High frequency trading changing markets

Nov. 21, 2015

High frequency trading is a relatively new phenomenon that has been used on the Swedish market since 2010. Björn Hagströmer and Lars Nordén, based at Stockholm University, are visiting research fellows at the Swedish House of Finance.

They have studied the nature of high frequency trading and the effects on the Swedish market. On November 19 they discussed together with Magnus Billing, CEO of Nasdaq OMX Stockholm and Pontus Lidbrink, Senior Portfolio Manager at AP4 at a seminar called ”High Frequency Trading on the Swedish Stock Market”.

– High frequency traders essentially take traditional trading strategies and refine them using modern technology. There was a big debate when the technology first was introduced to the market but since then market participants have adapted. In 2011 – 2012 high frequency trades constituted about 25 percent of the trading volume on the Swedish market and since then the volumes have come down a little, says Björn Hagströmer.

The high frequency traders active on the Swedish market today are all international traders active on markets all over the world. They are typically small organizations with a few employees and offices.

– Our research has shown that this new technology has been beneficial for the quality of the Swedish stock market, a result that has also been found in other countries. It has contributed to a decreased volatility as well as an increased liquidity. Critics often worry about the difficulties concerning regulation of high frequency trading. In reality, there has not been that many problems detected but there is of course still a need for different market places to align their oversight mechanisms, says Björn Hagströmer.

The seminar was popular, about 50 people gathered at the premises of the Swedish House of Finance to discuss high frequency trading.

– The current regulatory movement towards increased oversight of high frequency trading firms is positive. Even though most evidence shows that fast markets make trading cheaper, efficient oversight is important for the credibility of our financial markets, says Björn Hagströmer.