Scila proposes methods for surveillance of algorithmic trading
Being one of the leading providers of trade surveillance software to trading venues, regulators and market participants, Scila closely follows regulatory development around the world. Scila not only updates its software according to regulatory development, Scila also analyses, and sometimes, comment on specific regulation that is about to become reality for Scila's customers.
So far some of the proposed suggestions for monitoring High Frequency Trading and Algorithmic Trading has concerned us. Scila's Executive Chairman, Mr Lars-Ivar Sellberg, has written a paper on alternative solutions. Solutions that we find much more appealing than the alternatives that we have seen so far. Attached is Mr Sellbergs paper "Surveillance of Algorithmic Trading"
While the reactions from regulators and legislative bodies have been slow in coming, it has now virtually exploded in a plethora of suggested and implemented counter measures to these perceived negative effects of algorithmic trading.
The problems with a majority of the proposed countermeasures for
By defining and monitoring boundary conditions for trading algorithms it is possible to design an effective detection mechanism for misbehaving algorithms.
As various types of algorithmic trading makes up an increasing part of the trading volume on stock exchanges and other execution venues, it is generally acknowledged that these algorithms provide valuable liquidity that would otherwise not be available. At the same time concerns are being raised that algorithmic trading does have negative aspects besides its positive effects.
While the reactions from regulators and legislative bodies have been slow in coming, it has now virtually exploded in a plethora of suggested and implemented counter measures to these perceived negative effects of algorithmic trading. The problems with a majority of these countermeasures are that while they often provide at least a partial solution to the problem, the side effects are poisonous enough to kill the patient, i.e. the market.
The purpose of this paper is to suggest a variant of the suggested “Notification of algorithms” that would provide most of the benefits of this method, while drastically reducing the excessive cost associated with the original method.
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About Scila AB
Scila provides trading surveillance products built on many years of experience from both market surveillance and systems design. Scila Surveillance uses modern technology to give the customer a seamless route from detection of market abuse to presentable evidence. Scila delivers the future in modern market surveillance technology by offering trading venues, regulators and market participants the most competitive solution available. Scila’s sales and marketing partner Cinnober Financial Technology owns a minority stake in Scila AB and there is an exclusive sales agreement between the two companies. For additional information about Scila AB, please visit www.scila.se