Global Algorithmic Capital Markets High Frequency Trading, Dark Pools, and Regulatory Challenges

Global capital markets have undergone fundamental transformations in recent years and, as a result, have become extraordinarily complex and opaque. Trading space is no longer measured in minutes or seconds but in time units beyond human perception: milliseconds, microseconds, and even nanoseconds. Technological advances have thus scaled up imperceptible and previously irrelevant time differences into operationally manageable and enormously profitable business opportunities for those with the proper high-tech trading tools. These tools include the fastest private communication and trading lines, the most powerful computers and sophisticated algorithms capable of speedily analysing incoming news and trading data and determining optimal trading strategies in microseconds, as well as the possession of gigantic collections of historic and real-time market data.

Fragmented capital markets are also becoming a rapidly growing reality in Europe and Asia, and are an established feature of U.S. trading. This raises urgent market governance issues that have largely been overlooked. Global Algorithmic Capital Markets seeks to understand how recent market transformations are affecting core public policy objectives such as investor protection and reduction of systemic risk, as well as fairness, efficiency, and transparency.

The operation and health of capital markets affect all of us and have profound implications for equality and justice in society. This unique set of chapters by leading scholars, industry insiders, and regulators discusses ways to strengthen market governance for the benefit of society at whole.

Walter Mattli, Professor of International Political Economy, St John's College, University of Oxford, UK

Walter Mattli is Professor of International Political Economy at the University of Oxford. He joined Oxford in 2004 after teaching for a decade at Columbia University in New York. He received his undergraduate degree from the University of Geneva and his Ph.D. from the University of Chicago. Before beginning his graduate studies, he worked in international banking in New York. He has held fellowships at the Wissenschaftskolleg (Institute for Advanced Studies) in Berlin, the American Academy in Berlin, Princeton University, and the European University Institute in Florence.

1. Introduction: A New Capital Market Reality and Overview, Walter Mattli
Part I: High frequency trading: key topics
2. Is trading fast dangerous?, Thierry Foucault and Sophie Moinas
3. A case sturdy in regulatory arbitrage and information asymmetry: high frequency trading the post only intermarket sweep order, Haim Bodek
4. The FX race to zero: electronification and market structural issues in foreign exchange trading, Dan Marcus and Miles Kellerman
Part II: Market quality and best order execution
5. A comparison of execution quality across U.S. stock exchanges, Elaine Wah, Stan Feldman, Francis Chung, Allison Bishop, and Daniel Aisen
6. What has changed in four years? Are retail broker routing decisions in 4Q2016 consistent with the pursuit of best execution, Robert Battalio
7. Better 'best execution': an overview and assessment, Tyler Gellasch and Chris Nagy
Part III: Analytical and regulatory frameworks
8. Naked open market manipulation and its effects, Merritt Fox, Lawrence Glosten, and Gabriel Rauterberg
9. Algorithmic trading and market manipulation, Yesha Yadav
10. Legal liability for fraud in the evolving architecture of securities markets, Stanislav Dolgopolov
Part IV: Regulatory agencies and market structure regulation
11. Regulating high-frequency trading and dark liquidity in Australia, Greg Medcraft
12. High-frequency trading and circuit breakers in the EU- recent findings and regulatory activity, Steffen Kern and Giuseppe Loiacono
13. A framework for responsive market regulation, Timothy Baikie, Tracey Stern, Susan Greenglass, and Maureen Jensen