Hong Kong Regulator to Monitor Algorithmic Trading

Hong Kong's financial regulator is the latest watchdog to give automated trading a run for its money. The regulator has drafted a consultation paper which outlines significant procedures it intends to implement to ensure domestic markets do not suffer from the growth in automated trading.

The new proposals want automated trading systems to be tested (at least annually) and ensure brokers take responsibility for the soundness of their IT systems to prevent erroneous trades entering the market.

The NFA can learn from the latter part as it fined Alpari US for a system fault.

High Frequency Trading was blamed for the DOW Jones Flash Crash Flash Crash The Flash Crash was a major stock market crash that happened on May 6, 2010 in which three major US indices crashed in the span of 36 minutes.In particular, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite fell nearly 9% before rebounding within minutes. The event differed from other crashes in that most losses were recovered.The crash was believed to be caused in part by Navinder Singh Sarao, a British financial trader. Sarao was later charged with spoofing algorithms, utilized j The Flash Crash was a major stock market crash that happened on May 6, 2010 in which three major US indices crashed in the span of 36 minutes.In particular, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite fell nearly 9% before rebounding within minutes. The event differed from other crashes in that most losses were recovered.The crash was believed to be caused in part by Navinder Singh Sarao, a British financial trader. Sarao was later charged with spoofing algorithms, utilized j Read this Term; global regulators have been slow to respond as the UK's FSA was the only major regulator who took a lead to ensure the events don't repeat.

Germany addressed the High Frequency dilemma and is sending the message loud and clear 'it does not want rogue traders' who trade in and out with systems that spoil the efficiency in the market.

Algorithmic trading is the new trend as retail and professional traders can turn on systems to do their job even when they are asleep. As the use of automated trading increases we will see a direct correlation in daily trade volumes.