Details of an ongoing investigative study into automated trading, sponsored by the UK government, are expected to be announced on Monday 7 February.
Computerised trading, including the use of algorithms and high-frequency trading strategies, is the subject of the in-depth study by government-sponsored research body Foresight. The project currently estimates that approximately 30% of UK equity trading volume is generated by high-frequency traders.
Launched in November 2010, the study, entitled ”The future of computer trading in financial markets', is expected to focus on how computer-generated trading might evolve in the next ten years or more, including its effects on liquidity, price information, transaction costs, market volatility and competition.
Although no firm deadline for completion has yet been set, the study is expected to last between 18 months and 24 months. A spokesperson has confirmed that the project's methodology and working objectives will be outlined in more detail on Monday.
As part of the Government Office for Science within the Department for Business, Innovation & Skills, the study into computerised trading is led by the UK government's chief scientific adviser, professor John Beddington, and is explicitly intended to gather information and insight with a view to advising government policy makers.
It is also expected to set out options for dealing with future challenges, as well as identify the opportunities that could be capitalised upon by the financial sector.
High-frequency trading and algorithmic strategies have come under increasing scrutiny in the last 18 months, especially since the ”flash crash' of 6 May 2010, when nearly US$1 trillion was briefly wiped from the value of the US stock market before rebounding just as quickly. The incident was traced to a broker algorithm initiating an unusually large trade in a very short space of time, triggering a crash as automated trading systems fed off each other in a ”flight to the bottom'.