Worlwide, financial market regulators are still coming to grips with the volume of highfrequency trading taking place and ways to strengthen venues to prevent another ‘flash crash’. SAM RILEY reports. A year after the so-called ‘flash crash’ damaged confidence in equities, exchange regulators across the world are scrambling to catch up, leaving investors with an increasingly complex range of market microstructures to navigate, experts say. The Securities and Exchange Commission (SEC) quickly moved to introduce single stock circuit breakers after the flash crash – where the S&P 500 index suddenly plunged 6 per cent before recovering in minutes – and are now looking towards further trading safety nets. But Asian exchange regulators are still grappling with what steps to take to ensure a similar event does not derail their own markets and are watching closely how regulations unfold in North America and Europe. Tabb Corp market structure expert Miranda Mizen says the flash crash has prompted Asian regulators to increase their contact both with other regulators and market operators. The increased interaction between regulators and market players has revealed that, despite a year having passed since the flash crash, there is still a lack of understanding in the industry about the implications and risks in high frequency trading, says Mizen.
“It takes a while to adapt to this change. Generally we say it takes a trading generation to get going,” Mizen says. According to experts, Asian markets are also seeing a growing penetration of high frequency and automation but Mizen says they do not have the same vulnerabilities as their North American and European counterparts. Asian markets have not experienced the same fragmentation of trading flows caused by consolidation of traditional stock exchanges or the widespread introduction of alternative venues that has occurred in the United States and Europe. But Mizen says the lack of a harmonised regulatory framework across the region does not leave equity markets here vulnerable to similar flash crash-type events. This had eased some of the pressure on Asian regulators to act and given them a chance both to see how changes played out in North America and Europe and tailor their own solutions to match their respective markets. Liquidnet Asia Pacific director Lee Porter says regulators across the region are edging towards similar circuit breakers but that harmonising regulations will add confidence. “The markets in this region still have quite a way to mature and there is some catch-up that needs to be played so I think implementation of circuit-breakers across the board does make sense,” Porter says.
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