1150 Seventeenth Street, NW, Washington, DC 20036
(Two blocks from Farragut North Metro)
Post Event Summary
Since the U.S. Securities and Exchange Commission's 2004 adoption of Regulation NMS, manual trading brokers have been increasingly replaced by computer-based electronic trading. At an AEI event on Monday, panelists discussed the twenty-first century market phenomenon known as high frequency trading (HFT) and its implications for financial markets. Congressman Jeb Hensarling (R-Texas) prefaced his keynote remarks by observing the crisis of confidence in the U.S. economy resulting from the threat of tax increases and the ongoing expansion of government regulation.
According to Hensarling, any examination of HFT first requires recognition of the current climate of high frequency regulating. Ana Avramovic of Credit Suisse then outlined the evolution of markets from manual trading toward electronic trading and the natural consequence of faster trade speeds. Despite an increase in electronic trading, however, Avramovic claimed that volatility in recent years has been lower than it was before the rise of HFT.
Jim Overdahl of the National Economic Research Association noted that HFT should not be defined as a strategy, but rather as a means by which traders execute different strategies. Albert (Pete) Kyle of the University of Maryland then articulated some potential reforms to HFT such as reducing the speed to ten or twenty milliseconds, but emphasized that no reforms should compromise HFT's liquidity advantages. Richard Gorelick of RGM Advisors then conveyed the increases in efficiency and transparency that technology has contributed to financial markets and explained how investors use HFT. Finally, Bill White of Barclays Capital described how Barclays protects its clients from predatory market behavior by measuring client activity and implementing a control process.
Since the SEC’s adoption of Regulation NMS in 2004, U.S. and world securities markets have undergone a revolutionary change. Manual trading by brokers has been almost entirely supplanted by computer-based electronic trading from remote locations. Trading floors that once bustled with activity are now virtually empty, as traders post bids and asks on electronic trading venues. Although done by computer, much of this trading is still manual in the sense that brokers — responding to customers — are offering or bidding for shares.
However, there is a growing part of the market that is traded automatically. This is done by computers programmed with algorithms that buy and sell according to market developments at speeds far beyond the capabilities of human beings. This activity, known as high frequency trading (HFT), has been criticized for putting individual traders in unfair competition with computers. On the other hand, HFT has been defended as improving market quality, meaning better price discovery and narrower spreads.
At this conference, we will assess whether HFT has been good or bad for the securities markets and investors.
Full video posts within 24 hours.
Registration and Breakfast
Jeb Hensarling (R-Texas), U.S. Congress
Ana Avramovic, Credit Suisse
Richard Gorelick, RGM Advisors
Albert (Pete) Kyle, University of Maryland
Jim Overdahl, NERA
William White, Barclays
Peter J. Wallison, AEI
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Ana Avramovic works for the strategy team at Credit Suisse, focusing on market microstructure, algorithmic trading and financial regulation. Her research has been regularly cited in books, magazines and papers, including The Wall Street Journal, the Financial Times and Bloomberg. Before joining Credit Suisse, Avramovic worked at a hedge fund as a quantitative analyst of structured credit.
Richard Gorelick is the CEO of RGM Advisors LLC, a firm that applies scientific approaches and computing power to automated trading strategies in multiple asset classes worldwide. Co-founded by Gorelick in 2001, RGM initially focused on U.S. equities and later expanded to include exchange traded funds, futures, currencies and bonds. In October 2005, the company established a U.K. affiliate, branching out to trade European equities and futures. Before founding RGM, Gorelick was the chief strategy officer of Deja.com Inc., which he joined in 1999 as the company's general counsel. Gorelick was also a corporate attorney for Coudert Brothers in New York.
Jeb Hensarling, a congressman from Texas in the U.S. House of Representatives, currently serves as the chairman of the House Republican Conference, the fourth highest position in the Republican leadership. As vice chairman of the House Financial Services Committee and co-chairman of the Joint Select Committee on Deficit Reduction, Hensarling is a leader on consumer choice, competitive markets and financial market regulation. Recognizing Hensarling’s efforts to reduce U.S. debt and limit government spending, former minority leader John Boehner appointed him to serve on the 2011 debt commission. Hensarling also served on the Congressional Oversight Panel for the Troubled Asset Relief Program and provided tough oversight and accountability on the Obama administration’s use of Wall Street bailout funds. Hensarling is a co-author of the Spending, Deficit, and Debt Control Act, a budget reform bill that a coalition of conservative groups heralded as the "gold standard" of budget enforcement legislation. Before being elected to office, Hensarling spent 10 years in the private sector as an officer for an investment firm, a data management company and an electricity retail company.
Albert (Pete) Kyle has been the Charles E. Smith Chair Professor of Finance at the University of Maryland’s Robert H. Smith School of Business since 2006. Previously, he was a professor at Princeton University (1981-1987), at the University of California Berkeley (1987-1992) and at Duke University (1992-2006). Kyle’s research focuses on market microstructure, including high frequency trading, informed speculative trading, market manipulation, price volatility, the informational content of market prices, market liquidity and contagion. In 2002, he was elected a fellow of the Econometric Society, and he has served as a board member for the American Finance Association, a staff member of the Presidential Task Force on Market Mechanisms (The Brady Commission, 1987), a member of the economic advisory committee of the Financial Industry Regulatory Authority (FINRA), and on the Technology Advisory Committee of the U.S. Commodity Futures Trading Commission.
Jim Overdahl is vice president of the National Economic Research Association’s (NERA) Securities and Finance Practice in Washington, D.C. Before joining NERA in 2010, he was the chief economist and director for both the Office of the Chief Economist at the U.S. Commodity Futures Trading Commission and the Office of Economic Analysis at the U.S. Securities and Exchange Commission (SEC). At the SEC, he also supervised the commission’s economic program and served as the principal economic adviser on policy, rulemaking and litigation support. He has published extensively in leading economic and finance journals and has co-edited and co-authored, with Robert Kolb, four books, including “Financial Derivatives: Pricing and Risk Management and Futures, Options, and Swaps” (Wiley, 2009). Since joining NERA, he has served as an adviser to the Futures Industry Association’s Principal Traders Group.
Peter J. Wallison holds the Arthur F. Burns Chair in Financial Market Studies and is co-director of AEI’s program on financial policy studies. At AEI, Wallison researches banking, insurance and securities regulation. Before joining AEI, he practiced banking, corporate and financial law at Gibson, Dunn & Crutcher, in both Washington, D.C., and New York. From June 1981 to January 1985, he was general counsel of the U.S. Department of the Treasury, where he played a significant role developing the Reagan administration’s proposals for deregulation in the financial services industry. He is a frequent contributor to the op-ed pages of The New York Times, The Wall Street Journal and Financial Times. He has also written a book on campaign finance reform entitled “Better Parties, Better Government: A Realistic Program for Campaign Finance Reform” (AEI Press, 2009).
William White is a managing director and the head of Equities Electronic Trading at Barclays Capital. He was previously head of the Lehman Brothers Market Makers, a designated market maker on the New York Stock Exchange (NYSE), now Barclays Market Makers. Under White’s leadership, it has become one of the premier market makers in the U.S. Before joining Lehman Brothers, White was a partner at Van Der Moolen responsible for the firm’s market making business at the NYSE. He was instrumental in shaping the development of the NYSE business model and the execution of the NYSE hybrid market model. White began his career as an independent trader on the Chicago Board Options Exchange, where he built an option trading platform. White is a board member at the Chicago Board Stock Exchange and sits on various exchange advisory committees.