“Information Transmission Zoning” Would Require No Major
Regulatory Changes and Minimal Financial information Flow Re-Architecting
Webinar on September 24th
at 11 AM ET to Review Findings
NEW YORK--(BUSINESS WIRE)--
New academic research that serves as guide to high-frequency trading
proposes an innovative solution to mitigate key problems created by
high-frequency trading while simultaneously maintaining its benefits.
The research from Stevens Institute of Technology sets forth a new
“information transmission zoning” concept solution.
Traders located within the innermost zone – defined as the zone wherein
the trader receives prices prior to the general market – would be
considered market makers and therefore be required to obey Securities
and Exchange Commission (SEC) market maker regulations. Traders outside
this zone could act as traders. Drawing this distinction would create a
fair playing field with respect to the dissemination of price
information without decreasing liquidity. Additionally, adopting this
approach would require minimal financial information flow
re-architecting, would build on the SEC’s National Market System (NMS),
and would not require any major change in regulation or regulatory
authority, according to the authors.
Commissioned by the Investor
Responsibility Research Center Institute (IRRCi), the research was
conducted by Khaldoun
Khashanah, Ph.D., Ionut
Florescu, Ph.D. and Steve
Yang, Ph.D., all of Stevens
Institute of Technology Financial Engineering Division.
Lukomnik, IRRCi executive director said, “The disruptive nature of
high frequency trading technology is feeding into the perception that
traders are gaming the system. So the question is: How do you keep the
benefits, mitigate the problems and eliminate any unfairness? Finding a
solution is an imperative, or we risk compromising trust in and the
integrity of the financial markets. We hope this new research provides a
sensible solution that can be implemented with little pain and big
gain,” he said.
“High-frequency trading is a highly disruptive technology that has
turned upside down traditional relationships between physical distance,
time and information flow. Before us now are complex issues of how to
regulate this unchartered territory of micro-second trading and the
inter-relationships between space, time, information flow, market
structure and trading rules,” says Khaldoun
Khashanah, Ph.D., report lead author with Stevens Institute of
Technology Financial Engineering Division.
He explained, “Our examination of these new inter-relationships has
resulted in our concept of information transmission distance, or how
long it takes to get financial information from point A to point B in
this new world of computer-generated algorithmic trading that moves
virtually at the speed of light. Understanding information transmission
distance criteria and systemic latency leads to our concept of
‘information transmission zoning’ that can be applied in conjunction
with the SEC’s National Market System without the need for major, new
“The ‘traditional’ investor represent a, sizable, long-horizon portion
of the equities market, while high-frequency trading is a transient
component that can trigger substantial market instability. Our research
seems to offer a pragmatic solution where investors – whether high or
low frequency; whether holding for milliseconds or years – can coexist
in the same market while adhering to trading rules for access, fairness,
and transparency," Khashanah concluded.
A practitioner summary of the research, High Frequency Trading: A
White Paper and an Innovative Solution To Address Key Issues, is
The full academic research study, On The Impact and Future of HFT:
White Paper, is available here.
A webinar to review the research and respond to questions is scheduled
for Wednesday, September 24, 2014, at 11 AM ET. Register here
or at https://www1.gotomeeting.com/register/681845673.
The Investor Responsibility Research Center Institute is a
nonprofit research organization that funds academic and practitioner
research that enables investors, policymakers, and other stakeholders to
make data-driven decisions. IRRCi research covers a wide range of topics
of interest to investors, is objective, unbiased, and disseminated
widely. More information is available at www.irrcinstitute.org.
Stevens Institute of TechnologyStevens Institute of Technology,
The Innovation University, is a premier, private research university
situated in Hoboken, N.J. overlooking the Manhattan skyline. Founded in
1870, technological innovation has been the hallmark and legacy of
Stevens' education and research programs for more than 140 years. Within
the university's three schools and one college, more than 6,100
undergraduate and graduate students collaborate with more than 350
faculty members in an interdisciplinary, student-centric,
entrepreneurial environment to advance the frontiers of science and
leverage technology to confront global challenges. Stevens is home to
four national research centers of excellence. More information is
available at www.stevens.edu.
Danielle Woodruffe, +201-216-5139
Source: Investor Responsibility Research Center Institute