Challenges and Opportunities Of Computer Trading

23rd November 2010

Government explores the future challenges and opportunities of computer trading in financial markets


The Government Office for Science today embarked on its latest Foresight project, which will examine the challenges and opportunities presented by technological advances in financial markets worldwide.

In recent years the ways in which financial markets operate have been transformed by fast-paced technological progress. For example, the volume of financial products traded through computer automated trading - taking place at high speed and with little human involvement - has increased substantially in the past few years. Today, over one-third of the UK's equity trading volume is generated through high frequency automated computer trading while in the US this figure is closer to three-quarters.

The Foresight project The Future of Computer Trading in Financial Markets, sponsored by Her Majesty's Treasury and led by the Government Office for Science under the direction of the Government's Chief Scientific Adviser, Professor Sir John Beddington, aims to make a significant contribution to the efficiency, integrity and resilience of financial markets, by identifying options for policy makers in the UK and internationally.

The Foresight project will explore how computer generated trading in financial markets might evolve over the next decade or more, and how this will affect:

* Financial stability;
* Integrity of financial markets, including price information and liquidity;
* Competition;
* Market efficiency in allocating capital;
* Transaction costs on access to finance; and
* Future role and location of capital markets.

It will also assess options for addressing the challenges ahead, and consider how the opportunities offered by advancements in computer technologies could be capitalised upon by the financial sector.

Government Chief Scientific Adviser, Professor Sir John Beddington said:"It's essential to develop a better understanding of how computer trading in financial markets might evolve, in order to help protect the UK and other economies against technology-led economic instabilities."

"This timely and important investigation will have important findings not only for the UK economy but worldwide. I am delighted that the Financial Secretary to the Treasury Mark Hoban has agreed to be the sponsoring minister for this project and I look forward to working with him."

Financial Secretary to the Treasury Mark Hoban, MP said:"Computer automated trading has become central to the functioning of financial markets. This project will engage the world's leading experts to assess the future economic and regulatory consequences of the evolution of computer trading."

The project will appoint an international High Level Stakeholder Group to steer the overall direction of the project, which will be chaired by Mr Hoban.

The High Level Stakeholder Group will include senior representatives from important organisations in the public sector, the research community and business.

A group of leading experts will work with Foresight to guide the project and ensure its findings are of a high standard. A chair for this group will be appointed shortly. Current membership is as follows:

* Andy Haldane - Executive Director, Financial Stability, Bank of England
* Professor Charles Goodhart - London School of Economics
* Professor Oliver Linton - London School of Economics
* Kevin Houstoun - Chairman, Rapid Addition; Co-Chair, Global Technical Committee, FIX Protocol Limited
* Professor Philip Bond - University of Oxford and University of Bristol
* Professor Dave Cliff - University of Bristol