High-Frequency Trading

CBS Competitiveness Day 10 Sep 2015

Christian Borch, Professor mso, dr.scient.soc.Department of Management, Politics and Philosophy

Copenhagen Business Schoolhttp://info.cbs.dk/borch

http://info.cbs.dk/crowds

Agenda09:30–09:45: General introduction to algorithmic trading and high-frequency trading (CB)

09:45–10:00: Opening the black-box of high-frequency trading (ACL)

10:00–10:30: Q&A

Introduction 1. A brief overview of the development of

financial markets from pit trading to algorithmic trading and high-frequency trading

2. Implications of this development• New types of market participants• New forms of market manipulation• New types of financial crises

What is then HFT? Two defintionsThe US Securities and Exchange Commssion definition: ‘professional traders acting in a proprietary capacity that engages in strategies that generate a large number of trades on a daily basis’ (SEC Concept Release on Equity Market Structure, 14 January 2010).

The US Commodity Futures Trading Commission has launched the following working definition (May 2012):

High frequency trading is a form of automated trading that employs: a) algorithms for decision making, order initiation, generation, routing, or execution, for each individual transaction without human direction; b) low-latency technology that is designed to minimize response times, including proximity and co-location services; c) high speed connections to markets for order entry; and d) high message rates (orders, quotes or cancellations).

Implications of the development towards HFT – I1. New types of market participants

2. New forms of market manipulation

3. New types of financial crises

Implications of the development towards HFT – II

Implications of the development towards HFT – III3. New types of financial crises

The Flash Crash on 6 May 2010

• https://www.youtube.com/watch?v=E1xqSZy9_4I

Further information

• http://info.cbs.dk/crowds

•The 2015 Copenhagen Business School Symposium on High-Frequency Trading, Monday 5 October 2015