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An agent-based market simulation is utilized to examine the impact of high frequency trading (HFT) on various aspects of the stock market. This study aims to provide a baseline understanding of the effect of HFT on markets by using a paradigm of zero-intelligence traders and examining the resulting structural changes.

A continuous double auction setting with zero-intelligence traders is used by adapting the model of Gode and Sunder (1993) to include algorithmic high frequency (HF) traders who retrade by marking up their shares by a fixed percentage. The simulation examines the effects of two independent factors, the number of HF traders and their markup percentage, on several dependent variables, principally volume, market efficiency, trader surplus and volatility. Results of the simulations are tested with two-way ANOVA and Tukey’s post hoc tests.

In the simulation results, trading volume, efficiency and total surplus vary directly with the number of traders employing HFT. Results also reveal that market volatility increased with the number of HF traders.

Increases in volume, efficiency and total surplus represent market improvements due to the trading activities of HF traders. However, the increase in volatility is worrisome, and some of the surplus increase appears to come at the expense of long-term-oriented investors. However, the relatively recent development of HFT and dearth of appropriate data make direct calibration of any model difficult.

The simulation study focuses on the structural impact of HF traders on several aspects of the simulated market, with the effects isolated from other noise and problems with empirical data. A baseline for comparison and suggestions for future research are established.

To alert high frequency trading firms to the increased regulation and prosecution of manipulative trading practices during 2014 and early 2015.

Reviews four significant proceedings against high frequency trading firms (and/or individuals employed by such firms) and other developments from the relevant government agencies as a possible preview of the enforcement and prosecution of high frequency trading practices in 2015. Provides advice to high frequency trading firms on how to decrease the risk of regulatory or criminal actions against them in this changing environment.

Although the focus on high frequency trading has only recently begun to intensify, firms should be aware of the increased enforcement activity of the past year. These actions, both regulatory and criminal, have already resulted in large penalties and have helped initiate a strengthening of rules and regulations regarding manipulative trading practices, of which firms need to be aware and stay current.

High frequency trading firms should be aware of the recent regulatory and criminal actions in order to better evaluate their own practices and controls, to ensure that their trading patterns do not resemble manipulative practices, and to avoid similar actions.

Practical guidance from experienced litigators and securities regulatory lawyers, including a former SEC Assistant Chief Litigation Counsel and a former federal prosecutor, that consolidates and describes several recent actions and developments in one piece.

The purpose of this paper is to assess the US Securities and Exchange Commission’s new regulation, Limit Up–Limit Down (LULD), against the background of manipulative high-frequency trading (HFT).

This paper examines the background of HFT and related manipulative tactics by reviewing 43 articles of empirical research. It also examines areas in which LULD is effective and those in which LULD fails. The assessment of LULD is completed with a comparison between computerized regulation and legal enforcement in the contemporary reality of electronic trading platforms.

The paper points out the effectiveness of LULD in regulating wild price volatility as well as its insufficiency when facing orderly but fast price momentum ignited by manipulative HFT such as “spoofing”.

The findings may provide assistance to lawmakers and regulators to improve LULD regulation.

This paper is the first attempt to assess LULD regulation against a comprehensive background of manipulative HFT. The paper is of value to other researchers concerned about the instability to the equity market that manipulative HFT can create. The paper is also of interest to policymakers in designing effective regulation in the high-frequency era.

The purpose of this paper is to present an overview of the flash crash, and explain why and how it happened.

The author summarizes several studies suggesting various perspectives on the flash crash and its causes. Furthermore, the author highlights recently proposed and introduced improvements and regulations to reduce the risk of having similar market collapses in the future.

It is an overview paper that highlights the state of the art on the subject.

Paper does not report any research findings of the author.

High-frequency trading (HFT) along with its pros and cons is the new normal for most of the current electronic trading activity in the markets. It is well recognized by the experts that HFT may have its important shortcomings whenever the rules and regulations are not up to date to match the technological progress offering faster computational and execution capabilities.

HFT has created a societal discussion about its benefits and potential deficiencies as the common practice for trading due to potentially unequal access to market data by various categories of participants. Such arguments help the regulators to develop improvements to reduce the market risk and nurture more robust and fair markets for all.

The paper has a tutorial value and summarizes the current state of HFT. The readers of more interest are guided to the most relevant literature for further reading.

The paper's aim is to explore the impact of statistical arbitrage and high-frequency trading as hedge fund investment strategies that have a significant impact on the environment of corporations.

The paper is a meta-analysis of the role of investment strategies within complex systems.

The growth of hedge fund investment activity based on statistical arbitrage tends to produce a vulnerability; more funds using the strategy helps to create the profitable outcomes that the strategy relies upon. However, the growth also reduces the time lines of profitability and produces an underlying instability based on overlapping holdings and the use of leverage. The shortened timelines also create a further impetus towards technological competition and promotes high frequency trading, which then introduces further vulnerabilities based on “stop-loss cascades”.

Much of the trading creates a superficial form of liquidity, which gives a limited sense of market vulnerabilities. The basis of complex interactions between high frequency traders is also not clearly understood. Researchers and agents of policy ought to pay greater attention to the issues than is currently the case.

The area is one that is under-researched.

