How the Government and regulators, at both national and international levels, deal with the increasing automation of capital markets (i.e. high frequency trading - HFT) will determine the City’s future commercial development. The emergence of algorithmic trading and, latterly, 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. It cannot be denied that the ‘Flash Crash’ and other trading anomalies that have been attributed to the application of technology, may cause some concern amongst regulators about the advancing role of technology in capital markets as it is largely an unknown quantity. It is this fear of the unknown that poses a significant threat to the competitiveness of the City as regulatory attention turns towards High Frequency Trading and the systems, algorithms and processes behind it.

This is a strong argument for regulatory authorities to develop a greater insight into how technology works within the markets. There is no doubt that there does need to be oversight of the application of technology within the City, but this needs to be accompanied by a greater understanding of how this technology operates, what the risks are and what benefits it brings to the system.

There is a strong case for the social good of algorithmic trading - 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. To presume that technology can only cause instability in the markets, is ill-informed (the European Commission has recently stated as much) and could ultimately lead to the competitiveness of the City being even further undermined if regulatory activity reflects this.

Therefore if the City is to remain an international centre for financial services, the development of uninformed regulation will only serve to contradict wider efforts by different parts of the Government to attract inward investment.

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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