High-frequency trading (HFT) performed by computers increases price efficiency in markets, according to a new report commissioned and published by the European Central Bank (ECB).
Seen as the death knell for traditional open outcry pits, HFT has been blamed for numerous glitches, pricing errors and “flash crashes” but this new study, released in November by the ECB, warned governments across the globe against curbing the operations without installing other measures to support market efficiency.
“Our research suggests, within the confines of our methodological approach, that HFT (high-frequency traders) provide a useful service to markets. They reduce the noise component of prices and acquire and trade on different types of information, making prices more efficient overall,” U.S. academics Jonathan Brogaard, Terrence Hendershott and Ryan Riordan said in the publication.
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