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The financial markets have witnessed a new market entrant in the past decade, the high-frequency trader. Historically, the investor has been serviced by the traditional broker-dealer, but today this market is driven by a new player who disrupts these traditional process and practices. Increased pressure is placed on government agencies to regulate the existing financial sector. As e-government embraces the adoption and use of information and communications technology (ICT), new challenges arise as markets, firms and investors increasingly outpace governments’ ability to develop and execute effective regulatory mandates. This paper examines theoretical and empirical work on the interface between government regulation and the emergence of high-speed, algorithmic trading. Rather than the traditional reactionary approach to regulation, government agencies need to be proactive. Structural, cultural and technological change increases the potential for disruptive market events (e.g. Flash Crashes) while simultaneously exerting new pressures to tackle regulatory failures to retain investor confidence.

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Aug 10th, 12:00 AM

The Role of Government in the Regulation of Financial Markets – New Rules for New Players

The financial markets have witnessed a new market entrant in the past decade, the high-frequency trader. Historically, the investor has been serviced by the traditional broker-dealer, but today this market is driven by a new player who disrupts these traditional process and practices. Increased pressure is placed on government agencies to regulate the existing financial sector. As e-government embraces the adoption and use of information and communications technology (ICT), new challenges arise as markets, firms and investors increasingly outpace governments’ ability to develop and execute effective regulatory mandates. This paper examines theoretical and empirical work on the interface between government regulation and the emergence of high-speed, algorithmic trading. Rather than the traditional reactionary approach to regulation, government agencies need to be proactive. Structural, cultural and technological change increases the potential for disruptive market events (e.g. Flash Crashes) while simultaneously exerting new pressures to tackle regulatory failures to retain investor confidence.