Abstract
High-frequency trading (HFT) practices in the global financial markets involve the use of information and communication technologies (ICT), especially the capabilities of high-speed networks, rapid computation, and algorithmic detection of changing information and prices that create opportunities for computers to effect low-latency trades that can be accomplished in milliseconds. HFT practices exist because a variety of new technologies have made them possible, and because financial market infrastructure capabilities have also been changing so rapidly. The U.S. markets, such as the National Association for Securities Dealers Automated Quote (NASDAQ) market and the New York Stock Exchange (NYSE), have maintained relevance and centrality in financial intermediation in financial markets settings that have changed so much in the past 20 years that they are hardly recognizable. In this article, we explore the technological, institutional and market developments in leading financial markets around the world that have embraced HFT trading. From these examples, we will distill a number of common characteristics that seem to be in operation, and then assess the extent to which HFT practices have begun to be observed in Asian regional financial markets, and what will be their likely impacts. We also discuss a number of theoretical and empirical research directions of interest.
Highlights
Over hundreds of years around the world, securities were traded through physical venues where buyers and sellers met and negotiated the exchange of ownership of securities and assets
As High-frequency trading (HFT) firms from the U.S and U.K. have expanded their global influence, major financial markets in other regions have all been penetrated by HFT
The financial markets in European Community have demonstrated a similar HFT adoption trend as in the American and London markets, with about 25 % of equity trading volume attributed to HFT activities
Summary
Over hundreds of years around the world, securities were traded through physical venues where buyers and sellers met and negotiated the exchange of ownership of securities and assets. The group established an early basis for the New York Stock Exchange by agreeing to trade with one another and no others, and to set a minimum commission for share trading They initially met under an American sycamore tree – the so-called “buttonwood tree,” at 68 Wall Street in lower Manhattan. By the end of 1990s, the emergence of electronic communication networks (ECNs) further changed trading on the National Association of Securities Dealers Automated Quote (NASDAQ) and New York Stock Exchange (NYSE) (Stoll 2006) This made it possible to extend daytime trading into overnight crossing market operations. The rise of high-frequency trading We will discuss securities-related technology evolution, and the rise of HFT in the American and European markets, where technological innovation resulted in new practices, issues, and regulatory solutions
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