Regulations and unhealthy market strategies in High Frequency Trading

Abstract: High frequency trading, a version of algorithmic trading, has in recent years increased, and now represents a significant part of the trading. It has occasionally upset the public, due to its connections to events that brought negative publicity in media. Because of the complicated structure that high frequency trading have, it makes it difficult for the common man to fully understand its nature. My purpose of this work is to give a clearer picture of the various less desirable market strategies that is currently being used, and what the situation is regarding regulations. The focus is thus not on high frequency trading as a whole, nor, consequently, on the potential benefits it can bring. The approach has been to use qualitative information in the form of interviews combined with literature studies to generate a clearer picture of the current situation. The conclusion is that the development of technology has led to a situation which is not optimal regarding high frequency trading. Market confidence has been affected and its competitive neutrality has been questioned. Regulations are unfortunately lagging, relative to the market situation. Despite this, my assessment, drawn from the interviews, is that it will get better.