Recommendations for Equitable Allocation of Trades in High Frequency Trading Environments
Most industry observers and much of the academic research in this area have concluded that High Frequency Trading (HFT) is generally beneficial. Many institutional investors, however, believe that HFT places them at a competitive disadvantage. Digital computers will always have some structural (speed) advantages over human traders. This is inevitable.
This paper (1) acknowledges and summarizes much of the relevant published research (2) discusses some of the HFT strategies that likely run counter to good public policy and (3) makes six recommendations that, if implemented, would not preclude any current HFT strategies, but would likely restore some competitive advantage to market participants that would be willing to expose their resting orders to market risk for more than fleeting milliseconds.
Readers should avoid the tendency to review the Working Paper only within the framework of their own nationality and market domain. The paper is meant to be global in scope. Some HFT practices that may be inappropriate (or banned) in some markets in some countries are alive and well in other markets in other countries.