Seen as the death knell for traditional open outcry pits, HFT has been blamed for numerous glitches, pricing errors and "flash crashes" but this new study, released in November by the ECB, warned governments across the globe against curbing the operations without installing other measures to support market efficiency.
"Our research suggests, within the confines of our methodological approach, that HFT (high-frequency traders) provide a useful service to markets. They reduce the noise component of prices and acquire and trade on different types of information, making prices more efficient overall," U.S. academics Jonathan Brogaard, Terrence Hendershott and Ryan Riordan said in the publication.
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"HFTs facilitate price efficiency by trading in the direction of permanent price changes and in the opposite direction of transitory pricing errors, both on average and on the highest volatility days."
High-frequency trading uses software to post trades in microseconds. Since the 1980s computer automation has replaced human trading in most of the stock exchanges around the world. Even traders at the CBOE (Chicago Board of Options Exchange), famed for its brash, loud and colorful culture of open outcry and hand signals has seen a decline since the 1990s.