Expanding the Frontiers of Electronic Financial Transactions; But Can Regulations Keep Up?

Abstract

Nearly every week in the past several months, multifaceted debates over new concepts in high frequency trading (HFT) of various instruments have emerged rapidly. HFT firms are developing new technology so fast that regulators are uncertain what, if anything, to do. Widening probes by government and self-regulatory authorities are barely scratching the surface and, instead, highlight the existing confusion. The myriad technology changes and developments seem far ahead of widening probes currently being pursued in several major financial centers. In the United States, for example, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Justice Department, and the Federal Bureau of Investigation are each investigating the methods employed in this relatively complicated new business. In Europe, the European Commission, and the European Parliament reached agreement last year on a broad compromise package to regulate HFT transactions beyond the existing Markets in Financial Instruments Directive (Mifid). Since then, individual countries, led by Germany, are racing to enact strict rules to try and regulate various components of such activities while the volume of transactions is increasing exponentially.