Into the Breech: The Increasing Gap between Algorithmic Trading and Securities Regulation

Karen Kunz () and Jena Martin ()

Journal of Financial Services Research, 2015, vol. 47, issue 1, 135-152

Abstract: A seismic shift is taking place in the United States securities markets. The fault lines have been present for quite some time; however, it is only now, in the last few years that the ramifications of these displacements have been felt. The traditional approach to investing has gone from a focus on investing – namely examining companies to determine whether they will be a good long-term investment – to examining the markets as a whole. Nowhere is this shift more apparent than in the rise and increasing prevalence of quantitative trading models. As a result, there is now a disconnect between the markets themselves and the companies that are traded on the markets. Oftentimes, what a company does or does not do matters very little to whether that company’s stock should be bought or sold. Instead, whether that company’s stock is a good “buy” amounts more to how that stock is doing and how the market is behaving. This shift has broad implications for retail and institutional investor behavior, regulatory structures and the role of government in oversight and, if unchecked, the global economy at large. The ever-changing advances in computer technology have fostered a new breed of trading that is much more reliant on quantitative mathematics than on corporate analysis. This article explores algorithmic trading and assesses the impact of its dominance on regulation of the securities markets and their stability in the global economy. Copyright Springer Science+Business Media New York 2015

Keywords: Algorithmic trading; Computer trading; High frequency trading; Securities regulation; G11; G18; G2; G28 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s10693-013-0184-0

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