CFS Advisory Board Member Charles Goodhart highlights a report by the Foresight Committee of the UK Government Office of Science on the Future of computer trading in financial markets: an international perspective. Professor Goodhart was a lead expert in the group overseeing the Project.
The key aim of the Project was to assemble and analyze the available evidence concerning the effect of High Frequency Trading (HFT) on financial markets.
Professor Sir John Beddington (Chief Scientific Adviser to HM Government and Head of the Government Office for Science) notes that:
“Analysis of the available evidence has shown that computer-based trading (CBT) has several beneficial effects on markets, notably relating to liquidity, transaction costs and the efficiency of market prices. Against the background of ever greater competition between markets, it is highly desirable that any new policies or market regulations preserve these benefits. However, this Project has also highlighted legitimate concerns that merit the close attention of policy makers, particularly relating to the possibility of instabilities occurring in certain circumstances, and also periodic illiquidity.”
For the full report or an abridged version click: