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Being one of the leading providers of trade surveillance software to trading venues, regulators and market participants, Scila closely follows regulatory development around the world. Scila not only updates its software according to regulatory development, Scila also analyses, and sometimes, comment on specific regulation that is about to become reality for Scila's customers.
So far some of the proposed suggestions for monitoring High Frequency Trading and Algorithmic Trading has concerned us. Scila's Executive Chairman, Mr Lars-Ivar Sellberg, has written a paper on alternative solutions. Solutions that we find much more appealing than the alternatives that we have seen so far. Attached is Mr Sellbergs paper "Surveillance of Algorithmic Trading"
As various types of algorithmic trading makes up an increasing part of the trading volume on stock exchanges and other execution venues, it is generally acknowledged that these algorithms provide valuable liquidity that would otherwise not be available. At the same time concerns are being raised that algorithmic trading does have negative aspects besides its positive effects.
While the reactions from regulators and legislative bodies have been slow in coming, it has now virtually exploded in a plethora of suggested and implemented counter measures to these perceived negative effects of algorithmic trading. The problems with a majority of these countermeasures are that while they often provide at least a partial solution to the problem, the side effects are poisonous enough to kill the patient, i.e. the market.
The purpose of this paper is to suggest a variant of the suggested “Notification of algorithms” that would provide most of the benefits of this method, while drastically reducing the excessive cost associated with the original method.
