Technological change has revolutionised the way financial assets are traded. Every stage of the process is now highly automated, dramatically reducing the costs incurred by intermediaries and, arguably, increasing stability in a system that has often had the blame for economic instability laid at its door step. By reducing the frictions (latency) and costs of trading, technology has the potential to enable more efficient risk sharing, facilitate hedging, improve liquidity, and make prices more efficient. In turn this could ultimately reduce the cost of capital for firms – something that will have significant benefits at a time when capital is scare and legislative remedies are being explored – most notably in the UK.

The emergence of algorithmic trading and, latterly, high frequency trading (HFT) has led to a massive focus on speeds, feeds and the need for minimal latency, or delays, in the way trades are processed and executed. A large global investment bank recently has stated that every millisecond lost results in $100m per annum in lost opportunity. It is a possibility that soon, all markets will be completely electronic, and transaction times will be the ultimate arbiter of who gets the best trade at the best price, with significant commercial opportunities for those technology providers that can shave milliseconds off transaction times.

How regulation deals with the increasing automation of capital markets will determine the City’s future commercial development. There has been a notable shift in regulatory focus in recent months to the role that technology plays in the trading of financial assets – most notably in the U.S. with the Dodd-Frank Wall Street Reform and Consumer Protection Act and in the EU the forthcoming review of the Markets in Financial Instruments Directive (MiFID). Intellect will play a full and positive role in ensuring that, through the expertise of its Members, policy that affects capital markets in the UK is fully informed by the positive role that technology plays.

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