foi 11% of usei
IBs, 22% of volume tiaueu, 42% of tiaues executeu anu 94% of new anu mouifieu oiueis.
B0T tiaueis tiaueu piimaiily passively using iesting oiueis anu eaineu much of theii
ievenue thiough iebates. Finally, B0T tenueu to focus on liquiu stocks, paiticulaily ETFs
anu ETNs, as well as stocks cioss-listeu in both the 0niteu States anu Canaua. In the final
phase of the stuuy, IIR0C plans to stuuy the impact of BFT activity on Canauian
maiketplaces with iespect to maiket quality anu maiket integiity.
Q('8/+ @L6 6\^\G] N*+( :;<=B piesenteu a speech in which he outlineu challenges in
oveisight anu analysis of maiket stiuctuie issues anu ciashes in the 0S.
S6
Looking at uata
uiawn fiom 0.S. equities maikets, Beiman pioviueu examples of how ieasoneu analysis

33
BIS Foiesight Pioject: http:www.bis.gov.ukfoiesightoui-woikpiojectscuiient-
piojectscomputei-tiauing
34
Litzenbeigei, B., Castuia, }., uoielick, R., "The Impacts of Automation anu Bigh Fiequency Tiauing
on Naiket Quality",
http:www.annualieviews.oigepiintYzxTE6SNaACBSXmw2iYffull1u.1146annuiev-financial-11uS11-
1u1744
SS
Pinnington, "The B0T Stuuy: Phases I anu II of IIR0C's Stuuy of Bigh Fiequency Tiauing Activity
on Canauian Equity Naiketplaces",
http:uocs.iiioc.caBisplayBocument.aspx.BocumentIB=CuSBBB449uS24C6B946E6F2BB6CF4E2S&Langu
age=en
36
Beiman, u., "Tiansfoimational Technologies, Naiket Stiuctuie, anu the SEC" (speech befoie SIFNA
Tech confeience, }une 18, 2u1S),
http:www.sec.govNewsSpeechBetailSpeech1S6S171S7S716#.0iu_0byE4ZS


can sheu light on maiket events anu leau towaiu unueistanuing ioot causes. In seveial
instances, he founu that suspicious looking activity was in fact the iesult of complex
inteiactions among tiauing paiticipants anu obseiveu that suuuen moves weie geneially
not causeu by algos-gone-wilu, but iathei by "olu-fashioneu human mistakes."
Q(DD @N*D- :;<=B lookeu at the iole that BFT plays in touay's maikets.
S7
She founu that
BFT is a tool employeu to implement mouein maiket making stiategies anu has iesulteu in
impioveu maiket efficiency. Bowevei, conceins have been iaiseu about iisks to maiket
stability anu integiity as a iesult of these new tools. The authoi founu that these conceins
aie not BFT-specific, but that BFT paiticipants anu maiket iegulatois have an oppoitunity
to impiove stability thiough safeguaius such as ciicuit bieakeis.




37
Bell, B., 2u1S. "Bigh Fiequency Tiauing: Bo Regulatois Neeu to Contiol this Tool of Infoimationally
Efficient Naikets.", http:www.cato.oigpublicationspolicy-analysishigh-fiequency-tiauing-uo-
iegulatois-neeu-contiol-tool-infoimationally