According to The New York Times, high-frequency trading (HFT) - an algorithm-based method of trading where stocks are held for as little as a few seconds - is said to account on any given day for half of all of the business transacted on the United States' stock markets. HFT is frequently regarded as disruptive for markets and is the subject matter of numerous debates, even among professionals, as reported in The Washington Post on October 25.
In Europe, the European Parliament adopted, during its plenary session held on October 26, draft rules on HFT, as part of the vote on the updated market in financial instruments directive and regulation (MIFID/MIFIR). MIFID governs investment products, investment service providers, regulated markets, multilateral trading facilities (MTFs), and organized trading facilities (OTFs). The uniform rules on trading would apply to almost all financial instruments such as bonds, structured finance products, or derivatives that can be traded on regulated markets, MTFs, or OTFs. Members of the European Parliament (MEPs) decided that OTFs should be reserved for non-equities (derivatives or bonds), in order to bring them under the new rules. Under the new rules, all market players and trading venue operators would be required to lay down transparent rules and procedures for executing orders efficiently and for determining which financial instruments may be traded via their systems. They should also be properly prepared to cope with disruptions of these systems.
MEPs also tightened up the Commission's proposal on high-frequency algorithmic trading by voting provisions to ensure that all orders are valid for at least 500 milliseconds, i.e. must not be cancelled or modified during that time. All firms and trading venues would also have to ensure that trading venues are able to cope with sudden surges in orders or market stresses, and have "circuit breakers" in place to suspend trading if necessary.
The European Parliament vote took place only days after the release by the British government on October 22 of a report entitled The Future of Computer Trading in Financial Markets, which found no direct evidence that HFT increased volatility of the markets, nor did it find evidence to suggest it has led to an increase in market abuse. It did find, however, that the rise of HFT has "greater potential for periodic illiquidity" or occasions when trading dries up.