High-frequency trading (HFT) is estimated to account for 40 to 60 percent of average daily volume in the US equity markets. By any measure, HFT has become a mainstay of financial markets. There is widespread and growing debate over HFT, though much of this criticism is not new. However, after the brief 1,000-point drop in the US stock market on May 6, 2010, the growing role of high-frequency traders in the nation’s financial markets is drawing new scrutiny.
Quantitatively driven asset management firms are grappling with evolving regulatory expectations. To keep pace with advances in high-frequency trading, regulatory investigations are becoming more sophisticated. Now is the time for quantitatively driven asset managers to assess their operations, processes, and procedures to ensure that they have a governance and control environment that can prevent significant breaches of their fiduciary duty, as well as assure meaningful disclosure to investors and sound compliance practices.