The Finance Industry Regulatory Authority (Finra) is looking into how trading firms self-regulate their algorithms used for High Frequency Trading.
In response to several high profile anomalies in the trading market due to High Frequency Trading (HFT) in the past year, the Finance Industry Regulatory Authority (Finra) has been looking into several trading firms with how they use and control their trading algorithms. One of those notable anomalies included an incident where a capital group lost about 10 million dollars per minute because of a malfunctioning computer system. This example has become a cautionary tale for many in the industry, but it appears that Finra fears the HFT industry might not self-regulate enough.
According to an article in Bloomberg, Finra’s letter to 10 firms included specific questions regarding High Frequency Trading algorithms, including whether or not there were kill switches, and under what circumstances they would be utilized.
As a document from Finra said, according to Bloomberg, “In light of several high-profile algorithmic trading failures that caused significant market disruption in 2012, Finra continues to be concerned about how firms are supervising the development of algorithms and trading systems.”
Full documents can be found on the FINRA website.