Many experts believe that high-frequency trading creates an excessively high load on the financial market infrastructure. Auto trading systems can place multiple orders per second for each instrument, with only a small fraction of these orders resulting in trades. Thus, the exchange infrastructure is loaded, most of the time working idle. Also, automated trading systems are associated with the risks of software, hardware or human errors. For example, ATS played a significant role in the short-lived fall in the US stock market in 2010, when high-frequency liquidity providers abruptly halted operations. Then algorithmic and high-frequency trading became the subject of numerous proceedings initiated by the SEC and the CFTC. Another example is the so-called Knightmare on the New York Stock Exchange, which happened on August 1, 2012.
At that time, the updated algorithmic engine of Knight Capital Group, due to errors in the settings, placed buy orders for $3.5 billion in 45 minutes, and sell orders for $3.15 million. Due to incorrect actions of the software, the market for some assets moved more than on 10%. Knight Capital's net loss was $460 million. The next day, the company filed for bankruptcy. In 2012, the European Parliament discussed the introduction of significant restrictions or even a complete ban on high-frequency trading.
Despite many proposals in both the EU and the US, few countries have introduced legal restrictions on high-frequency trading. One of the first was Italy, which on September 2, 2013 introduced a tax directed against high-frequency traders. Thus, transactions lasting less than half a second were subject to a fee of 0.02%. At the same time, many researchers are convinced that automated trading improves market liquidity and reduces trading costs. ATS and manipulation Recently, the Wall Street Journal published an article stating that the cryptocurrency market is dominated by trading bots, which significantly affect pricing and trading volumes. At the same time, over time, the scale of the problem is growing, acquiring a global character.
In particular, unscrupulous automated trading techniques such as spoofing and fictitious transactions (wash trades) flourish in the cryptocurrency market. In the first case, the bot piles fake orders, creating the illusion of high market demand / supply, misleading traders. Wash trades implies a situation where the bot carries out buy/sell transactions with itself, creating the illusion of violent activity in the market, as well as artificially inflating trading volumes and asset prices. Both types of transactions are prohibited in traditional financial markets. For example, the New York Stock Exchange regularly monitors the correctness of trading transactions and punishes violators. Some ardent opponents of the regulation of the cryptocurrency market argue that there is nothing wrong with manipulation, and even openly support this kind of action. For example, trader Kjetil Eilersten believes that it makes no sense for regulators to ban market manipulation.
Instead, it is better to provide small traders with advanced tools to manipulate the market. According to Kjetil, this will somewhat equalize the opportunities of its various participants. “If everyone manipulates, then no one manipulates,” he notes. There are also bots, the purpose of which is the trading activity of large companies. So, the managing partner of the hedge fund Virgil Capital, Stefan Keen, noted that for some time his firm was given a lot of trouble by a certain “terrorist bot”, because of which Virgil suffered losses on transactions with Ethereum. As you know, the cryptocurrency market is not that big and liquid yet. This means that even one such bot can influence the whole market.
In addition, bots often play a key role in pump & dump schemes, encouraging crowds of inexperienced market participants to buy on high. Manipulations in the cryptocurrency market are increasingly in the field of view of regulators in various countries. So, last month, the New York State Attorney General's Office stated in its report on the susceptibility of bitcoin exchanges to market manipulation. The agency also sent data on several exchanges to regulatory organizations in connection with a possible violation of laws. .