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Automated Trader Magazine Issue 35 Winter 2015

Anna Reitman

Imagine the chaos and riots in the streets if football rules were changed mid-play in a high stakes international match. Yet, this is exactly what markets are constantly facing as a barrage of regulations comes down on a global industry. Ostensibly, this rule-making is to ensure fair, orderly and efficient markets for all investors – but what does that really mean nowadays?

Our Winter 2015 issue is an ambitious attempt to present a snapshot of the situation, as Automated Trader tries to make sense of some of the most contentious issues with some of the most controversial characters in the debate. 

In “Fair Play”, Adam Cox delves into all kinds of market features that have reformists calling foul, in particular raising questions over who can see what data, and when (page 12). And in our regular “First Person” interview (page 28), we talk to vocal market structure reformist and HFT sceptic Sal Arnuk of Themis Trading about navigating in the darkest of pools and shining a light on the conflicts of interest inherent to payment for order flow in the US. 

Still, more rule-making isn’t exactly the popular solution. You’ll undoubtedly have heard accusations that regulations are in some cases to blame for causing problems. Peter Barker reports on the advantage dark pools have over traditional stock exchanges, possibly caused by US trading rules (page 33) and why experts think Australia and Canada have the right idea. It seems European regulators could do with learning the lessons of unintended consequences as the double volume cap on dark pools nears. 

But there are other dimensions of fairness, like who can actually access and use sophisticated tools to participate in the markets. In our feature “demo-Quant-isation” (page 22), we follow trends that could make nuanced quant models increasingly available to a greater number of market participants, similar to the access to speed in the preceding HFT democratisation wave. And that thinking filters right down to investors. Our regular “Me and My Machine” interview (page 39) features the firm QuantBridge, which has designs to launch their artificial intelligence product in the retail market. 

The proliferation of quant strategies comes with risks and we revisit the trouble with backtest overfitting, which an academic paper recently likened to fraudulent charlatanism. In “Fiddling with figures” (page 53). Priyanjana Bengani talks to Vanguard and O’Shaughnessy Asset Management, among other virtuosos, about the worst pitfalls and best practices. 

We also cover the emerging market of Brazil, where BM&FBovespa completed a major overhaul of its clearing technology (page 48). Sophie Lewisohn investigates whether this could be the beginning of the end for the national exchange’s monopoly, allowing new playing pieces on the board. 

Finally, Peek Ahead (page 68) asks some questions about alternative currencies. Is bitcoin and its underlying technology an investment or a revolution? And is it a good thing that comedian and celebrity activist Russell Brand is promoting financial war reporter Max Keiser’s coin? 

Anna Reitman


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