A senior official at the Bank of England has called for an urgent “redesign” of high frequency trading, also known as algo trading, involving a potential speed limit on trading systems.
Algorithmic trading, with computers executing orders based on complex codes, has developed to a point where network messaging times on major exchanges have fallen well below the 150 microsecond mark. The London Stock Exchange, which claims to have the fastest round trip messaging system in the world, offers 126 microsecond latency in production. In testing, networking firms are targeting sub-30 microsecond latency, with nanoseconds seemingly not that far from reach.
But last night Andrew Haldane, executive director for financial stability at the Bank of England, concurred with a number of prominent opponents of superfast trading, who are sceptical of the safety checks in place.
The “race to zero” was increasing volatility and “risk” across stock markets globally, Haldane warned in a speech made in Beijing. “Speed increases the risk of feasts and famines in market liquidity.”
Haldane drew on recent examples such as last year’s “flash crash” on US stock markets, which saw huge fluctuations in stock prices within a period of minutes. However, opinion is split as to whether data feed problems caused that event.
The Financial Times branded the speech as the “strongest statement of concern about market structure by a central bank official”. The comments echo sentiments of regulators, it said.