IT and finance: now if we can sort out moral hazard we might be able to get ourselves an efficient financial system

Average size of equities trades plummets

A striking graph showing the effect of IT on finance – it’s becoming economic to parcel up financial bets into much smaller parcels. From the RBA’s Assessment of Clearing and Settlement Facilities in Australia (pdf).

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John B
John B
11 years ago

Are hyperfast trading facilities worth the pain?

If, once purchased, a security was locked in for a day or four, what would this do to the market? Would this still be fair? Would this friction be better or worse, given that disclosure of market-sensitive information cannot possibly be up to date to the microsecond? Possession of physical scrip, or at least notification that recording of the trade has been completed takes days, so in at least one sense, one cannot return to the market to offer to subsequent bidders the paper of which you lack possession.

One, somewhat formal part of me tugs towards the purist’s answer but deep down remains an ethical conundrum.

Regardless of the rights and wrongs of hyperfast trading, that is what is behind the trend reported by Nicholas Gruen.