The US Securities and Exchange Commission recently announced a clamp down on the practice of ‘flash trades’. This rapid reaction trading technique is automated through any one of the widely used electronic trading, algorithmic trading or Complex Event Processing (CEP) engines that provides a split-second market advantage. The question has come within a wider review of ‘dark pool’ trading (there are currently more than 42 anonymous electronic trading venues that do not display public quotes for stocks in the US) brought about by concerns raised over these pools of liquidity that operate with a degree of mystery and therefore, it can be argued, non-transparency.
Back in the early ‘90s, it was a rare occurrence for a technology story to hit the FT’s front page. The LIFFE floor was still open outcry and TIBCO, then Teknekron, was only beginning its amazing journey into digitalising many of the world’s largest investment banks.
Technology has become part and parcel of the financial services industry as we know it today.
Today, we take much of the digital revolution for granted. The latest technology dominates trading systems, risk management and compliance tools and back office processing. The FT regularly reports in the FTFM or markets section on issues that are entwined with technology stories. Technology has become part and parcel of the financial services industry as we know it today.
Is there wisdom in this latest regulatory concern for the over automation of this complex industry, or can this be construed as a tightening of financial markets practice or a witch hunt to find something else to blame for the financial crisis?
I’m not sure technology should be held to ransom on these issues. Trading technology, algorithmic techniques, dark pools – they all exist because of the industry’s constant search to improve efficiencies and reduce cost. Fund managers may alter their portfolio to take advantage of the impact of computer-based algorithmic trading in the same way that computer techniques are employed to beat the human trader. But I think the real competitive advantage comes from the intelligent use of technology to free up their most experienced and valued people to concentrate on the high-end, alpha generating end of the business.
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