The Gateway to Algorithmic and Automated Trading

It's just a matter of time...

Published in Automated Trader Magazine Issue 26 Q3 2012

If you're reading this, you almost certainly know a good deal about time. It's a central part of the algorithmic trading business, right? In this edition of Peek Ahead, we ask whether the the people charged with regulating you know much about time.

its a matter of time

You've probably heard the story of the two campers in the woods who suddenly see a bear. As the bear heads towards them, one of the two drops his backpack and digs out a pair of sneakers. "What are you doing? You can't outrun that bear," the other camper says. "I don't need to outrun the bear," the first one says. "I just need to outrun you."

If you're reading this, you almost certainly know a good deal about time. It's a central part of the algorithmic trading business, right? Question is, do the people charged with regulating you know much about it? Given the sheer amount of regulation they are trying to cram into such a short period, and the implications if they get it all wrong, we can't help but wonder whether time management is one of their fortes. Consultation periods open and close in the relative blink of an eye and even some of the regulators are complaining. Scott O'Malia of the CFTC, who came up with the phrase "High Frequency Regulation" (, springs to mind.

OK, fair enough, regulators were set a deadline by world leaders back in 2009 and that deadline is fast approaching, so what choices do they have? You might say they could just push back and demand a more realistic timetable. To start with, not all of them seem to feel the schedule is unrealistic. And "pushing back" against the likes of Barack Obama or Angela Merkel is easier said than done.

We decided to do some homework on the question of time and judgment. There's no shortage of academic studies about how deadlines affect decision-making. In one that caught our eye (1), the authors wrote : "Under time pressure, most studies report an increased selectivity of input and information."

Sounds familiar.

So is that one way of saying there's a good chance the regulators are not getting the full picture? Kay Swinburne, a member of the European Parliament's Committee on Economic & Monetary Affairs, is hoping that might change with the Foresight project (, which you can read all about on page 38. Swinburne is one of the project's stakeholders.

But even if the Foresight findings are delivered before the European Commission makes its final decision, there's a risk that the information won't make any difference. Studies also show that time pressure typically increases the tendency for people to lock into one problem-solving strategy and decreases the openness to alternatives. In other words, why let the facts get in the way? It gets worse. Not only are some of the trading police only looking at some of the evidence and then engaging in selective thinking, but also they may not even be stress testing the theories they're latching onto.

Fod Barnes from Oxera talked about this recently. He's been involved in an impact assessment on MiFID II (no need to reach for your iPads - it hasn't yet been released). You would think that in light of what happened after the first MiFID, regulators might want to run a few tests to see what the effects might be to make sure they're getting the outcomes they want. Logic, reason, facts? We asked Fod if he'd found regulators had shown much appetite for backtesting their own rules. We think you know the answer.

Some of the reason for the lack of appetite, he said, is that it's extremely complex and difficult to do. If you're charged with laying down rules that govern pretty much all trading in the known universe within a matter of months, taking the time to see what will happen when they're applied can be a daunting task.

Oh well, it's only the fate of the global markets at stake.

(1) Judgment and Decision Making Under Time Pressure, Anne Edland and Ola Svenson, 1993