UK government to take lead in challenges ahead for computer trading in financial markets

News - Latest

UK government to take lead in challenges ahead for computer trading in financial markets

The UK Government has announced that it is to explore the future challenges and opportunities of computer trading in financial markets.

The Government Office for Science launched 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.

It is estimated that today more than a 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, and the integrity of financial markets, including price information and liquidity.

It will also look at competition, market efficiency in allocating capital, transaction costs on access to finance and the future role and location of capital markets.

As part of its role it will 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.

‘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,’ said Beddington.

Financial Secretary to the Treasury Mark Hoban said that the project will engage the world’s leading experts to assess the future economic and regulatory consequences of the evolution of computer trading.

It 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 also 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 at the Bank of England, Professor Charles Goodhart and Professor Oliver Linton of the London School of Economics, Kevin Houstoun, chairman of Rapid Addition, and co-chair of the Global Technical Committee, Professor Philip Bond of the University of Oxford and Professor Dave Cliff of the University of Bristol.