The SEC’s and CFTC’s recently released report on what caused the flash crash just got interesting!While live-blogging our reading of the lengthy report, we found their definition of high frequency traders. It’s interesting because everyone has a different definition.
Here’s the SEC’s:
HFTs are proprietary trading firms that use high speed systems to monitor market data and submit large numbers of orders to the markets.
HFTs utilise quantitative and algorithmic methodologies to maximise the speed of their market access and trading strategies.
Some HFTs are hybrids, acting as both proprietary traders and as market makers. In addition, some HFT strategies may take “delta-neutral” approaches to the market (ending each trading day in a flat position), while others are not delta-neutral and sometimes acquire net long and net short positions.
We assume this is an amalgamation of the definition given to the SEC by the 36+ HFT firms they interviewed for the report.
Of course it’s the SEC’s job to translate into plain English what high frequency trading is, especially if they’re not going to regulate much anytime soon, which it doesn’t look like they will, based on the lack of policy recommendations in the report.
If the “regulars” don’t understand what high frequency trading is, they’ll be even more furious that the SEC isn’t regulating it than they already are. Right now the technological advance is viewed as unknown and scary.
So how did they do? Does the definition serve it’s purpose? We think they did, but we’ve been learning about HFT for a few months now. If there are any regulars (people who don’t work in finance-related jobs) out there who still don’t get it, speak up!