Innovation and the changing structure of financial markets

Wendy Currie, Audencia Business School
Jon Seddon, Audencia Business School
Rick Cooper, Illinois Institute of Technology
Ben Van Vliet, Illinois Institute of Technology

Description

Over the past fifty years, financial markets have become fundamentally changed as automation replaces almost every activity. The growth of the electronic market coincided with the demutualization and deregulation, as regulators wanted to “…perfect the mechanism of a free and open market…to protect investors and the public interest” (SEC, 2012, p196). Developments with new technology have significantly enhanced the efficiency of markets. Yet serious problems have arisen in the form of illegal trading behavior and intermittent market events known as ‘flash crashes’. Some commentators describe this phenomenon as a crisis in the market structure (Bodek and Dolgopolov, 2015) caused by instability and fragmentation. This panel will review innovations that have occurred between financial markets and computerized high-frequency trading (HFT). Discussion will try to answer questions such as: what are the drivers behind this innovation; does HFT benefit the market; and do changes need to be made to current regulations?

 
Aug 10th, 12:00 AM

Innovation and the changing structure of financial markets

Over the past fifty years, financial markets have become fundamentally changed as automation replaces almost every activity. The growth of the electronic market coincided with the demutualization and deregulation, as regulators wanted to “…perfect the mechanism of a free and open market…to protect investors and the public interest” (SEC, 2012, p196). Developments with new technology have significantly enhanced the efficiency of markets. Yet serious problems have arisen in the form of illegal trading behavior and intermittent market events known as ‘flash crashes’. Some commentators describe this phenomenon as a crisis in the market structure (Bodek and Dolgopolov, 2015) caused by instability and fragmentation. This panel will review innovations that have occurred between financial markets and computerized high-frequency trading (HFT). Discussion will try to answer questions such as: what are the drivers behind this innovation; does HFT benefit the market; and do changes need to be made to current regulations?