With the launch of CSI 300 Index Futures trading on April 16, 2010, China's stock market presents a more diversified trend, such as arbitrage, trends strategy entering the market rapidly. Therefore, the liquidity demand also presents a higher frequency, and the change is more complex than the original situation. In recent years, many literatures are engaged in high-frequency trading (HFT) related research, and an important concern is the impact of HFT on market volatility and liquidity. Is it playing the role of stabilizing the market, or bringing more noise and turmoil? Based on this, the purpose of this study is trying to study what kind of impact the HFT have on market liquidity before and after the launch of the CSI 300 Index Futures.

The paper uses the simultaneous equations model of price and net order flow proposed by Deuskar and Johnson and for the first time introduces an asymmetric identification through heteroskedasticity (ITH) method. The paper applies the method to the high-frequency data of CSI 300 Index and the Futures and classifies the buying and selling orders through volume clock. The price risks are decomposed into a component driven by the impact of liquidity demand shocks (flow-driven risks (FDRs)) and a component driven by external information (information-driven risks (IDRs)).

The empirical results show that the flow-driven risk of CSI 300 Index Futures is about 20 percent. In addition, before the introduction of the Index Futures, there is no asymmetric effect between liquidity demand shocks and price shocks existing in either CSI 300 Index or CSI 300 Index Futures. While after the introduction of stock Index Futures, the asymmetric effect in the both two markets emerges. The impact of the buying net order flows on the price is less than the impact of the selling net order flows on CSI 300 Index, whereas the impact of the buying net order flows on the price is larger than the impact of the selling net order flows on CSI 300 Index Futures. The paper further analyzes the relationship between liquidity and FDR and gets the conclusion that the reasons for the deterioration of the liquidity level are caused by the impact of the external information shocks, rather than the liquidity demand shocks. And entries of HFTs like arbitrage traders and hedge traders play a positive role in improving the liquidity level in the market.

The paper introduces an asymmetric ITH method for the first time and finds asymmetric effect of the net order flow on the return in both CSI 300 Index market and the corresponding Index Futures market.

This paper aims to show that market power exists in financial markets and analyze how spoofing is used by a high-frequency trader to build market power by taking advantage of both behavioral weaknesses of individual investors and microstructural loopholes of trading venues.

After showing that market power exists in the financial market, this paper centers around the question of how market power is constructed in the financial market. To sharpen the answer to the question, the paper compares the conditions needed for market power construction in the financial market with those needed in the goods market. The paper selects spoofing, the frequently used order-based tactic in high-frequency trading strategies, to analyze in detail how spoof orders can ignite herding with market power building as the essence. The Flash Crash that occurred in the New York Stock Exchange on May 6, 2010 provides an excellent case of market power construction exhibited in spoofing.

The behavioral mechanism of market power construction in the case of spoofing is perception alignment. It becomes effective when two necessary conditions are met: the spoof trader takes advantage of the incomplete order display set up by the exchange; and the behavioral weaknesses exhibited by numerous individual investors. In addition to these key conditions, this paper finds other ones for market power to be created in the financial market. They are easier, quicker, more secret, more flexible and less risky relative to the conditions for market power building in the goods market.

The detailed analysis points to the behavioral mechanism, i.e. perception alignment, and microstructural mechanism, i.e. incomplete order display, that could be responsive to regulation.

The originality of the findings is to uncover the mechanism of spoofing in taking advantage of behavioral biases of individual investors. The value is to gain more complete understanding of the essence of herding caused by spoofing.

This study aims to provide a systematic literature review of the research study in the area of limit order book (LOB) mechanism of trading and its implications for market efficiency. The study attempts to document the recent theoretical developments and empirical findings from the literature exhaustively and identifies the research gaps for future research.

The study uses seven reputable databases to select 2,514 research studies spanning over 1981-2018 (finally compressed to a pool of 103 articles, based on relevance and impact). The study uses bibliometric network visualization and text analytics to categorize and examine the literature. The chosen articles are compiled and analyzed to provide a comprehensive account of the current research on LOBs.

The recent LOB literature is summarized on various criteria as follows: sub-areas, the types of economies and markets, methodologies and the LOB measures. The review identifies a dearth of studies on the LOBs in emerging markets. It suggests the potential research areas as intraday studies in emerging LOB markets; application of market indicators based on deeper levels of LOB, beyond the best prices; market fragmentation, order routing decision and its impact on order execution quality; optimal display of LOB levels; liquidity dynamics in quote-driven markets vis-à-vis LOB markets; effect of high-frequency trading on market microstructure; application of advanced techniques (e.g. machine learning models, zero-intelligent models); relationship between the trading speed, order aggressiveness, shape and resilience of the order book and informed trading; and information content of the auxiliary order submission strategies, including cancellation, amendments and hidden orders.

For the past 15 years, to the best of the knowledge, a comprehensive review of the literature on LOBs has not been published. The financial markets have transformed significantly over this period, driven by the adoption of LOBs, low latency trading and technological advancements in information dissemination. This article provides an extensive collection and classification of the literature on LOBs. This would be useful for the practitioners, future researchers and academics in the area of financial markets.

Recent developments in technology and research have brought new innovations into the finance sector. Applying mathematics and computer science into finance has developed a multidisciplinary financial engineering field, where new quantitative and complex financial products are supplied to investors. In this chapter, we describe financial technologies as high-frequency trade; investment vehicles as mutual, exchange-traded, and hedge funds in the finance sector with figures of past 10 years and their impact in international trade volume. Financial derivatives are innovative products where investor may mitigate risk on their domestic and international transactions. The author also discusses cryptocurrencies as an important tool in innovation.