The threat of an ”out of control' algorithm playing havoc with the market isn't one that high-frequency trading (HFT) firms wield exclusively, but by virtue of their large volumes and the high speeds at which they trade, low-latency operators are perceived to be capable of inflicting more damage, and more quickly, than other market participants.
Concern around high-frequency trading firms' risk management controls, or rather a lack of them, was brought to the fore by US regulator the Securities and Exchange Commission (SEC) on 16 January 2010 when it ”flash crash' of 6 May it is clear that insufficiently monitored algorithms, even in the hands of mutual funds, can have serious repercussions for the market. Almost inevitably pre-trade risk management checks will be imposed by regulators, along the lines of the proposals made in January, but the impact on market participants will depend on where they are imposed.
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