The Gateway to Algorithmic and Automated Trading

Can a little Foresight go a long way for the algo industry?

Published in Automated Trader Magazine Issue 26 Q3 2012

Nearly 100 years ago, the American lawyer Louis Brandeis told a popular magazine: "Sunlight is said to be the best of disinfectants". A phrase was coined. The words went on to become a rallying cry for journalists and anti-corruption campaigners, but they may also resonate with a less obvious group: algorithmic traders.

Adam Cox

Adam Cox

If ever a collection of people had an interest in bringing the facts to light, it is those in the business of computer-based trading (CBT). Populist anti-banking sentiment is running high and politicians, particularly in continental Europe, appear happy to fan the flames. The debate over how to regulate the industry rages and many see high-frequency traders as an easy mark.

That's where the British government's Foresight project team comes in. Their multi-discipline research project is tapping experts around the world and mixing academic rigour with real-world experience - all in the interest of giving decision-makers a clearer picture - to create a comprehensive report on the effects and implications of computer-based trading. First announced almost two years ago, the project is nearing its conclusion and will publish its final report in the autumn.

Automated Trader has been talking to people involved with the project, as well as those potentially affected by its findings, ahead of the report's release. And contrary to conventional wisdom, the CBT community is not necessarily uniformly hoping the project will lend its weight to demands for less regulation - just more sensible regulation.

"The first thing which I liked about the project was that it wasn't just a microscopic look at anything to do with high-frequency trading, because that's not useful at the moment," Dr. Rami Habib, chief executive of Algo Technologies, told Automated Trader.

"They tried to look at systematic trading. Systematic trading includes a whole array, a whole spectrum of participants in the financial community, from large hedge funds, mutual funds to some pension funds that use algorithms," Habib said. "So it covers more than just the proprietary algorithmic trading world, which is such a small fraction of the overall trading activity."

For Habib, the question of how to regulate algorithmic trading starts with definition, and here the Foresight project begins to help.

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