High Frequency Trading Regulation - White Paper - Bank for International Settlements - High-frequency trading in the foreign exchange market, September 2011

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September 2011

The report presents the results of a fact-finding exercise conducted by a Study Group consisting of FX market experts from 14 BIS Markets Committee member central banks. It consists of the following six sections:

  • Section 1 describes the characteristics of HFT, how HFT features in the FX market landscape and its relationship with other market participants such as FX prime brokers and major FX dealing banks.
  • Section 2 discusses the effect of HFT on price discovery and liquidity.
  • Section 3 examines the behaviour of HFT in two recent episodes of volatile market conditions.
  • Section 4 highlights the key similarities and differences between HFT in FX and HFT in equities.
  • Section 5 discusses the current practices of self-regulation of HFT in FX.
  • Section 6 concludes with lessons learned in areas such as market functioning, systemic risks, market integrity and competition.

Among the findings in the paper:[1]

  • "HFT has had a marked impact on the functioning of the FX market in ways that could be seen as beneficial in normal times. HFT helps to distribute liquidity across the decentralised market, improving efficiency, and has narrowed spreads."
  • "The May 6, 2010 "flash crash" suggests that systemic risk is more likely to be triggers by a "rogue" algorithmic trade than by pure HFT, which tends to involve small-size trades, short horizons and diverse strategies."
  • "Many of the “predatory” or “unfair” practices attributed to HFT participants, in the light of their technology-driven ability to detect orders and take advantage of latencies, are in fact not new. HFT is but the latest high-tech, high-speed manifestation of them."
  • "One specific issue for the future of HFT in FX is the potentially differing treatments of electronic trading platforms as a result of the various ongoing regulatory reform initiatives."

The entire report, along with an executive summary, is embedded below.


  1. High-frequency trading in the foreign exchange market: new report from the Markets Committee. Bank for International Settlements. Retrieved on January 13, 2012.

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