On October 23, the Department for Business, Innovation and Skills published a report entitled ‘The Future of Computer Trading in Financial Markets – An International Perspective’.  The report is an analysis of the potential benefits and risks of algorithm driven high-frequency trading, with a discussion of regulatory priorities for the future.  The report finds that computer-based trading improves liquidity, reduces transaction costs and ensures that market prices are more efficient.  In addition, the report found no direct evidence that high-frequency trading has increased either market volatility or market abuse.

 However, the report did find that in specific circumstances, computer-based trading can lead to market instability and periodic illiquidity, and suggested that to address this policy-makers should consider the following priorities:

• Immediate evidence-based regulatory action at the European level to assess and introduce ways to manage the adverse side-effects of computer-based trading and incentivise accident-avoiding practices and behaviour.
• The implementation of accurate, high resolution, synchronised timestamps as a key means for assisting analysis of financial markets.
• The development of software for automated forensic analysis of adverse/extreme market events.