The Need for Speed: Regulatory Approaches to High Frequency Trading in the United States and the European Union

44 Pages Posted: 21 Aug 2018 Last revised: 21 Nov 2018

Date Written: November 1, 2017

Abstract

High frequency trading (HFT) is a financial investment execution technique with a growing presence in world financial markets. Investment firms engaging in HFT use computer automated algorithms to trade financial instruments at high speeds. There is much debate as to what HFT entails, particularly its risks, benefits, and costs, and whom HFT affects (positively or negatively). In particular, this Note addresses efforts in the United States and the European Union to define and regulate HFT. The proposed Regulation Systems Compliance and Integrity (Reg SCI) and Regulation Automated Trading (Reg AT) in the United States and Markets in Financial Instruments Directive II (MiFID II) in the European Union contemplate measures to increase transparency and decrease volatility surrounding HFT, particularly in light of flash crashes in various influential markets. Recent events like the emergence of the Investors Exchange (IEX) and the flash crash following “Brexit” draw the role of HFT in ensuring the continued operation of the market into higher relief. As such, combining elements from both US and EU regimes to create a “transparency within reason” approach will help balance competing interests in effectively addressing HFT through a cohesive framework.

Keywords: high frequency trading, HFT, MiFID II, Regulation Automated Trading, Reg AT, Regulation Systems Compliance and Integrity, Reg SCI, Investors Exchange, IEX, European Union

Suggested Citation

Woodward, Megan, The Need for Speed: Regulatory Approaches to High Frequency Trading in the United States and the European Union (November 1, 2017). Vanderbilt Journal of Transnational Law, Vol. 50, No. 5, 2017, Available at SSRN: https://ssrn.com/abstract=3203691

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