Associate Professor of Finance, Dr Roman Kozhan

“Do High-Frequency Traders Manipulate Markets,” Asks Kozhan

Associate Professor of Finance, Dr Roman Kozhan

Commenting on the FBI probe into high-speed trading on US stock markets, Associate Professor of Finance Roman Kozhan said: “There may be two possible aspects here. First question is whether or not high-frequency traders manipulate the markets. You can do it, possibly, by sending false signals to the market participants and expecting to turn their actions into profit a few seconds or milliseconds later. One of several possible ways of doing this is ‘flash trading’. There is a possibility of increasing market volatility and destabilising the market by adopting these sorts of strategies.”

Dr Kozhan added: “There are some cases where regulators in the US and UK fined traders on the grounds of manipulating the markets and I think that most of market abuses that might come out of high-frequency trading will be of those sorts.”

“Another question is whether or not the high-frequency traders are using insider information. If a particular trader is getting some material and non-public information before the general public, there may be some legal implications. However, this is an old issue which existed long before the introduction of high-frequency and algorithmic trading. Regardless of whether the trader manually entering orders based on illegal information or using a sophisticated computer-based algorithm, the implications are the same; in both cases the traders will be subject to insider trading regulations. So I do not think this is anything much to do with high-frequency trading per se.”

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